UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-KSB

 

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2007

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 333-76630

 

COMPETITIVE COMPANIES, INC.

(Exact name of small business issuer as specified in its charter)

 

 

 

Issuer’s telephone number: (951) 687-6100

 

Copies of Communications to:

Stoecklein Law Group

4695 MacArthur Court, 11^th Floor

(949) 798-5541

Fax (949) 258-5112

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001

 

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

 

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

 

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Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

 

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

 

The issuer’s revenues for its most recent fiscal year ended December 31, 2007. $884,999.

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and ask price of such common equity, as of March 24, 2008 was $1,147,215.54 based on a share value of $0.03.

 

The number of shares of Common Stock, $0.001 par value, outstanding on March 24, 2008 was 56,707,050 shares.

 

 

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COMPETITIVE COMPANIES, INC.

FOR THE YEAR ENDED

DECEMBER 31, 2007

 

Index to Report

on Form 10-KSB

 

 

 

PART II

 

 

PART III

 

 

 

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FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

 

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

 

 

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Factors That May Affect Our Results of Operation” in this document.

 

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In this form 10-KSB references to “CCI”, “the Company”, “we,” “us,” and “our” refer to COMPTETIVE COMPANIES, INC. and its wholly owned subsidiaries COMPETITIVE COMMUNICATIONS, INC. and CCI RESIDENTIAL SERVICES, INC.

 

AVAILABLE INFORMATION

 

We file annual, quarterly and special reports and other information with the SEC that can be inspected and copied at the public reference facility maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549-0405. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System which is publicly available through the SEC’s website (www.sec.gov). Copies of such materials may also be obtained by mail from the public reference section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549-0405 at prescribed rates.

 

PART I

 

 

(a) Business Development

 

Competitive Companies, Inc. (“CCI”) was formed in October 2001 to restructure a company formerly known as “Western Telephone and Television”, which had been in business since 1985 providing telephone systems and services to apartment complexes. CCI became the parent company of Competitive Communications, Inc., which provides local and long distance telephone service to retail users, and CCI Residential Services, Inc., which provides local, and long distance telephone service, Internet service and cable television service to apartment complexes in California, Alabama and Mississippi. The Company’s main office is located in Riverside, California.

 

On May 5, 2005, CCI merged with CA Networks, Inc. (“CAN”), which provided retail local and long distance telephone service and DSL Internet service in Kentucky. The company operated as “The Telephone Company” in Kentucky and provided retail service starting in November of 2004. According to the terms of the Merger Agreement and Plan of Reorganization we agreed to issue to the shareholders of CAN 40,599,999 shares of common stock of CCI in exchange for 40,599,999 shares of common stock of CAN. In the second quarter of 2006, we sold The Telephone Company to a company owned by Mr. Russ Preston, an affiliate of the Company and currently do not have operations within Kentucky.

 

For the years ended December 31, 2007 and 2006, we incurred net losses of $438,436 and $179,723, respectively. Our accumulated deficit at the end of December 31, 2007 was $2,770,971. These conditions raise substantial doubt about our ability to continue as a going concern over the next twelve months. See Note 2 to the accompanying financial statements for a discussion of management’s plans for the next twelve months.

 

 

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(b) Our Business

 

CCI is a Nevada publicly traded corporation and is essentially a holding company for its operating subsidiary, Competitive Communications, Inc. (“Competitive Communications”), which is an approved and regulated local and long distance telephone company in California and Mississippi, and CCI Residential Services Inc. (“CCI Residential”), which is a non-regulated telephone company providing local and long distance telephone service, high-speed Internet and cable television service to large apartment complexes in California, Alabama, and Mississippi.

 

CCI provides telecommunications services primarily to residents of apartment complexes, retail businesses and residential users, in primary and secondary metropolitan areas of California, Alabama, and Mississippi. CCI currently provide telephone service to approximately 739 customers at 7 apartment complexes and provide television service to approximately 590 customers at 3 properties. Additionally, CCI provides high-speed internet to 5 properties. It operates in both a regulated and non-regulated environment. Competitive Communications is regulated; CCI Residential is unregulated. The telecommunications products and services provided by the company and its subsidiary includes local telephone services, domestic and international long distance services, and enhanced voice, data and Internet services.

 

Principal Products and Services

 

CCI operates as a regulated Competitive Local Exchange Carriers (“CLEC”) and as an Interexchange Carrier (“IXC”), owning and operating Class 4 tandem switches and providing telephone service to residences, businesses, and Shared Tenant Services (“STS”) providers using a Hub Concept.

 

Under the Telecommunications Act of 1996, CCI’s regulated subsidiary, Competitive Communications, receives significantly discounted prices from the existing or traditional local phone companies and long distance carriers, thereby reducing their costs. As a regulated telecommunications provider, the company is required to negotiate agreements for resale services from the local exchange carriers, to file telephone rate tariffs with state public utilities commissions, and is subject to the state public utilities commission rules regarding telecommunications carriers. The company is currently approved as an operating telephone companies in California, and Mississippi and operates as an approved public utilities by each state’s Public Service Commissions. Competitive Communications has completed wholesale interconnect agreemen! ts with SBC, now known as “AT&T”, Verizon, BellSouth, and QWEST. These agreements allow us to purchase wholesale local and long distance telephone service and nationwide Internet service at discounted prices and resell those services at retail rates to businesses and residential users.

 

The subsidiary, CCI Residential, operates under shared tenant services provisions within each state and is a non-regulated company. As such, it is not required to file tariffs with state public utilities commissions and does not have to comply with commission rules regarding local exchange carriers, thus legally avoiding the more onerous rate filing requirements of the regulated subsidiaries and other regulated carriers. CCI Residential can sign individual

 

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agreements with property owners allowing for payments to the property owner a portion of the revenue the subsidiary receives from apartment complex residents on the owner’s property. As a shared tenant service provider, CCI Residential is required by each state’s public utilities commission to provide regulated carriers with equal access to the apartment complexes it services.

 

It is anticipated that the direct sales percentage of Competitive Communications will increase considerably in the future as residential and business customer bases are increased and as CCI moves away from hard-wired services as a reseller of local telephone carrier services to the voice, video and data services of wireless Internet and VoIP (Voice-over-Internet Protocol) services. This move will significantly reduce CCI’s costs for services that are now purchased from the incumbent local telephone companies.

 

Competitive Communications, Inc.  

 

This subsidiary offers the following services in most of their markets: local and long distance telephone services, toll-free or 800 service, and dedicated Internet and DSL services to business and non-apartment complex residential customers.

 

To offer these services, Competitive Communications must secure certification from a state regulator and typically must file rates or price lists for the services that it will offer. The certification process varies from state to state; however, the fundamental requirements are largely the same. State regulators require new entrants to demonstrate that they have secured adequate financial resources to establish and maintain good customer service. New entrants must show that they possess the knowledge and ability required to establish and operate a telecommunications network. CCI currently has all necessary agreements in place in California and Mississippi.

 

Services are sold as bundled or unbundled, depending on the customer’s preference. Presently, services are sold directly to business and residential customers. Competitive Communications also sells services to CCI Residential, which then sells these services to apartment residents under shared tenant services provisions. Presently, almost all of Competitive Communications’ sales are due to CCI Residential, and the small portion is from direct sales of telephone and Internet services to retail residential and business customers.

 

CCI Residential Services  

 

CCI Residential provides the following products and services: local and long distance services, high-speed Internet, cable television, and toll-free or 800 service in California, Alabama, and Mississippi.

 

To offer these services to apartment complex customers, CCI Residential must sign a contract with the apartment owner. These multi-year contracts normally range from 5 to 20 years. They provide for the apartment owner to share in a percentage of the revenue received from servicing the complex. The percentage received may vary from 0 percent to 11 percent, based on the total revenue received, the types of services provided, the term of the contract and

 

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other negotiated factors. If the complex is under construction, CCI Residential must plan for, have approved, and install underground cabling. If the complex is already built, it must survey the cabling needs and negotiate the use of the cable with the owner. It must secure state approval to conduct business in the state and establish service from Competitive Communications, if available, or if Competitive Communications is not yet certified, from the traditional local phone companies. CCI Residential markets to the MDU (multiple-dwelling units) market as it is able to provide bundled services in a cost effective manner.

 

Services sold by CCI Residential can be bundled or unbundled depending on the customer’s preference. Competitive Communications sells unbundled telephone, cable television, and Internet services to CCI Residential at or marginally above Competitive Communications’ cost. CCI Residential then sells these services to apartment complex customers at competitive market prices. By having all outside service agreements under Competitive Communications, it will be possible in the future to negotiate better terms and discounts based on the combined volume of the customer bases of Competitive Communications and CCI Residential.

 

When tenants move into an apartment complex serviced by CCI Residential, the leasing agent informs them that the complex has a private telephone service provider and a private cable television provider (in those locations where CCI provides the cable television service). Tenants must contact CCI Residential in order to activate their telephone and cable television service. Those tenants who prefer to receive service from the local telephone company instead may do so. However, their telephone line must be cross-connected from CCI Residential to the local telephone company. This may take the telephone company from a few days to two weeks to accomplish and will cost the tenant for the work. The telephone service for those tenants who select CCI Residential for their service, in most cases, will be activated while they are still on the line placing their orders. On average, mor! e than 30% of tenants decide to use CCI Residential telephone service when offered at the complex. Those who do not use the CCI Residential can select a local carrier, use their cell phones only, or choose not to have any telephone service. Over 70% of tenants use CCI Residential to provide cable television service at those complexes where CCI Residential offers the service. Those who do not use CCI Residential either use satellite television dishes for service or do not have television service at all. Approximately 20% of tenants use DSL Internet service provided by CCI Residential.

 

Of the total revenue generated by CCI Residential, approximately 50% is from telephone-related service, approximately 35% is from cable television service, and approximately 15% is from Internet service to tenants of apartment complexes serviced by the company. It is anticipated that the percentage of revenues from Internet services will increase in the future as the company plans to expand its Internet services to additional complexes and as the Company looks to utilize other methods to penetrate the under serviced rural markets. Additionally, the company intends to expand its (800) telephone services beyond that of its traditional apartment complexes.

 

As CCI Residential purchases its services from Competitive Communications, CCI Residential does not need or have the same connection services agreements required of Competitive Communications.

 

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Long Distance Services

 

The company offers a full range of domestic and international long distance services. These services include “1+” outbound calling and inbound toll free service.

 

Competitive Communications, Inc., has negotiated an agreement with QWEST Communications for volume discounts for long distance resale. Prior to signing with QWEST, the company had long distance service providers that were more expensive than QWEST and provided very poor service. Periodically the company reviews proposals from other long distance providers to ensure that it is receiving the best possible rates. Should better rates with comparable service be found, a request revision of the QWEST agreement would be requested or the more cost effective provider would be selected and transition made to the new provider.

 

The agreement with QWEST allows CCI to offer long distance telephone service in all 50 states.

 

Internet Services

 

Since May 2002 CCI has been installing and offering high-speed Internet service to selected apartment complex customers. It offers high-speed Internet access services via digital subscriber line, (DSL). After accepting bids from five other carriers, based on price and service quality, QWEST was selected as the carrier to provide the Internet service telephone lines at selected apartment complexes.

 

CCI began testing wireless Internet service in the summer of 2006. CCI hopes to offer VoIP service in the future, which would allow the company to offer complete local and long distance telephone service along with the Internet service. CCI had previously announced its intention to lease Intellant antennas from Waylinks, Inc., if and when, those became available for deployment. Waylinks, patented antennas are wire replacement antenna that have the capacity to transmit bandwidth at a very high speed, which will help reduce costs of the “The Last Mile”. The Last Mile or final delivery of services has in the past always been one of the most costly parts of the telecom industry. As of the time of this report, the Waylinks Intellant antennas are not in a stage to be marketed and sold to the general public.

 

In addition to the Waylinks antenna, CCI has begun to pursue additional outlets that would expand its internet services by acting as a distributor of high speed satellite antennas to rural areas of America that can not receive DSL or Cable internet services. CCI has established a relationship to distribute high speed internet through satellite technology with a company based in eastern Kentucky.

 

Voice-over-Internet Protocol

 

VoIP uses the traditional technology of sending data packets over the Internet to now transmit voice, through the compression of voice into data packets which are transmitted over data networks. Instead of establishing a specific connection between two devices and sending a message in “one piece”, VoIP separates the message into smaller fragments called packets.

 

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These packets are transmitted separately over a decentralized network and upon reaching its final destination, are reassembled into the original message.

 

CCI originally tested the VoIP services at its office in Riverside, California, and at various apartment complexes in California in 2006. Several different carriers and gateway devices were tested and CCI has decided on the carrier and equipment they planned to use in the future. However, the intention to launch VoIP to existing customers at a complex in San Ramon, California was abandoned because our supplier experienced too many difficulties with the equipment and implementation of the VoIP system requirements such as E911 services, conferencing, etc. Due to the carrier difficulties and the lack of funds to address these problems, we had to currently abandon our intention to convert all other existing customers to VoIP. Additional funds will be needed to upgrade and alleviate the difficulties previously experienced.

 

Competition and Market Overview

 

The telecommunications industry is highly competitive, rapidly evolving and subject to technology changes. Additionally, there are numerous telecommunications service companies that conduct extensive advertising campaigns to capture market share. CCI believes that the principal competitive factors affecting its business will be pricing levels and clear pricing policies, customer service, and to a lesser extent the variety of services offered. Its ability to compete effectively will depend upon its continued ability to maintain high-quality, market-driven services at prices generally equal to or below those charged by competitors. To maintain its competitive posture, CCI believes that it must be in a position to reduce its prices in order to meet reductions in rates, if any, by others. Any such reductions could reduce revenues. Many of CCI’s current and potential competit! ors have financial, personnel, and other resources, including brand name recognition as well as other competitive advantages.

 

CCI competes principally with traditional local phone companies serving an area, such as AT&T, BellSouth, and Verizon. While these types of providers have name recognition, CCI has the ability to offer lower pricing and bundled packages of services with one bill and one point of contact.

 

CCI has not achieved and does not expect to achieve a significant market share for any of its resale services. Recent regulatory initiatives allow newer local phone companies such as our subsidiary, Competitive Communications, to connect with traditional local phone company facilities. Although this provides increased business opportunities for CCI, such connection opportunities have been, and likely will continue to be, accompanied by increased pricing flexibility for and relaxation of regulatory oversight of the traditional local phone companies.

 

Traditional local phone companies have long-standing relationships with regulatory authorities at the federal and state levels. While recent FCC administrative decisions and initiatives provide for increased business opportunities to telecommunications providers such as CCI, they also provide the traditional local phone companies with increased pricing flexibility for their private line, special access and switched access services. However, wireless Internet and VoIP services are currently non-regulated and cost much less than the standard hardwire services offered by the local phone companies. Therefore, CCI will be able to move the majority of its

 

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business from the regulated arena and compete very competitively with the traditional companies.

 

Voice-over-Internet Protocol  

 

VoIP services first emerged in the mid 1990s but were not typically used for transmitting voice signals due to the potential for data packets to be delayed or lost, preventing a real-time transmission and possibly resulting in poor sound quality. Due to these glitches, VoIP did not receive a positive response early on and most consumers were not attracted to the idea of VoIP. However, as bandwidth increased and improvements in the packet technology occurred, the quality and reliability of VoIP were enhanced.

 

With new improvements, VoIP now allows a much higher volume of telecommunications traffic to flow at much higher speeds than do traditional circuits, while at a significantly lower cost. VoIP networks are less capital intensive to construct and much less expensive to maintain. VoIP networks are based on Internet protocol and therefore can interface with web-based services, such as virtual portals, interactive voice response, and unified messaging packages. A VoIP network utilizes intellectual property to transmit a call from its origination point to CCI’s servers. The ability to minimize the use of established telecommunication lines reduces the cost of transmitting telephone calls for CCI and ultimately the customer.

 

Today, VoIP is increasingly used by residential and business users and offered through a wide array of service providers. Vonage and Skype are the most advertised and well-known of these VoIP providers. However, with companies like Vonage, you must have your Internet service provided by another company in order to purchase VoIP from Vonage. Some other providers are long distance phone companies, cable companies, and Internet service providers. These types of providers differ in the type of networks used and the characteristics and features offered for VoIP communications services. However, we believe future competition could come from a variety of enterprises both in the Internet and telecommunications industry and the existing competitors are likely to continue to expand their service offerings.

 

Intellectual Property

 

CCI’s Hartline system enters, schedules, provisions, and tracks a customer’s order from the point of sale to the installation and testing of service. It also interfaces with trouble management, inventory, billing, collection and customer service systems.

 

For the apartment complex customers, the processes are automated. It is intended that most of the processes involved in switching the non-apartment complex customers to CCI networks will also be automated. The goal is to accelerate the time between customer order and service installation, reduce overhead costs, and provide exceptional customer service. To achieve this goal, CCI is continuing to develop and enhance its Hartline system to support the growth of its operations into the non-apartment complex markets.

 

 

 

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Governmental Approval and Regulation

 

CCI’s current telecommunications services business is subject to state and local regulation. Traditionally, telephone services have been subject to extensive state regulation, while Internet services have been subject to much less regulation. VoIP has elements that resemble traditional telephone companies as well as those that resemble the Internet. Therefore, VoIP did not fit into either existing framework of regulation and until recently operated in an environment that was largely free of regulation.

 

However, the Federal Communications Commission (“FCC”), U.S. Congress, and various state regulatory bodies have begun to assert regulatory authority over VoIP providers and on a continuous basis are evaluating how VoIP will be regulated in the future. Some of the existing regulations for VoIP are applicable to the entire industry, while other rulings are limited to specific companies and/or categories of service. At this point in time, the application of rules to CCI and its competitors is speculative.

 

Federal Regulation

 

The FCC has authority to regulate and implement provisions of the Telecommunications Act of 1996. One of the provisions enacted by the FCC was the Universal Service Order, which requires telecommunications carriers providing interstate telecommunications services to periodically contribute to universal service support programs administered by the FCC. The periodic contribution requirements to the Universal Service Funds are currently assessed based on a percentage of each contributor’s interstate end user telecommunications revenues reported to the FCC. The contribution rate factors are determined quarterly and carriers are billed for their contribution requirements each month based on projected interstate and international end-user telecommunications revenues, subject to periodic reconciliation. We pass through these contributions as a part of our services.

 

The FCC is considering several proposals that would fundamentally alter the basis upon which the Universal Service Fund contributions are determined and the means by which contributions can be recovered from customers. This may impact our services fees and the ability to recoup these contributions from our customers.

 

State Regulation

 

State regulatory agencies have jurisdiction when facilities and services are used to provide intrastate services. A portion of CCI’s current traffic may be classified as intrastate and therefore subject to state regulation. CCI expects to offer more intrastate services as its business and product lines expand and state regulations are modified to allow increased local services competition. For other than shared tenant services, in order to provide intrastate services, CCI generally must obtain a certificate of public convenience and necessity from the state regulatory agency and comply with state requirements for telecommunications utilities, including state rate requirements.

 

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State agencies require that CCI file periodic reports, pay various fees and assessments, and comply with rules governing quality of service, consumer protection, and similar issues. Although the specific requirements vary from state to state, they tend to be more detailed than the FCC’s regulation because of the strong public interest in the quality of basic local exchange service. CCI will comply with all applicable state regulations, and as a general matter does not expect that these requirements of industry-wide applicability will harm the business. However, new regulatory burdens in a particular state may affect the profitability of services in that state.

 

Local Regulation

 

CCI’s networks are subject to numerous local regulations such as building codes and licensing. Such regulations vary on a city-by-city and county-by-county basis. If CCI decides in the future to install its own fiber optic transmission facilities, it will need to obtain rights-of-way to publicly owned land. Since CCI is an approved public utility, such rights-of-way may be available to the company on economically reasonable or advantageous terms.

 

VoIP Regulations

 

On February 12, 2004, the FCC initiated a rulemaking proceeding concerning the provision of voice and other services and applications utilizing Internet Protocol technology. As part of this proceeding, the FCC is considering whether VoIP services should be classified as information services or telecommunications services. If the FCC determines VoIP services to be telecommunications services, then VoIP service will be subject to rules and regulations that apply to traditional telephone services and that are already applicable to CCI due to its other services. On November 9, 2004, the FCC issued an order in response to a petition from Vonage declaring that Vonage-style VoIP services were exempt from state telecommunications regulations. The FCC order does apply to all VoIP offerings provided over broadband services; however, FCC has not drawn distinctions among different types ! of VoIP providers and has concluded some providers to be telecommunications services and others to be information services.

 

On June 3, 2005, the FCC released an order and notice of proposed rulemaking concerning VoIP emergency services. The order set forth two primary requirements for providers of VoIP services that provide service by sending or receiving calls to or from users on the public switched telephone network. First, the order requires notification to customers of the difference between the emergency services available through this VoIP service and those available through traditional telephone providers. Second, the order requires enhanced emergency dialing capabilities or the dedication of wireline E-911 network to transmit customers’ 911 calls, callback number and customer provided location information to the emergency authority serving the customers’ specified location.

 

Personnel  

 

As of December 31, 2007, we had 4 full-time staff of which 1 is management, 1 is technical and 2 are administrative. In the event we are able to achieve capital funding and growth, we may experience a significant change in the number of full time employees over the

 

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next 12 months.  We intend to use the services of independent consultants and contractors to perform various professional services. We believe that this use of third-party service providers may enhance our ability to contain general and administrative expenses. Currently, there are no organized labor agreements or union agreements between us and our employees. We believe that our relations with our employees are good.

 

 

Our corporate headquarters are in Riverside, California, where we lease approximately 2,134 square feet of office and warehouse space for approximately $2,460 per month. The lease is for 5 years and expires in December 2011. Pursuant to the lease we have minimal annual rental increase for the duration of the five years, culminating at $2,945 for the last year of the lease.

 

We do not intend to renovate, improve, or develop properties. We are not subject to competitive conditions for property and currently have no property to insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.

 

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.

 

 

We did not submit any matters to a vote of our security holders during the fiscal year ended December 31, 2007.

 

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

 

(a) Market Information

 

CCI’s Common Stock was approved for trading on the Financial Industry Regulatory Authority’s Over-the-Counter Bulletin Board market (OTC:BB) under the symbol CCOP on March 8, 2006. Our common stock has traded infrequently on the OTC:BB, which severely limits our ability to locate accurate high and low bid prices for each quarter within the last two fiscal years. Therefore, the following table lists the quotations for the high and low bid prices as reported by a Quarterly Trade and Quote Summary Report of the OTC Bulletin Board from being quoted as of March 8, 2006 through December 31, 2007. The quotations from the OTC

 

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

 

 

(b) Holders of Common Stock

 

As of March 24, 2008, there were approximately 396 holders of record of CCI’s 56,707,050 outstanding shares of common stock.

 

Preferred stock

 

We are authorized to issue 10,000,000 shares of preferred stock. In past filings and as discussed below, we had disclosed the various classes of our preferred stock and what was understood to be the conversion characteristics of those classes. The following disclosure is the proposed terms to convert the preferred stock, if and when, the board determines it is in the best interest of the Company to do so.

 

Class A convertible preferred stock

 

In December 1999, we issued 4,000,000 shares of Class A convertible preferred stock to various founding stockholders and management. These 4,000,000 shares were convertible into 20,000,000 shares of common stock. Upon the merger with CAN, we repurchased all 4,000,000 shares of Class A preferred stock for a total of $40,000 from the founding stockholders and management and subsequently cancelled these shares. No preferred shares were converted into shares of our common stock.

 

Class B convertible preferred stock

 

We currently have 1,495,436 shares of Class B convertible preferred stock issued and outstanding, which can be converted into shares of our common stock.

 

Class C convertible preferred stock

 

We currently have 1,000,000 shares of Class C convertible preferred stock issued and outstanding, which can be converted into shares of our common stock. All of the shares are held by one stockholder.

 

 

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c) Dividends

 

We have never declared or paid dividends on our Common Stock. We intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be at the sole discretion of the Board of Directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.

 

(d) Securities Authorized for Issuance under Equity Compensation Plans

 

We currently maintain a stock incentive plan in which common stock may be granted to employees, directors and consultants. During the year ended December 31, 2005, we cancelled 3,435,000 options which were previously outstanding as of December 31, 2004 and adopted our 2005 Stock Option Plan, whereby we then reissued 3,435,000 options plus an additional 3,237,000 options. All of the options, totaling 6,672,000, vest immediately with an exercise price of $0.10 per share and are exercisable through December 15, 2015. The stock option plan was adopted by our board of directors and has not been approved by our stockholders. The following table sets forth information as of December 31, 2007 regarding outstanding options granted under the plan and options reserved for future grant under the plan.

 

 

Under CCI’s Employee Stock Incentive Plan, adopted on December 2, 2005, an aggregate of 10,000,000 shares of common stock are reserved for issuance. This plan is intended to encourage directors, officers, employees and consultants to acquire ownership of CCI’s common stock. The opportunity is intended to foster in participants a strong incentive to put forth maximum effort for the Company’s continued success and growth, to aid in retaining

 

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individuals who put forth such effort, and to assist in attracting the best available individuals to CCI in the future. As of December 31, 2007, 3,328,000 shares remain available for issuance under this stock option plan.

 

Recent Sales of Unregistered Securities

 

There were no new issuances of our common stock during the quarter ended December 31, 2007.

 

During the year ended December 31, 2007, the Company did sell a total of 4,030,000 shares to approximately 23 accredited investors for approximate proceeds of $403,000. Of those shares sold, 140,000 shares still remain unissued as of the date of this report.

 

We believe that the sale of the shares described above was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Sections 4(2), and/or Regulation D, Rule 506. The shares were sold directly by us to accredited investors and did not involve a public offering or general solicitation. The purchasers of the shares were afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the purchasers, immediately prior to selling the shares, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The purchasers had the opportunity to speak with our management on sever! al occasions prior to their investment decision.

 

Recent Issuances of Securities Registered Pursuant to Form S-8

 

The following lists shows the shares issued from a Registration Statement on Form S-8 filed on December 27, 2007.

 

 

 

OVERVIEW AND OUTLOOK

 

CCI is a Nevada corporation that acts as a holding company for its operating subsidiaries, Competitive Communications, Inc. (“Competitive Communications”), which is an approved and regulated local and long distance telephone company, and CCI Residential Services Inc. (“CCI Residential”), which is a non-regulated telephone company providing local and long distance telephone service, high-speed Internet and cable television service to large apartment complexes. CCI, Competitive Communications and CCI Residential (collectively referred to as the “Company”) provide telephone, cable television, long distance/inter - exchange, and dial up and high-speed Internet connections and e-mail services, mainly to customers who live in multi-tenant residential buildings. The Company’s operations are located in Riverside, California and

 

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substantially all of its customers are California residents with a smaller percentage residing in Alabama and Mississippi.

 

On May 5, 2005, the Company merged with CA Networks, Inc. (“CAN”), which was a development stage enterprise in the process of developing a business model in the same industry as CCI. CAN was formed under the laws of the state of Wyoming on January 14, 2004 and provided retail local and long distance telephone service and DSL Internet service in Kentucky. The combined companies maintained the name of CCI. As of June 30, 2006, we no longer have operations within Kentucky and have focused on continuing its operations of providing telecommunications services to California, Alabama, and Mississippi.

 

CURRENT OPERATIONS

 

The telecommunications products and services provided by the company and its subsidiaries include local telephone services, domestic and international long distance services, and enhanced voice, data and Internet services, and Cable TV service primarily to residents of apartment complexes, retail businesses and residential users. We operate in both a regulated and non-regulated environment. It is our intention in the future to provide bundled services to our customers as well as expand to customers beyond apartment complexes by providing VoIP services. However, as of the date of this filing we have not been able to implement these services partly due to a lack of financing.

 

Results of Operations for the Years Ended December 31, 2007 and 2006.

 

The following tables summarize selected items from the statement of operations for the years ended December 31, 2007 compared to December 31, 2006.

 

INCOME:

 

Revenues

 

Revenues for the year ended December 31, 2007 was $884,999 compared to revenues of $1,013,817 for the year ended December 31, 2006. This resulted in a decrease in revenues of $128,818, or 13%, when compared to one year ago. The main reason for a decrease in revenues when compared to the year ended December 31, 2006 was due to having an additional revenue

 

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stream from Kentucky during the first two quarters of 2006. Although we eliminated some sources of revenue, we felt it was necessary to better manage our operations and have been obtained new customers while maintaining a continuous focus on our core business.

 

Cost of sales

 

Cost of sales for the year ended December 31, 2007 was $453,129, a decrease of $350,335, or 44%, from $803,464 for the year ended December 31, 2006. The decrease in 2007 was attributed to eliminating underutilized circuits. Additionally, we have made continued efforts and the decision to continually manage and reduce costs, where applicable. Additionally, we no longer have costs associated with our previous Kentucky operations, which had been previously experienced during the 2006 year.

 

Gross profit

 

Gross profit as a percentage of revenue increased from 21% for the year ended December 31, 2006 to 49% for the year ended December 31, 2007. Although our top line of revenues decreased, our gross profit increased as a result of better managing our cost of sales.

 

EXPENSES:

 

 

General and Administrative expenses

 

General and administrative expenses were $424,609 for the year ended December 31, 2007 versus $268,150 for the year ended December 31, 2006, which resulted in an increase of $156,459 or 58%. The increase was due primarily because of an increase in the Company’s advertising and promotional efforts.

 

 

 

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Salaries and Wages

 

Salary and wage expenses were $357,553 for the year ended December 31, 2007 versus $351,598 of salary and wage expenses for the year ended December 31, 2006. We increased management’s salaries during the last quarter of 2006 and those have carried forward through 2007, which resulted in only a 5% increase for the year ended December 31, 2007. We expect that we may need to increase our personnel in the future if we expand our operations, if and when we prepare for entry into the VoIP field.

 

Consulting Fees

 

Consulting fees were $12,012 for the year ended December 31, 2007 compared to $37,500 consulting fees for the year ended December 31, 2006. The majority of our consulting fees during the 2007 year related to our agreement with Mr. Tomberlin, which has since ceased.

 

Depreciation

 

Depreciation expenses were $33,392 for the year ended December 31, 2007 versus $31,579 for the year ended December 31, 2006. This resulted in a minimal increase of 6% when compared to the year ended December 31, 2006. During 2007 we acquired some additional assets which accounts for the additional depreciation expenses.

 

Bad Debt

 

Bad debt expenses for the year ended December 31, 2007 were $39,814 as compared to $14,712 for the same period in 2006, which resulted in an increase of $25,102. During the 2007 year, we increased the additional allowance to cover the increased number of accounts that have been sent to a third party collection agency for further collection efforts.

 

Net Operating (Loss)

 

The net operating loss for the year ended December 31, 2007 was $435,510, versus a net operating loss of $493,186 for the year ended December 31, 2006. We were able to reduce our net loss by 12%. This decrease in net loss is primarily attributable to the reduction in our consulting expenses and the large increase in gross profit.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following table summarizes total current assets, liabilities and working capital at December 31, 2007 compared to December 31, 2006.

 

 

 

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While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development. As of December 31, 2007, we had current assets of $95,894 and current liabilities of $205,653, which resulted in a working capital deficit of $109,759. Our poor financial condition raises substantial doubt about our ability to continue as a going concern and we have incurred losses since inception and may incur future losses.

 

Our future capital requirements will depend on many factors, including the expansion of our VoIP services; actual usage of Waylinks’ antennas; additional marketing of the (800) services; the cost and availability of third-party financing for development; addition of new revenue sources; and administrative and legal expenses. We have conducted private placements of equity shares at $0.10 per share during the fiscal 2007 year. As of December 31, 2007, we have sold approximately 4,030,000 shares and had raised a total of $403,000 in cash pursuant to this private placement. Also during the 2007 year, we entered into an unsecured notes payable with an officer totaling $25,000. The note bears an annual interest rate of 18% and are payable upon demand. However, should we not be able to continue to secure additional financing when needed, we may be required to slow down or susp! end our growth or reduce the scope of our current operations, any of which would have a material adverse effect on our business.

 

We anticipate that we will incur operating losses in the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model; recognition of additional revenue sources; and the management of growth. To address these risks, we must, among other things, expand our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

 

Going Concern

 

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $2,770,971 and a working capital deficit of $109,759 at December 31, 2007, and have reported negative cash flows from operations over the last four years. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months, and we expect to have

 

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ongoing requirements for capital investment to implement our business plan. Finally, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which we operate.

 

Since inception, our operations have primarily been funded through private equity financing, and we expect to continue to seek additional funding through private or public equity and debt financing.

 

Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Application of Critical Accounting Policies and Pronouncements

 

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.

 

Recent Issued Accounting Pronouncements

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows the company to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 is not expected to have a material impact on the Company’s financial position, results of operation or cash flows.

 

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the de-consolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is equity in

 

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the consolidated financial statements. SFAS No. 160 is effective for fiscal years and interim periods beginning after December 15, 2008. The adoption of SFAS 160 is not expected to have a material impact on the Company’s financial position, results of operation or cash flows.

 

In December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”. SFAS 141 (Revised) establishes principals and requirements for how an acquirer of a business recognizes and measures in its financial statements, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. This statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008.

 

FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS

 

Risks Relating with Our Business and Marketplace  

 

We have incurred losses since inception and expect to incur losses for the foreseeable future. In addition, our poor financial condition raises substantial doubt about our ability to continue as a going concern.

 

Our net operating losses for the year ended December 31, 2007 totaled $438,436. As of December 31, 2007, we only had $3,909 in cash available to finance our operations and a working capital deficit of $109,759. Capital requirements have been and will continue to be significant, and our cash requirements have exceeded cash flow from operations since inception. We are in need of additional capital to continue our operations and have been dependent on the proceeds of private placements of securities and recent loans to from an officer to satisfy working capital requirements. We will continue to be dependent upon the proceeds of future offerings or public offerings to fund development of products, short-term working capital requirements, marketing activities and to continue implementing the current business strat! egy. There can be no assurance that we will be able to raise the necessary capital to continue operations.

 

Our ability to continue as a going concern is dependent on our ability to raise funds to finance ongoing operations; however we may not be able to raise sufficient funds to do so. Our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern over the next twelve months. Because of these factors, an investor cannot determine if and when we will become profitable and therefore runs the risk of losing their investment.

 

Without realization of additional capital, it would be unlikely for us to continue as a going concern.

 

As a result of our deficiency in working capital at December 31, 2007 and other factors, our auditors have included an explanatory paragraph in their audit report regarding substantial doubt about our ability to continue as a going concern. The financial statements do not include

 

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any adjustments as a result of this uncertainty. The going concern qualification may adversely impact our ability to raise the capital necessary for the continuation of operations.

 

If we are unable to obtain additional funding, our business operations will be harmed and if we do obtain additional financing our then existing stockholders may suffer substantial dilution.

 

We will require additional funds to expand our operations. We anticipate that we will require up to approximately $400,000 to fund our continued operations for the next twelve months, depending on revenue from operations. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Any additional equity financing may involve substantial dilution to ! our then existing stockholders.

 

We may not be able to provide our products and services if we do not connect or continue to connect with the traditional carriers, our primary competitors.

 

As a competitive carrier, we must coordinate with traditional carriers so that we can provide local service to customers on a timely and competitive basis. The Telecommunications Act created incentives for regional Bell operating companies to cooperate with competitive carriers and permit access to their facilities by denying such companies the ability to provide in-region long distance services until they have satisfied statutory conditions designed to open their local markets to competition. The regional Bell operating companies in our markets are not yet permitted by the FCC to offer long distance services. These companies may not be accommodating once they are permitted to offer long distance service. Currently Verizon is permitted to offer both local and long distance service in some our mutual service areas, but we have not yet noticed any impact on our markets.

 

Many competitive carriers, including us, have experienced difficulties in working with traditional carriers with respect to initiating, connecting, and implementing the systems used by these competitive carriers to order and receive network elements and wholesale services and locating equipment in the offices of the traditional carriers.

 

If we cannot obtain the cooperation of a regional Bell operating company in a region, whether or not we have been authorized to offer long distance service, our ability to offer local services in such region on a timely and cost-effective basis will be harmed.

 

Our limited resources may prevent us from retaining key employees or inhibit our ability to hire and train a sufficient number of qualified management, professional, technical and regulatory personnel.

 

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Our success may also depend on our ability to attract and retain other qualified management and personnel familiar in telecommunications industry. Currently, we have a limited number of personnel that are required to perform various roles and duties as a result of our limited financial resources. We intend to use the services of independent consultants and contractors to perform various professional services, when appropriate to help conserve our capital. However, if and when we determine to acquire additional personnel, we will compete for such persons with other companies and other organizations, some of which have substantially greater capital resources than we do. We cannot give you any assurance that we will be successful in recruiting or retaining personnel of the requisite caliber or in adequate numbers to enable us to conduct our business.

 

Competition from companies with already established marketing links and brand recognition to our potential customers may adversely affect our ability to introduce and market our products.

 

The telecommunications industry is highly competitive. Many of our current and potential competitors have financial, personnel and other resources, including brand name recognition, substantially greater than ours, as well as other competitive advantages over us. Certain competitors may be able to secure product from vendors on more favorable terms, devote greater resources to marketing and promotional campaigns, and adopt more aggressive pricing than we will. There can be no assurance we will be able to compete successfully against these competitors, which ultimately may have a materially adverse effect on our business, results of operations, financial condition and potential products in the future.

 

Risks Factors Relating to our Common Stock  

 

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

 

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission. Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period then we will be ineligible for quotation on the OTC Bulletin Board. We have had one late filing and have once been removed from the OTC Bulletin Board in the last year. Therefore, we must not ha! ve two more late filings within the two year period or have our securities removed from the OTC Bulletin Board again, within the two year period, otherwise we will be in jeopardy of being dequoted from the OTC Bulletin Board for a one year period. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

 

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Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Competitive Companies; (ii) provide reasonable assurance that transactions are recorded as necessary to p! ermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Competitive Companies are being made only in accordance with authorizations of management and directors of Competitive Companies, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Competitive Companies’ assets that could have a material effect on the financial statements.

 

We have a limited number of personnel that are required to perform various roles and duties. Furthermore, we have one individual, our CEO, who is responsible for monitoring and ensuring compliance with our internal control procedures. As a result, our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.

 

Because our common stock is deemed a low-priced “Penny” Stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

 

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment of our common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

 

 

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Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

 

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an ! adverse effect on the market for our shares.

 

 

See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-16 of this Form 10-KSB.

 

 

CCI has not had any changes or disagreements with its independent auditors on accounting or financial disclosures.

 

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Principal Financial Officer, Mr. Jerald Woods, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report. Based on the evaluation, Mr. Woods concluded that our disclosure controls and procedures are not effective, for the reasons discussed below, in timely alerting him to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting and for the assessment of the effectiveness of internal control over

 

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financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of the financial statements in accordance with generally accepted accounting principles.

 

Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements and the receipts and expenditures of company assets are made in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

 

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of a change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In connection with the preparation of our annual financial statement, our management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007, based on the criteria set forth in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon the evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2007. Our principal executive officer and principal financial officer concluded that we have material weaknesses in our internal control over financial reporting because we do not have an independent board of directors or audit committee or adequate segregation of duties. All of our financial reporting is carried out by our financial consultant. We do not have an indepe! ndent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company. We plan to rectify these weaknesses by implementing an independent board of directors and hiring of additional accounting personnel once we have additional resources to do so.

 

The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosures, nor does management believe that it had any effect on the accuracy of our financial statements for the current reporting period.

 

This annual report does not include an attestation report of the company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s independent registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

 

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Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.

 

 

On March 31, 2008, Mr. Henri Hornby, our former CEO, was appointed to our Board of Directors.

 

PART III

 

 

The members of the Board of Directors of the Company will serve until the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors. Officers are elected by the Board and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board. Information as to the directors and executive officers of the Company is as follows:

 

 

Jerald Woods currently serves as the Chief Executive Officer upon Mr. Hornby’s resignation in November 2007. Prior to becoming the CEO, Mr. Woods was the Vice President and Director of CA Networks, Inc. and subsequent to the merger of CCI and CA Networks, Inc. he had remained in those positions. Prior to the merger, Mr. Woods served as a telecommunications consultant for Competitive Companies. Additionally, Mr. Woods has been a director of CCI since 1998. From 1994 to 2000 he was an Officer and Director of APMSAFE.COM (American Privacy Management, Inc.), a private company engaged in the computer encryption business. From 1988 to 1994, he was Chairman and Director for American

 

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Digital Communications, Inc. From 1984 to 1989, he hosted and produced “Breakthroughs in Technology,” an investment program specializing in high technology companies. He currently is President of JLW Communications Services. Mr. Woods has served as a director for several private companies as well as owning his own investment banking and advertising companies.

 

Zachary Bluestein was appointed as CCI’s Chief Technical Officer subsequent to the year ended December 31, 2007. Mr. Bluestein’s immediate task is to implement a marketing program and establish an internet presence to promote the Company and advance product sales. Prior to joining the Company, he worked as the general manager at Fergies Classic Grill from 2003 to 2008. Additionally, Mr. Bluestein has been the President of Bluezonics.com since 2007. Mr. Bluestein received a Financial Services, Business Administration and Computer Applications Certifications from the Meade Business Program. Mr. Bluestein also received a Graphic Arts Certification from Sandy Creek Business Program.

 

David Hewitt has been a Director since December 2001 and became a director as a result of the merger with Huntington Telecommunications Partners. Prior to joining the Company through the merger with Huntington Telecommunications, Inc., he was the Co-Founder and President of Huntington Partners, Inc., which was a development and investment company providing capital and management for real estate and business venture investments as well as an affiliate to the general partner of Huntington Telecommunicaitons. Currently, Mr. Hewitt is the Managing Member of Southwind Realty Group, LLC, which focuses on the acquisition and redevelopment of infill residential properties in Southern California. From 1999 to 2005, Mr. Hewitt was a founder, Chairman, and a Director of Silverwood Investments, LLC, a real estate investment company focused on apartment pro! perty development throughout California. From 1989 to 1992, he was Co-Founder and Managing Director of Trilateral Company, a real estate firm. He has an MBA with Distinction from Amos Tuck School of Business Administration at Dartmouth College and a BA from University of Rochester.

 

Henri Hornby served as CCI’s Chief Executive Officer, Secretary, Treasurer, Principal Financial Officer and Director from March 28, 2006 to November 12, 2007. Subsequent to the year ended December 31, 2007, CCI re-appointed Mr. Hornby to the Board of Directors. Mr. Hornby was the Secretary, Treasurer, C.F.O, Chairman and Director of CA Networks, Inc. from its inception and prior to the merger with CCI. Subsequent to the merger, Mr. Hornby remained a part of CCI as the Secretary, Treasurer, and Director. From 1995 to 2004, he served as Chairman and president of Adven, Inc., a publicly-trade company on the Over-the-Counter Bulletin Board, which was engaged in the environmental clean-up business. In early 2004, Adven commenced an acquisition of properties in the mining sector and changes its name to Great West Gold, Inc.

 

Limitation of Liability of Directors

 

Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and

 

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does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.

 

Election of Directors and Officers

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.

 

No Executive Officer or Director of the Corporation has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.

 

No Executive Officer or Director of the Corporation has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.

 

No current Executive Officer or Director of the Corporation is the subject of any pending legal proceedings.

 

Director Independence

 

The Board of Directors has analyzed the independence of each director and has concluded that Mr. Hewitt is considered an independent director in accordance with the director independence standards of the American Stock Exchange, and has determined that he has not had a material relationship with CCI that would impair his independence from management.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. During the preparation of this Form 10-KSB, we learned that the reports required by Section 16(a) were not filed in connection with the securities issuances to our officers and directors during fiscal 2007. Therefore, not all of our current officers and directors have filed their respective 16(a) reports.

 

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Audit Committee

 

We do not have an Audit Committee, our board of directors during 2007 performed some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors’ independence, the financial statements and their audit report; and reviewing management’s administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.

 

Code of Ethics

 

A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:

 

 

On December 18, 2005, we adopted a written code of ethics that governs all of our officers, and more specifically our principal executive officer, principal financial officer and principal accounting officer directors, employees and contractors. The code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote the above mentioned objectives. Anyone can obtain a copy of the Code of Ethics by contacting the Company. The Company will post any amendments to the Code of Ethics, as well as any waivers that are required to be disclosed by the rules of either the Securities and Exchange Commission of the National Association of Dealers.

 

Nominating Committee

 

We do not have a Nominating Committee or Nominating Committee Charter. Our board of directors performed some of the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee at this time, however, our Board of Directors intends to continually evaluate the need for a Nominating Committee.

 

ITEM 10. EXECUTIVE COMPENSATION

 

The following table sets forth for fiscal 2007 the compensation, in compliance with the reporting requirements of the SEC, for our Principal Executive Officer and for each of our two most highly compensated executives other than our Principal Executive Officer during fiscal 2007.

 

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Compensation Committee

 

We currently not have a compensation committee of the board of directors. Until a formal committee is established, our entire board of directors will review all forms of compensation provided to our executive officers, directors, consultants and employees including stock compensation and loans.

 

Employment Agreements

 

We have no written employment agreements with our officers; however, during the 2007 year we had understandings in place regarding Mr. Hornby and Ms. Gordon for their compensation. Starting in February 2007 through July 2007, Mr. Hornby was compensated approximately $8,000 per month. Upon Ms. Gordon joining CCI in 2006 we agreed to compensate her at a rate of $4,000 per month. In October 2006, the Board of Directors authorized an increase for Ms. Gordon and she was to receive a total of $8,000 a month in compensation, which she began receiving in November 2006 until her termination in July 2007. In addition to the monthly compensation, Ms. Gordon received an additional $3,692 at the time of termination for her unused vacation time.

 

Termination of Employment

 

There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person associated with the Company which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person’s employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person’s responsibilities following a change in control of the Company.

 

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Equity Awards

 

During the year ended December 31, 2007, we did not grant any equity awards to our officers and/or directors.

 

Director Compensation

 

As a result of having limited resources during most of 2007, we did not provide compensation to our board of directors.

 

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

 

The following table presents information, to the best of CCI’s knowledge, about the beneficial ownership of its common stock on March 24, 2008, held by those persons known to beneficially own more than 5% of its capital stock and by its directors and executive officers. The percentage of beneficial ownership for the following table is based on 56,707,050 shares of common stock outstanding as of March 24, 2008.

 

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the shareholder has sole or shared voting or investment power. It also includes (unless footnoted) shares of common stock that the shareholder has a right to acquire within 60 days after March 24, 2008 through the exercise of any option, warrant or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.

 

Security Ownership of Management and Directors

 

 

 

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of any date, to have “beneficial ownership” of any security that such person has the right to acquire within 60 days after such date. Address for the persons listed in the table is care of the Company.

 

 

CCI’s current Chief Executive Officer, Mr. Woods, loaned the Company $25,000 during 2007 and the Company has outstanding notes payable with him. The notes accrue interest at a rate of 18% per annum and are payable upon demand. The Company recorded interest expense to Mr. Woods in the amount of $863 for the year ended December 31, 2007.

 

 

 

 

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(1) AUDIT FEES

The aggregate fees billed for professional services rendered by Lawrence Scharfman & Co., CPA, P.C. for the audit of our 2007 and 2006 annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for 2007 and 2006 were $30,000 and $15,000, respectively.

(2) AUDIT-RELATED FEES

NONE

(3) TAX FEES

NONE

(4) ALL OTHER FEES

NONE

(5) AUDIT COMMITTEE POLICIES AND PROCEDURES

We do not have an audit committee.

(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.

Not applicable.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.

 

COMPETITIVE COMPANIES, INC.

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

 

 

 

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COMPETITIVE COMPANIES, INC.

Index To Consolidated Financial Statements

 

 

 

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Lawrence Scharfman & Co., CPA P.C.

Certified Public Accountants

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We have audited the accompanying consolidated balance sheets of Competitive Companies, Inc. as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits of the financial statements include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Competitive Companies, Inc. as of December 31, 2007 and 2006, and the results of its operations, stockholders’ equity and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that Competitive Companies, Inc. will continue as a going concern. As discussed in Note 2 to the financial statements, Competitive Companies, Inc. suffered recurring losses from operations and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Lawrence Scharfman

Lawrence Scharfman, CPA

Boynton Beach Florida

March 31, 2008

 

- LICENSED IN FLORIDA & NEW YORK -

 

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The accompanying notes are an integral part of these financial statements

 

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The accompanying notes are an integral part of these financial statements

 

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The accompanying notes are an integral part of these financial statements

 

F-4

 

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The accompanying notes are an integral part of these financial statements

 

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Competitive Companies, Inc.

Notes to Consolidated Financial Statements

 

Note 1 – Summary of Accounting Policies

 

Competitive Companies, Inc. ("Competitive") was originally incorporated under the laws of the state of Nevada in March 1998, and shortly thereafter acquired all of the assets and assumed all of the liabilities of Competitive Communications, Inc. ("CCI"), which was incorporated under the laws of the state of California in February 1996. In January 2000, CCI Residential Services, Inc. ("CCIR") was formed. This entity, which is also a wholly owned subsidiary of Competitive was formed to expand on the residential services currently being provided by CCI, while CCI focused on developing revenue streams from other services.

 

Competitive, CCI and CCIR (collectively referred to as the "Company") provide telephone, cable television, long distance/inter - exchange, and dial up and high-speed Internet connections and e-mail services, mainly to customers who live in multi-tenant residential buildings. The Company's operations are located in Riverside, California and substantially all of its customers are California residents.

 

On May 5, 2005 the Company merged with CA Networks, Inc. ("CAN"), which was a development stage enterprise that was in the process of developing a business model in the same industry as Competitive. CAN was formed under the laws of the state of Wyoming on January 14, 2004. The combined companies maintained the name of CCI.

 

On the date of the transaction (the "Effective Date") the Company issued 40,599,999 shares of its common stock to the shareholders of CAN in exchange for the 40,599,999 outstanding shares of CAN. In effect, each of CAN's shares that were issued and outstanding immediately before the merger was exchanged for one share of the Company's common stock. Although Competitive was the legal acquirer and surviving entity, because the shareholders of CAN received the majority of the voting rights in the combined entity, for accounting purposes the acquisition was treated as a recapitalization of CAN with CAN being reflected as the acquirer of Competitive (a reverse acquisition). Accordingly, the 5,912,061 common shares held by the Company's shareholders were deemed have been issued by CAN in exchange for the Company's net liabilities at the date of the acquisition. Upon such acquisition date, the purchase pri! ce consisted of the following:

 

Estimated value of 5,912,061 shares of common stock of Competitive deemed to have been issued, at estimated value of $0.10 per share $ 591,206

 

 

 

 

 

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Because the net book value of Competitive's assets and liabilities approximated their fair values on the date of acquisition, the purchase price above has been reflected as an impairment expense on the Company's books and records.

 

In connection with this transaction, we agreed to file a registration statement with the Securities and Exchange Commission to register the shares of restricted common stock issued to CAN's shareholders who own less than 5% of the total outstanding shares of the merged entity. The merged company (collectively "we", "us", "ours") intends to be a provider of local telephone, long distance service and high speed internet service through Wireless Internet networks in all states it operates in, and will also offer cellular service nationwide.

 

Reclassifications

 

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions we are required to make. Actual results could differ significantly from our estimates.

 

Cash and cash equivalents

 

CCI maintains a cash balances in interest and non-interest-bearing accounts, which do not currently exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

 

Basis of Accounting

 

Our consolidated financial statements are prepared using the accrual method of accounting.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of CCI, and its wholly-owned subsidiary CCIR. All significant inter-company balances and transactions have been eliminated. CCI and CCIR will be collectively referred herein to as the “Company”.

 

Revenue Recognition

 

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Our revenue recognition policy is consistent with the criteria set forth in Staff Accounting Bulletin 104 - Revenue Recognition in Financial Statements ("SAB 104") for determining when revenue is realized or realizable and earned. In accordance with the requirements of SAB 104 we recognize revenue when (1) persuasive evidence of an arrangement exists; (2) delivery of our services has occurred; (3) our price to our customer is fixed or determinable; and (4) collectability of the sales price is reasonably assured. As such, we recognize revenues in the month in which we provide services. Services provided but not billed by the end of the year are reflected as unbilled receivables in the accompanying consolidated balance sheet.

 

Allowance for Doubtful Accounts

We evaluate the allowance for doubtful accounts on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged against the allowance account in the period they are deemed uncollectible. The allowance for doubtful accounts was $75,913 and $27,368 at December 31, 2007 and 2006, respectively.

 

Fixed assets

Fixed assets are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy:

 

 

Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which have extend the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in operations.

 

Impairment of long-lived assets

 

Long-lived assets held and used by CCI are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations. The Company did not incur any impairment losses for the years ended December 31, 2007 and 2006.

 

Basic and diluted loss per share

 

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The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For 2007 and 2006, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

 

Goodwill and Other Intangible Assets

 

Goodwill and indefinite life intangible assets are recorded at fair value and not amortized, but are reviewed for impairment annually or more frequently if impairment indicators arise, as required by SFAS No. 142. As of December 31, 2007 and 2006 we had no goodwill or other intangible assets. The Company did not incur any impairment losses for the years ended December 31, 2007 and 2006.

 

Income taxes

 

CCI applies recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. CCI provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

 

Stock-based compensation

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004) Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. CCI adopted SFAS No. 123 (R) during 2005. Stock issued for services totalled $36,000 and $125,350 for the years ended December 31, 2007 and 2006, respectively.

 

Advertising

 

We expense advertising costs as they are incurred. These expenses approximated $127,500 and $51,050 for the years ended December 31, 2007 and 2006, respectively.

 

Recently Issued Accounting Pronouncement

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows the company to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses

 

F-9

 

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on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 is not expected to have a material impact on the Company’s financial position, results of operation or cash flows.

 

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the de-consolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years and interim periods beginning after December 15, 2008. The adoption of SFAS 160 is not expected to have a material impact on the Company’s financial position, results of operation or cash flows.

 

In December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”. SFAS 141 (Revised) establishes principals and requirements for how an acquirer of a business recognizes and measures in its financial statements, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. This statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008.

 

Note 2 – Going Concern

 

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $2,770,971 and a working capital deficit of $109,759 at December 31, 2007, and have reported negative cash flows from operations over the last four years. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months, and we expect to have ongoing requirements for capital investment to implement our business plan. Finally, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets an! d the competitive environment in which we operate.

 

Since inception, our operations have primarily been funded through private equity financing, and we expect to continue to seek additional funding through private or public equity and debt financing.

 

Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.

 

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Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Note 3 – Asset sale

 

On June 30, 2006, the Company entered into an Asset Purchase Agreement with Voice, Video and Data Services, Inc. (“Buyer”), whereby the Company agreed to sell, convey, assign, transfer and deliver to the Buyer all of the assets and liabilities of its Kentucky division, including but not limited to the following: all existing inventory; telephone service contracts within the state of Kentucky; its rights under licensing agreements; vendor agreements; its office lease; all physical property located in Kentucky; and all of the outstanding liabilities attributed to the Kentucky operations in exchange for the cancellation of 1,400,000 shares of the Company’s par value common stock controlled by a principal of the Buyer. As of July 12, 2006, the Company had transferred assets valued at $175,000 and liabilities totaling $173,000 pursuant to the agreement. Additionally, the Buyer had escrowed! with the Company 1,400,000 shares of the Company’s par value common stock as security for payment of the transferred liabilities. Under the terms of the agreement, if the Buyer did not fully pay all such liabilities as of December 31, 2006 the escrowed shares were to be cancelled. As of December 31, 2006all 1,400,000 shares were cancelled due to the breach of the agreement.

 

Note 4 – Property and Equipment

 

Property and equipment consist of the following:

 

 

Depreciation expense totaled $33,392 and $31,579 for 2007 and 2006, respectively

 

Note 5 – Income taxes

 

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), which requires use of the liability method. SFAS No. 109 provides that deferred tax assets and liabilities are recorded based on

 

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the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.

 

For the years ended December 31, 2007 and 2006, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2007, the Company had approximately $2,715,000 of federal and state net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2025.

 

The components of the Company’s deferred tax asset are as follows:

 

 

Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2007 and 2006.

 

A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:

 

 

Note 6 – Note Payable, Related Party

 

The Company had notes payable with an Officer, in which principal balances totaled $25,000 and $-0- as of the years ended December 31, 2007 and 2006, respectively. The notes accrue interest at a rate of 18% per annum and are payable upon demand. The Company recorded interest expense to related parties in the amount of $863 and $-0- for the years ended December 31, 2007 and 2006, respectively.

 

 

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Note 7 – Long Term Debt

 

Long-term debt consists of the following:

 

Unsecured note payable to a stockholder, with interest at 8%, and monthly principal and interest payments of $683 through February 23, 2011. The balance was $22,323 and $28,462 at December 31, 2007 and 2006, respectively. The Company recorded interest expense on long term debt in the amount of $2,088 and $26,464 for the years ended December 31, 2007 and 2006, respectively.

 

Scheduled maturities of long-term debt as of December 31, 2006 are as follows:

 

 

 

Debt forgiveness

Note payable to Frontier Communications Services, Inc., bearing interest at 10% and requiring monthly principal and interest payments of $3,000. Frontier has recently completed bankruptcy and no further obligation was assigned. As such, the debt and accrued interest had been written off in 2006, and the Company had recorded income through debt forgiveness of $57,993 including principal and accrued interest during the year ended December 31, 2006. This note was originally due on March 15, 2003, however due to the aforementioned, the required monthly payments had not been made since December 31, 2002. The note was secured by the telecommunications equipment purchased with the proceeds from the note. The balance of the note payable was $-0- and $-0- at December 31, 2007 and 2006, respectively.

 

Note payable to GST, which initially required interest at 10% with monthly interest payments of $1,729 through its maturity date of April 28, 2004. The note was secured by the telecommunications equipment purchased with the proceeds from the note. Effective April 28, 2004, the interest rate was increased to a default rate of 15% per annum. The note has not been paid. The Company has ceased operations and abandoned all claims on the debt. As such, the debt and accrued interest had been written off in 2006, and the Company had recorded income through debt forgiveness of $281,934 including principal and, accrued interest of $56,872, during the year ended December 31, 2006. The balance of the note payable was $-0- and $-0- at December 31, 2007 and 2006, respectively.

 

Note 8 – Commitments

 

We lease our operating facility in Riverside California under a non-cancelable 5-year operating lease expiring December 14, 2011. The lease provides for increases in future minimum annual rental payments based on defined annual increases beginning with monthly payments of $2,433

 

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and culminating in a monthly payment of $2,945 in 2011. Lease expense totaled $35,053 and $39,026 during 2007 and 2006, respectively.

 

Future minimum lease payments required are as follow:

 

 

Note 9 – Stockholders’ equity

 

Convertible Class A Preferred Stock

In consummation of the merger in Note 1, the Company repurchased 4,000,000 Class “A” preferred stock for $40,000 during 2005. Therefore, there was no outstanding Class “A” preferred stock at December 31, 2007 or 2006, respectively.

 

Common stock

During 2007 CCI issued 3,890,000 shares of its $.001 par value common stock for cash totaling $403,000. As of December 31, 2007 140,000 shares had not yet been issued. Accordingly, the $14,000 received has been presented as Subscriptions Payable at December 31, 2007.

 

During February of 2007 CCI issued 100,000 shares of its $.001 par value common stock for consulting services valued at a price of $0.10 per share, totaling $10,000, the fair market value of the underlying shares.

 

During December of 2007 CCI issued 450,000 shares of its $.001 par value common stock to Accuity Financial, Inc. for professional services valued at a price of $0.05 per share, totaling $22,500, the fair market value of the underlying shares.

 

During December of 2007 CCI issued 70,000 shares of its $.001 par value common stock to Stoecklein Law Group for professional services valued at a price of $0.05 per share, totaling $3,500, the fair market value of the underlying shares.

 

During 2006 the Company cancelled 6,899,910 shares.

 

During 2006 CCI issued 4,220,500 shares of its $.001 par value common stock for cash totaling $422,050.

 

During 2006 CCI issued 77,500 shares of its $.001 par value common stock for subscriptions payable at December 31, 2005.

 

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During February of 2006 CCI issued 100,000 shares of its $.001 par value common stock to Island Capital Management for consulting services valued at a price of $0.15 per share, totaling $15,350, the fair market value of the underlying shares.

 

During July of 2006 CCI issued 100,000 shares of its $.001 par value common stock to Island Capital Management for consulting services valued at a price of $0.10 per share, totaling $10,000, the fair market value of the underlying shares.

 

During September of 2006 CCI issued 200,000 shares of its $.001 par value common stock to Opus Pointe for professional services valued at a price of $0.25 per share, totaling $50,000, the fair market value of the underlying shares.

 

During September of 2006 CCI issued 50,000 shares of its $.001 par value common stock to Stoecklein Law Group for professional services valued at a price of $0.25 per share, totaling $12,500, the fair market value of the underlying shares.

 

Note 10 – Common stock options

 

During the year ended December 31, 2005, Company cancelled 3,435,000 options outstanding at December 31, 2004 and adopted 2005 Stock Option Plan (the “Plan”). The Plan authorizes the issuance of stock options and other awards to acquire up to a maximum 10,000,000 shares of the Company’s common stock (less the number of shares issuable upon exercise of options granted by the Company under all other stock incentive plans on the date of any grant under the Plan). The Plan provides for the grant of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended), options that are not incentive stock options, stock appreciation rights and various other stock-based grants.

 

On December 15, 2005, the Company granted employees and directors options to purchase 6,672,000 shares of common stock exercisable at $0.10 with a ten-year life. Because the Company stock was not trading at the grant date, and the Company issued all shares at $.10 in 2005, which was equal to the exercise price. No further options were granted during 2007 and 2006.

 

 

 

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The following is a summary of activity of outstanding stock options under the 2005 Stock Option Plan:

 

 

Note 11 – Subsequent Events

 

On March 13, 2008, Zachary Bluestein was hired as Chief Technical Officer. Mr. Bluestein’s immediate task is to implement a marketing program and establish an internet presence to promote the Company and advance product sales.

 

On March 31, 2008, Mr. Henri Hornby, our former CEO, was appointed as director.

 

 

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