cci-10q_093008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended September 30,
2008
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 registrant as specified in its charter)
Nevada
|
|
65-1146821
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
3751
Merced Drive, Suite A
|
|
|
Riverside,
CA
|
|
92503
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant's
telephone number: (951)
687-6100
Copies of
Communication to:
Stoecklein
Law Group
402 West
Broadway
Suite
690
San
Diego, CA 92101
(619)
704-1310
(619)
704-1325
Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange
Act.
Large
accelerated filer
|
Accelerated
filer
|
|
|
Non-accelerated
filer (Do not check if a smaller reporting
company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes No x
The
number of shares of Common Stock, $0.001 par value, outstanding on November 18,
2008, was 63,687,630 shares.
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
Competitive
Companies, Inc
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
7,377 |
|
|
$ |
3,909 |
|
Account
receivable, net of allowance for
|
|
|
|
|
|
|
|
|
doubtful
accounts of $83,765 and $75,913
|
|
|
85,231 |
|
|
|
89,424 |
|
Prepaid
expenses
|
|
|
2,561 |
|
|
|
2,561 |
|
Total
current assets
|
|
|
95,169 |
|
|
|
95,894 |
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
64,062 |
|
|
|
88,081 |
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,366 |
|
|
|
1,366 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
160,597 |
|
|
$ |
185,341 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
168,037 |
|
|
$ |
117,363 |
|
Accrued
expenses
|
|
|
36,873 |
|
|
|
12,782 |
|
Customer
deposits
|
|
|
45,770 |
|
|
|
43,860 |
|
Note
payable, related party
|
|
|
28,000 |
|
|
|
25,000 |
|
Current
maturities of long term debt
|
|
|
7,057 |
|
|
|
6,648 |
|
Total
current liabilities
|
|
|
285,737 |
|
|
|
205,653 |
|
|
|
|
|
|
|
|
|
|
Long
term debt, net of current maturities
|
|
|
10,331 |
|
|
|
15,675 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value 10,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Class
A convertible, no shares issued and outstanding with no liquidation
value
|
|
|
- |
|
|
|
- |
|
Class
B convertible, 1,495,436 shares issued and outstanding with no liquidation
value
|
|
|
1,495 |
|
|
|
1,495 |
|
Class
C convertible, 1,000,000 shares issued and outstanding with no liquidation
value
|
|
|
1,000 |
|
|
|
1,000 |
|
Common
stock, $0.001 par value, 70,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
62,487,630 and 56,707,050 shares issued and outstanding at September 30,
2008 and December 31, 2007
|
|
|
62,488 |
|
|
|
56,707 |
|
Subscription
payable (300,000 and 140,000 shares)
|
|
|
23,500 |
|
|
|
14,000 |
|
Additional
paid-in capital
|
|
|
2,842,919 |
|
|
|
2,661,782 |
|
Accumulated
(deficit)
|
|
|
(3,066,873 |
) |
|
|
(2,770,971 |
) |
|
|
|
(135,471 |
) |
|
|
(35,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
160,597 |
|
|
$ |
185,341 |
|
The
accompanying notes are an integral part of these financial
statements.
Competitive
Companies, Inc
|
|
Consolidated
Statements of Operations
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended
|
|
|
For
the nine months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
158,966 |
|
|
$ |
214,756 |
|
|
$ |
518,542 |
|
|
$ |
674,557 |
|
Cost
of sales
|
|
|
93,326 |
|
|
|
110,905 |
|
|
|
298,548 |
|
|
|
352,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
65,640 |
|
|
|
103,851 |
|
|
|
219,994 |
|
|
|
321,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
87,164 |
|
|
|
75,907 |
|
|
|
237,397 |
|
|
|
373,236 |
|
Salaries
and wages
|
|
|
46,187 |
|
|
|
59,579 |
|
|
|
151,147 |
|
|
|
297,041 |
|
Consulting
fees
|
|
|
90,813 |
|
|
|
509 |
|
|
|
91,687 |
|
|
|
11,559 |
|
Depreciation
|
|
|
8,553 |
|
|
|
8,214 |
|
|
|
25,659 |
|
|
|
24,898 |
|
Bad
debt
|
|
|
(2,514 |
) |
|
|
11,945 |
|
|
|
4,312 |
|
|
|
29,181 |
|
Total
operating expenses
|
|
|
230,203 |
|
|
|
156,154 |
|
|
|
510,202 |
|
|
|
735,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating (loss)
|
|
|
(164,563 |
) |
|
|
(52,303 |
) |
|
|
(290,208 |
) |
|
|
(413,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25 |
|
Interest
expense
|
|
|
(1,798 |
) |
|
|
(540 |
) |
|
|
(5,694 |
) |
|
|
(1,652 |
) |
Total
other income (expenses)
|
|
|
(1,798 |
) |
|
|
(540 |
) |
|
|
(5,694 |
) |
|
|
(1,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$ |
(166,361 |
) |
|
$ |
(52,843 |
) |
|
$ |
(295,902 |
) |
|
$ |
(415,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
- basic and fully diluted
|
|
|
60,399,397 |
|
|
|
56,066,833 |
|
|
|
57,960,502 |
|
|
|
54,823,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) per share - basic and fully diluted
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
The
accompanying notes are an integral part of these financial
statements.
Competitive
Companies, Inc
|
|
Consolidated
Statements of Cash Flows
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
(loss)
|
|
$ |
(295,902 |
) |
|
$ |
(415,584 |
) |
Adjustments
to reconcile net (loss) to
|
|
|
|
|
|
|
|
|
net
cash (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,659 |
|
|
|
24,898 |
|
Share-based
compensation
|
|
|
156,918 |
|
|
|
10,000 |
|
Provision
for bad debt
|
|
|
4,312 |
|
|
|
29,181 |
|
Decrease
(increase) in assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(119 |
) |
|
|
(8,521 |
) |
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
50,674 |
|
|
|
(31,864 |
) |
Accrued
expenses
|
|
|
24,091 |
|
|
|
(9,800 |
) |
Customer
deposits
|
|
|
1,910 |
|
|
|
4,210 |
|
Net
cash (used in) operating activities
|
|
|
(32,457 |
) |
|
|
(397,480 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchased
of fixed assets
|
|
|
(1,640 |
) |
|
|
(8,883 |
) |
Net
cash (used in) investing activities
|
|
|
(1,640 |
) |
|
|
(8,883 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from note payable, related party
|
|
|
31,000 |
|
|
|
5,000 |
|
Payments
on note payable, related party
|
|
|
(28,000 |
) |
|
|
- |
|
Principal
payments on notes payable
|
|
|
(4,935 |
) |
|
|
(4,558 |
) |
Proceeds
from issuance of common stock
|
|
|
39,500 |
|
|
|
403,000 |
|
Net
cash provided by financing activities
|
|
|
37,565 |
|
|
|
403,442 |
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
3,468 |
|
|
|
(2,921 |
) |
Cash
- beginning
|
|
|
3,909 |
|
|
|
4,337 |
|
Cash
- ending
|
|
$ |
7,377 |
|
|
$ |
1,416 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
1,292 |
|
|
$ |
1,577 |
|
Income
taxes paid
|
|
$ |
- |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these financial
statements.
Competitive
Companies, Inc
Notes
to Consolidated Financial Statements
Note
1 - Basis of Presentation
The
condensed consolidated interim financial statements included herein, presented
in accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These
statements reflect all adjustments, consisting of normal recurring adjustments,
which in the opinion of management are necessary for fair presentation of the
information contained therein. It is suggested that these consolidated interim
financial statements be read in conjunction with the financial statements of the
Company for the year ended December 31, 2007 and notes thereto included in the
Company's Form 10-KSB annual report. The Company follows the same accounting
policies in the preparation of interim reports.
Results
of operation for the interim period are not indicative of annual
results
Reclassifications
Certain
reclassifications have been made to prior year amounts to conform to the current
year presentation.
Note
2 – Going Concern
The
Company’s 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. The Company has incurred
continuous losses from operations, has an accumulated deficit of $3,066,873 and
a working capital deficit of $190,568 at September 30, 2008, and has reported
negative cash flows from operations over the last three years. In addition, the
Company does not currently have the cash resources to meet their operating
commitments for the next twelve months. The Company’s 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 they operate.
The
Company’s ability to continue as a going concern is dependent on their ability
to generate sufficient cash from operations to meet their cash needs and/or to
raise funds to finance ongoing operations and repay debt. However, there can be
no assurance that the Company will be successful in their efforts to raise
additional debt or equity capital and/or that our cash generated by operations
will be adequate to meet their needs. These factors, among others, indicate that
they may be unable to continue as a going concern for a reasonable period of
time.
The
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 – Property and Equipment
Property
and equipment consist of the following:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Telecommunication
equipment and computers
|
|
$ |
279,197 |
|
|
$ |
277,557 |
|
Furniture
& Fixtures
|
|
|
3,353 |
|
|
|
3,353 |
|
Leasehold
Improvements
|
|
|
13,539 |
|
|
|
13,539 |
|
|
|
|
296,089 |
|
|
|
294,449 |
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
(232,027 |
) |
|
|
(206,368 |
) |
|
|
$ |
64,062 |
|
|
$ |
88,081 |
|
Depreciation
expense totaled $25,659 and $24,898 for the nine months ended September 30, 2008
and 2007, respectively.
Note
4 – Notes Payable, Related Party
The
Company had unsecured notes payable outstanding to the Company’s CEO of $28,000
in total as of September 30, 2008 and $25,000 as of December 31, 2007 for short
term loans to fund the Company’s operations. The notes bear interest at 18% and
are due on demand. Interest expense of $4,484 and $863 has been recorded as of
September 30, 2008, and December 31, 2007, respectively.
Note
5 – Long Term Debt
Long-term
debt consists of the following at September 30, 2008 and December 31,
2007:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Unsecured
note payable to a stockholder, in original amount of $56,276, bearing
interest at 8%,
and
carrying monthly principal and interest payments of $683 maturing February
23, 2011.
|
|
$ |
10,331 |
|
|
$ |
22,323 |
|
Less:
current portion
|
|
|
7,057 |
|
|
|
6,648 |
|
Long-term
debt, less current portion
|
|
$ |
17,388 |
|
|
$ |
15,675 |
|
Future
maturities of long-term debt are as follows as of September 30:
2009
|
|
$ 7,057
|
2010
|
|
7,644
|
2011
|
|
2,687
|
|
|
$ 17,388
|
Interest
expense totaled $1,210 and $1,652 for the nine months ended September 30, 2008
and 2007, respectively.
Note
6 – Commitments
The
Company leases its 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 and culminating in a
monthly payment of $2,945 in 2011. Lease expense totaled $28,703 and $25,391
during the nine months ending September 30, 2008 and 2007,
respectively.
Future
minimum lease payments required are as follow:
Year
|
|
Amount
|
2008
|
|
$ 7,298
|
2009
|
|
32,394
|
2010
|
|
33,931
|
2011
|
|
32,394
|
Total
|
|
$
106,017
|
On August
26, 2008 the Company entered into a non-binding Letter of Intent with Innovation
Capital Management, Inc. (“ICM”) concerning the acquisition of one hundred
percent (100%) of the outstanding capital stock, or ownership interest of ICM, a
communications company organized under the laws of the State of Delaware. The
terms of the proposed agreement specify that CCI issue 25,544,624 shares of
common stock, valued at an estimated $1,344,335, in exchange for 100% of the
assets and liabilities of ICM, of which the proposed closing date was October 1,
2008. The proposed purchase agreement is contingent on CCI conducting a proxy
vote to increase the total authorized shares of common stock, which has not
occurred as of the date of this report.
Note
7 – Stockholders’ equity (deficit)
Common
stock
On August
14, 2008, CCI filed a form S-8 with the United States Securities and Exchange
Commission which authorizes the Company to issue a total of 7,730,580
unrestricted shares of the Company’s common stock, of which, 5,500,000 are to be
issued to consultants and 2,230,580 are to be issued as payment for professional
services rendered.
On July
30, 2008, the Company granted 3,000,000 of these S-8 shares to a consultant for
consulting services rendered in the pursuant of obtaining a potential merger
candidate. The fair market value of the shares was $90,000.
On July
30, 2008, the Company issued 1,000,000 of these S-8 shares to a consulting firm
for accounting services rendered. The fair market value of the shares was
$30,000.
On July
30, 2008, the Company issued 1,230,580 of these S-8 shares for legal services
rendered. The fair market value of the shares was $36,918.
On
September 2, 2008, CCI received $5,000 in exchange for a subscription agreement
totaling 100,000 shares of its $.001 par value common stock from an individual
investor.
On
September 10, 2008, CCI received $20,000 in exchange for a subscription
agreement totaling 400,000 shares of its $.001 par value common stock from an
individual investor.
Note
8 – Subsequent Events
On
October 1, 2008, the Company issued 1,000,000 unrestricted, S-8 shares under the
2008 Non-Qualified Consultants Stock Compensation Plan to a consultant for
consulting services rendered in the pursuant of obtaining a potential merger
candidate over the three month period ending December 31, 2008. The fair market
value of the shares was $30,000.
On
November 18, 2008 the Company issued 200,000 shares of common stock to a total
of three different investors. The investors had previously purchased the
Company’s common stock which was previously recorded as stock subscriptions
payables.
On
November 3, 2008 the Company entered into a non-binding Letter of Intent with
Worldwide Communications, Inc. concerning the acquisition of forty (40)
microwave towers (“Asset Purchase Agreement”). The terms of the proposed
agreement specify that CCI issue two million newly issued Convertible Preferred
Shares at a price of $1 per share, with 10% or 200,000 shares to be placed
immediately in escrow upon the signing of the completed Asset Purchase
Agreement, of which the proposed closing date is November 28, 2008. The
conversion terms have not yet been determined. In addition, the terms of the
agreement include a purchaser buy-back arrangement whereby, upon acceptable
financing, CCI intends to buy back a total of two hundred thousand of the
Convertible Preferred Shares in exchange for two hundred thousand dollars
($200,000).
FORWARD-LOOKING
STATEMENTS
This
document contains “forward-looking statements”. 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. Accordingly, readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the dates on
which they are made. Except for our ongoing securities laws, we do not intend,
and undertake no obligation, to update any forward-looking
statement. Additionally, the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 most likely do not apply to our
forward-looking statements as a result of being a penny stock
issuer. You should, however, consult further disclosures we make in
future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K.
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:
·
|
Our
current deficiency in working
capital;
|
·
|
Increased
competitive pressures from existing competitors and new
entrants;
|
·
|
Our
ability to market our services to new
subscribers;
|
·
|
Inability
to locate additional revenue sources and integrate new revenue sources
into our organization;
|
·
|
Adverse
state or federal legislation or regulation that increases the costs of
compliance, or adverse findings by a regulator with respect to existing
operations;
|
·
|
Changes
in U.S. GAAP or in the legal, regulatory and legislative environments in
the markets in which we operate;
|
·
|
Consumer
acceptance of price plans and bundled offering of our
services;
|
·
|
Loss
of customers or sales weakness;
|
·
|
Technological
innovations;
|
·
|
Inability
to efficiently manage our
operations;
|
·
|
Inability
to achieve future sales levels or other operating
results;
|
·
|
Inability
of management to effectively implement our strategies and business
plan
|
·
|
Key
management or other unanticipated personnel
changes;
|
·
|
The
unavailability of funds for capital expenditures;
and
|
·
|
The
other risks and uncertainties detailed in this
report.
|
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 Item 1A. Risk
Factors in this document and in our Annual Report on Form 10-K for the year
ended December 31, 2007.
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.
Item
2. Management’s Discussion and Analysis and Plan of Operation
OVERVIEW
OF CURRENT OPERATIONS
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 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 the 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.
During
the first two quarters of 2008, we announced the appointment of a Chief
Technical Officer who was to help facilitate the expansion and advertising of an
(800) telephone service as well as assist in the launch of a new website that
was to be dedicated to selling various electronic, household, business, and
clothing and jewelry items at significant discounts. However, during
the third quarter of 2008, our relationship with the Chief Technical Officer
terminated and we have decided to not pursue the endeavor of providing a website
for the sale of various goods. We do still offer the (800) service
although we have not been able to capitalize on this revenue source as we had
originally anticipated.
Since the
beginning of 2008 the Company has attempted to locate new revenue sources with
the hopes to create a wider customer base from that of just servicing large
apartment complexes. During the third quarter of 2008 and subsequent
to the third quarter of 2008, the Company entered into two Letters of Intent to
help potentially expand its revenues sources. The first Letter of
Intent is with Innovation Capital Management, Inc. (“ICM”) whereby the Company
intends to merge with ICM’s operations and proprietary technology to expand the
wireless Internet services to rural America. The proposed purchase
agreement is contingent on the Company conducting a proxy vote to increase the
total authorized shares of common stock, which has not occurred as of the date
of this report.
The
second Letter of Intent is with Worldwide Communications, Inc. whereby the
Company intends to acquire 40 carrier-grade microwave towers, which the Company
hopes will further expand its operations in providing wireless Internet services
to rural markets in America. The terms of the proposed agreement
specify that the Company will issue two million newly issued Convertible
Preferred Shares at a price of $1 per share, with 10% or 200,000 shares to be
placed immediately in escrow upon the signing of the completed Asset Purchase
Agreement. As of the date of this report, a definitive Asset Purchase
Agreement has not been executed.
Results
of Operations for the three and nine months ended September 30,
2008
The
following tables summarize selected items from the statement of operations for
the three and nine months ended September 30, 2008 compared to the three and
nine months ended September 30, 2007.
INCOME:
|
Three
Months Ended
September
30,
|
Increase/
(Decrease)
|
Nine
Months Ended
September
30,
|
Increase/
(Decrease)
|
|
2008
|
2007
|
%
|
2008
|
2007
|
%
|
Revenues
|
$158,966
|
$214,756
|
(26%)
|
$518,542
|
$674,557
|
(23%)
|
|
|
|
|
|
|
|
Cost
of Sales
|
93,326
|
110,905
|
(16%)
|
298,548
|
352,599
|
(15%)
|
|
|
|
|
|
|
|
Gross
Profit
|
$65,640
|
$103,851
|
(37%)
|
$219,994
|
$321,958
|
(32%)
|
|
|
|
|
|
|
|
Gross
Profit Percentage of Revenue
|
41%
|
48%
|
(7%)
|
42%
|
48%
|
(6%)
|
Revenues
Revenues
for the three months ended September 30, 2008 was $158,966 compared to revenues
of $214,756 for the three months ended September 30, 2007. This resulted in a
decrease in revenues of $55,790, or 26%, when compared to the same period one
year ago. Revenues for the nine months ended September 30, 2008 was
$518,542 as compared to $674,557 for the nine months ended September 30,
2007. Once again we experienced a decrease of $156,015, or 23% when
compared to the same period one year ago. During 2007, regulations
governed by the Federal Communications Commission were changed that allowed
direct competitors to our telephone and cable services to compete with our
customers in the apartment complexes that we service. As a result, we
were unable to remain competitive with larger competitors and some of our
customers have switched providers and ultimately, we have begun to experience a
decrease in revenues.
Due to
this change in the regulatory environment of our traditional business
operations, we have begun to pursue and investigate alternative revenue
sources. During the end of the first quarter of 2008, we
announced a new revenue source of offering a competitive (800)
service. We have also located potential other revenues sources of
providing wireless Internet services to rural markets by executing Letters of
Intent during the third quarter of 2008 and subsequent to the third
quarter. We hope these services will provide additional revenues
while maintaining a continuous focus on our core business; however, there can be
no assurance that we will be able successfully execute definitive agreements or
properly integrate the entities that we have signed Letters of Intent
with.
Cost
of sales
Cost of
sales for the three months ended September 30, 2008 was $93,326, a decrease of
$17,579, or 16%, from $110,905 for the three months ended September 30,
2007. Cost of sales also decreased from $352,599 for the nine months
ended September 30, 2007 to $298,548 when compared to the nine months ended
September 30, 2008. Beginning in 2007, we began eliminating
underutilized circuits and have made continued efforts to continually manage and
reduce costs, where applicable. During the nine months ended
September 30, 2008, we experienced decreased revenues which reduced some of our
cost of sales. In addition, some of our contracts with apartment
complexes have expired which has reduced some commission expenses.
Gross
profit
Gross
profit as a percentage of revenue decreased from 48% for the nine months ended
September 30, 2007 to 42% for the nine months ended September 30,
2008. Additionally, our gross profits as a percentage of revenue also
decreased from 48% for the three months ended September 30, 2007 compared 41%
for the three months ended September 30, 2008. Overall our gross
profit has decreased as a result of not being able to better manage our cost of
sales in relation to our decrease in revenues.
EXPENSES:
|
Three
Months Ended
September
20,
|
Increase/
(Decrease)
|
Nine
Months Ended
September
30,
|
Increase/
(Decrease)
|
|
2008
|
2007
|
%
|
2008
|
2007
|
%
|
General
and administrative expenses
|
$87,164
|
$75,907
|
15%
|
$237,397
|
$373,236
|
(36%)
|
|
|
|
|
|
|
|
Salaries
and wages
|
46,187
|
59,579
|
(22%)
|
151,147
|
297,041
|
(49%)
|
|
|
|
|
|
|
|
Consulting
fees
|
90,813
|
509
|
17,741%
|
91,687
|
11,559
|
693%
|
|
|
|
|
|
|
|
Depreciation
|
8,553
|
8,214
|
4%
|
25,659
|
24,898
|
3%
|
|
|
|
|
|
|
|
Bad
Debt
|
(2,514)
|
11,945
|
(121%)
|
4,312
|
29,181
|
(85%)
|
|
|
|
|
|
|
|
Net
operating (loss)
|
$(164,563)
|
$(52,303)
|
215%
|
$(290,208)
|
$(413,957)
|
(30%)
|
General
and Administrative expenses
General
and administrative expenses were $87,164 for the three months ended September
30, 2008 versus $75,907 for the three months ended September 30, 2007, which
resulted in an increase of $11,257 or 15%. The increase in our
general and administrative expenses was a result of additional legal and
professional fees attributed to the payment of stock in lieu of cash for
services. Due to the lack of liquidity in the Company’s common stock
a greater amount of shares were required to provide the same services had cash
been available to pay for the services.
However,
for the nine months ended September 30, 2008, our general and administrative
expenses decreased 36% when compared to the the nine months ended September 30,
2007. The decrease was due primarily to a decrease in the Company’s
advertising and promotional costs, as well as, an overall effort to trim
non-essential overhead costs.
Salaries
and Wages
Salary
and wage expenses were $46,187 for the three months ended September 30, 2008
versus $59,579 of salary and wage expenses for the three months ended September
30, 2007. Salary and wage expenses also decreased 49% from the nine
months ended September 30, 2007 of $297,041 to $151,147 for the nine months
ended September 30, 2008. During the first six months of 2007,
we had increased management’s salaries, which the Company has since ceased
payment of as a result of no longer having the same management as of a year
ago. Additionally, our current CEO, does not have an employment
agreement in place and therefore we have not paid any compensation during the
nine months ended September 30, 2008 to him. We expect that we may
need to increase our personnel in the future as we expand our operations and
finalize potential acquisitions, if and when we enter into these alternative
revenue sources.
Consulting
Fees
Consulting fees were $90,813 for the
three months ended September 30, 2008 compared to $509 consulting fees for the
three months ended September 30, 2007. The significant increase
in consulting fees during the three months ended September 30, 2008 when
compared to the same period a year ago is a result of stock-based compensation
being paid for professional services in the pursuit of finding financing and
merger & acquisition candidates, which we did not experience in
2007.
Consulting
fees were $91,687 for the nine months ended September 30, 2008 compared to
$11,559 for the nine months ended September 30, 2007. Again we
experienced an increase of 693% in consulting fees during the nine months ended
September 30, 2008 when compared to the same period of 2007 as a result of the
significant increase in professional fees during the third quarter of
2008. However, we did experience some consulting fees during the nine
months ended September 30, 2007, as a result of common stock issuances as
compensation in exchange for consulting services.
Depreciation
Depreciation
expenses were $8,553 for the three months ended September 30, 2008 versus $8,214
for the three months ended September 30, 2007. During the nine months
ended September 30, 2008, we had depreciation expenses of $25,659 compared to
$24,898 for the nine months ended September 30, 2007. This resulted
in a minimal increase of 3% for the nine months ended September 30, 2008 when
compared to the same time period in 2007. During 2007 we acquired
some additional assets which accounts for the depreciation expenses and at this
point in time we anticipate our depreciation expenses to remain
stable.
Bad
Debt
Bad debt
expenses for the nine months ended September 30, 2008 were a negative $2,514 as
compared to $11,945 for the same period in 2007, which resulted in a decrease of
$14,459. We also experienced an 85% decrease in our bad debt
when compared to the nine months ended September 30, 2007 to the nine months
ended September 30, 2008. We were able to decrease our allowance of
bad debt as a result of having fewer accounts likely being sent to a third party
collection agency and the ability to actually collect on debt previously deemed
to not be recoverable.
Net
Operating (Loss)
The net
operating loss for the three months ended September 30, 2008 was $164,563,
versus a net operating loss of $52,303 for the three months ended September 30,
2007. The net operating loss for the nine months ended
September 30, 2008 was $290,208, versus a net operating loss of
$413,957. For the three months ended September 30, 2008, we
experienced an increase in our net loss by 215%. The increase in net
loss was primarily attributable to the significant increase in our consulting
fees. As for the nine months ended September 30, 2008, we were able
to reduce our net loss by 30%. This decrease in net loss is primarily
attributable to the reduction in our general and administrative expenses,
salaries and wages, and bad debt even though we had an increase in our
consulting services for the nine months ended September 30, 2008.
LIQUIDITY
AND CAPITAL RESOURCES
The
following table summarizes total current assets, liabilities and working capital
at September 30, 2008 compared to December 31, 2007.
|
September
30, 2008
|
December
31, 2007
|
Increase
/ (Decrease)
|
$
|
%
|
|
|
|
|
|
Current
Assets
|
$95,169
|
$95,894
|
$(725)
|
(1%)
|
|
|
|
|
|
Current
Liabilities
|
$285,737
|
$205,653
|
$80,084
|
39%
|
|
|
|
|
|
Working
(Deficit)
|
$(190,568)
|
$(109,759)
|
$80,809
|
74%
|
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 of alternative revenue
sources. As of September 30, 2008, we had current assets of $95,169
and current liabilities of $285,737, which resulted in a working capital deficit
of $190,568. 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 wireless internet services in rural markets; VoIP services; 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. In the past, we have conducted private placements
of equity shares at $0.10 per share. During the 2007 fiscal year we
raised a total of $403,000. Additionally, during the third quarter of
2008, we sold a total of 500,000 shares of our common stock for a total of
$25,000.
As of the
year ended December 31, 2007, we entered into an unsecured note payable with our
Chief Executive Officer totaling $25,000 and as of the nine months ended
September 30, 2008 we had unsecured notes payable in the amount of
$28,000. These notes bear 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
suspend 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 $3,066,873 and a working capital
deficit of $190,568 at September 30, 2008, and have reported negative cash flows
from operations over the last three years. In addition, we do not
currently have the cash resources to meet our operating commitments for the next
twelve months. The Company’s 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
nature in which we operate.
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.
Critical
Accounting Policies and Estimates
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 Accounting
Pronouncements
In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial Guarantee Insurance Contracts – An interpretation of
FASB Statement No. 60”. SFAS 163 requires that an insurance enterprise recognize
a claim liability prior to an event of default when there is evidence that
credit deterioration has occurred in an insured financial obligation. It also
clarifies how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement to be used to account for premium
revenue and claim liabilities, and requires expanded disclosures about financial
guarantee insurance contracts. It is effective for financial statements issued
for fiscal years beginning after December 15, 2008, except for some disclosures
about the insurance enterprise’s risk-management activities. SFAS 163 requires
that disclosures about the risk-management activities of the insurance
enterprise be effective for the first period beginning after issuance. Except
for those disclosures, earlier application is not permitted. The adoption of
this statement is not expected to have a material effect on the Company’s
financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133,”
(SFAS “161”) as amended and interpreted, which requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting. Disclosing the fair values of derivative
instruments and their gains and losses in a tabular format provides a more
complete picture of the location in an entity’s financial statements of both the
derivative positions existing at period end and the effect of using derivatives
during the reporting period. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. Early adoption is permitted, but not expected.
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.
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.
Item
3. Quantitative and Qualitative Disclosure About Market Risk
This item in not applicable as we are
currently considered a smaller reporting company.
Item
4T. Controls and Procedures
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 report. Based on the
evaluation, Mr. Woods concluded that our disclosure controls and procedures are
not effective in timely alerting him to material information relating to us
(including our consolidated subsidiaries) required to be included in our
periodic SEC filings and ensuring that information required to be disclosed by
us in the reports we file or submit under the Act is accumulated and
communicated to our management, including our principal financial officer, or
person performing similar functions, as appropriate to allow timely decisions
regarding required disclosure, for the following reasons:
·
|
The
Company does 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 independent 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.
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.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
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.
Item
1A. Risk Factors
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 nine months ended September 30, 2008 was $164,563 and
$438,426 for the year ended December 31, 2007. As of September 30, 2008, we
only had $7,377 in cash available to finance our operations and a working
capital deficit of $190,568. 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
strategy. 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.
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 and believe the current cash on hand and the other sources
of liquidity will not be sufficient enough to fund our operations through fiscal
2008. We anticipate that we will require up to approximately $100,000
to fund our continued operations for the last quarter of
2008. However, in order to close on the intended acquisitions, we
anticipate the need to raise approximately $1,000,000 to $2,000,000 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 acquire assets or other businesses in the future.
We may
consider acquisitions of assets or other business. Any acquisition involves a
number of risks that could fail to meet our expectations and adversely affect
our profitability. For example:
·
|
The
acquired assets or business may not achieve expected
results;
|
·
|
We
may incur substantial, unanticipated costs, delays or other operational or
financial problems when integrating the acquired
assets;
|
·
|
We
may not be able to retain key personnel of an acquired
business;
|
·
|
Our
management’s attention may be diverted;
or
|
·
|
Our
management may not be able to manage the acquired assets or combined
entity effectively or to make acquisitions and grow our business
internally at the same time.
|
If these
problems arise we may not realize the expected benefits of an
acquisition.
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 September 30, 2008 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 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.
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.
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 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 for one year. We have had one late filing and have once been
removed from the OTC Bulletin Board in the last two years. Therefore,
we must not have two more late filings or have our securities removed from the
OTC Bulletin Board, 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.
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 permit 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:
Deliver
to the customer, and obtain a written receipt for, a disclosure
document;
·
|
Disclose
certain price information about the
stock;
|
·
|
Disclose
the amount of compensation received by the broker-dealer or any associated
person of the broker-dealer;
|
·
|
Send
monthly statements to customers with market and price information about
the penny stock; and
|
·
|
In
some circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with information
specified in the rules.
|
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.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
During
the quarter ended September 30, 2008, we sold a total of 500,000 shares of our
restricted common stock to 2 accredited investors for a total of $25,000 in
proceeds.
We
believe the issuance of the shares is exempt from the registration and
prospectus delivery requirement of the Securities Act of 1933 by virtue of
Section 4(2). The shares were issued directly by us and did not
involve a public offering or general solicitation. The recipients of
the shares were afforded an opportunity for effective access to our files and
records of that contained the relevant information needed to make their
investment decision, including our financial statements and 34 Act reports. We
reasonably believed that the recipients had such knowledge and experience in the
Company’s financial and business matters that they were capable of evaluating
the merits and risks of his investment.
Issuance pursuant to Form
S-8
On August
14, 2008, we filed a registration statement on Form S-8, whereby we registered a
total of 7,730,580 shares of our common stock, of which 5,500,000 shares are to
be issued to consultants and 2,230,580 are to be issued as payment for
professional legal and accounting services. The following list shows the shares
issued from that Registration Statement on Form S-8. As of the date
of this filing, we have 1,500,000 shares of our common stock available to be
issued under the Consultant Stock Plan.
Person
Issued to
|
Number
of Shares
|
Stoecklein
Law Group
|
1,230,580
|
Accuity
Financial, Inc.
|
1,000,000
|
Thomas
Mahoney
|
4,000,000
|
Subsequent
Issuances
On
November 18, 2008 the Company issued 200,000 shares of common stock to a total
of three accredited investors. The investors had previously purchased the
Company’s common stock which was previously recorded as stock subscriptions
payables.
We
believe the issuance of the shares is exempt from the registration and
prospectus delivery requirement of the Securities Act of 1933 by virtue of
Section 4(2). The shares were issued directly by us and did not
involve a public offering or general solicitation. The recipients of
the shares were afforded an opportunity for effective access to our files and
records of that contained the relevant information needed to make their
investment decision, including our financial statements and 34 Act reports. We
reasonably believed that the recipients had such knowledge and experience in the
Company’s financial and business matters that they were capable of evaluating
the merits and risks of his investment.
Issuer
Purchases of Equity Securities
We did not repurchase any of our
securities during the quarter ended September 30, 2008.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote
of our security holders during the quarter ended September 30,
2008.
Item
5. Other Information
Item 5.02 Departure of
Directors or Principal Officers; Election of Directors; Appointments of
Principal Officers
(b) Resignation of
Director
On
November 4, 2008, Mr. Henri Hornby gave the Company notice of his resignation
from his position as a member of our Board of Directors, effective
immediately.
(d) Appointment of
Director
Upon the
notice of Mr. Hornby’s resignation, the Board of Directors appointed Mr. William
Gray to serve as a member of our Board of Directors. Currently, we do
not have separate committees within the Board of Directors such as an Audit,
Nominating, or Governance committees due to having limited
resources. Therefore, Mr. Gray will participate with our entire board
of directors in performing some of the functions associated with these separate
committees. Additionally, as a result of having limited resources we
do not currently have an established compensation package for board members;
however, in the event we are able to compensate board members, Mr. Gray will be
entitled to any established directors’ compensation.
William
Gray is the founder of Innovation Capital Management, Inc. (ICM), a
Delaware Corporation that was incorporated in May 2008. ICM is
involved in managing investment securities design and
development. ICM is also the owner of ICM LLC and DiscoverNet,
Inc. DiscoverNet, Inc. is a full service Internet Service Provider
currently deploying wireless broadband Internet throughout western Wisconsin and
was incorporated in July of 1996. Mr. Gray has been the President and
Chief Executive Officer of DiscoverNet since May of 1997 and has been chiefly
responsible for the funding of DiscoverNet since inception. Most
recently, the Company has developed a proprietary propagation software capable
of designing tier one wireless networks via the web. ICM intends to
offer this unique software to other Wireless Internet Service Providers (WISP)
as part of its planned investment and acquisition program. Mr. Gray
is highly skilled and experienced in designing investment securities, developing
financial forecast, structuring mergers and acquisitions, writing business plans
and drafting private placement memorandum. Mr. Gray has managed
investment securities exceeding $100 million.
Item 8.01 – Other
Events
On September 4, 2008, the Company
issued a press release announcing it signed a Letter of Intent with Innovation
Capital Management, Inc. in its plan to bring wireless broadband internet to
rural markets. A copy of the press release is attached hereto as
Exhibit 99.1.
On September 15, 2008, the Company
issued a press release announcing benefits of interconnection agreements with
AT&T and Verizon as a result of its potential merger with Innovation Capital
Management, Inc. A copy of the press release is attached hereto as
Exhibit 99.2.
On November 5, 2008, the Company issued
a press release announcing its Letter of Intent with Worldwide Communications,
Inc. to acquire 40 carrier-grade microwave towers. A copy of the
press release is attached hereto as Exhibit 99.3.
Item
6. Exhibits
|
|
|
Incorporated
by reference
|
Exhibit
|
Exhibit
Description
|
Filed
herewith
|
Form
|
Period
ending
|
Exhibit
|
Filing
date
|
2.1
|
Plan
and agreement of reorganization between Huntington Telecommunications
Partners, LP and Competitive Companies Holdings, Inc. and Competitive
Companies, Inc.
|
|
SB-2
|
|
2
|
01/11/02
|
2.2
|
Plan
and agreement of reorganization between Huntington Telecommunications
Partners, LP and Competitive Companies Holdings, Inc. and Competitive
Companies, Inc.
|
|
SB-2/A
|
|
2.2
|
08/02/02
|
2.3
|
Plan
and agreement of reorganization between Huntington Telecommunications
Partners, LP and Competitive Companies Holdings, Inc. and Competitive
Companies, Inc.
|
|
SB-2/A
|
|
2.2
|
04/24/03
|
2.4
|
Plan
and agreement of reorganization between Competitive Companies, Inc. and
CCI Acquisition Corp
|
|
8-K
|
|
10.1
|
05/09/05
|
3(i)
|
Articles
of Competitive Companies, as amended
|
|
SB-2
|
|
3(I)
|
01/11/02
|
3(ii)
|
Bylaws
of Competitive Companies
|
|
SB-2
|
|
3(II)
|
01/11/02
|
4
|
Rights
and Preferences of Preferred Stock
|
|
SB-2
|
|
4
|
01/11/02
|
31
|
Certification
of Jerald Woods pursuant to Section 302 of the Sarbanes-Oxley
Act
|
X
|
|
|
|
|
32
|
Certification
of Jerald Woods pursuant to Section 906 of the Sarbanes-Oxley
Act
|
X
|
|
|
|
|
99.1
|
Press
Release – Announcing Letter of Intent with Innovation Capital Management,
Inc.
|
X
|
|
|
|
|
99.2
|
Press
Release – Announcing Benefits on Interconnection Agreements with AT&T
and Verizon with its Merger of Innovation Capital Management,
Inc.
|
X
|
|
|
|
|
99.3
|
Press
Release – Announcing Acquisition of 40 Carrier-Grade Microwave Towers from
Worldwide Communications, Inc.
|
X
|
|
|
|
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMPETITIVE COMPANIES,
INC.
(Registrant)
By:/s/ Jerald
Woods
Jerald
Woods, President &
Chief
Executive Officer (On behalf of
the
registrant and as principal accounting
officer)
Date:
November 19, 2008