coco10qsb063005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934.
For the quarterly period ended June 30, 2005.
( ) Transition report pursuant to Section 13 or 15(d) of the Exchange
Act for the transition period from April 1, 2005 to June 30, 2005.
Commission File Number: 333-76630
COMPETITIVE COMPANIES, INC.
(Exact name of registrant as specified in charter)
NEVADA 65-1146821
(State of or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
3751 Merced Drive, Suite A
Riverside, CA 92503
(Address of Principal Executive Offices)
(909) 687-6100
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 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 ( ) NO (X )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [ ] Yes [X] No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
stock as of November 22, 2005
48,645,810 Common Shares
Transitional Small Business Disclosure Format:
YES ( ) NO (x)
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COMPETITIVE COMPANIES, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet as of June 30, 2005 3
Consolidated Statements of Operations for the three and six months
ended June 30, 2005, the period January 14, 2004 to June 30, 2004
and the three months ended June 30, 2004 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2005 and the period January 14, 2004 to June 30, 2004 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (including cautionary statement) 10
Item 3. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Securities Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
2
COMPETITIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2005
(UNAUDITED)
_____________________________________________________________________________
Assets
Current Assets
Cash $ 2,174
Account receivables, net of allowance for
doubtful account of $80,568) 122,638
Inventories 44,376
Prepaid expenses and other current assets 5,977
Total current assets 175,165
Property and equipment - net 187,224
Other assets 133,454
Total Assets $ 495,843
============
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 95,946
Current maturities of long term debt 217,975
Current maturities of capital lease obligations 23,504
Accrued and other liabilities 135,710
Total current liabilities 473,135
Long term debt 83,869
Total liabilities 557,004
Stockholders' Deficit:
Preferred stock $.001 par value; 10,000,000 shares
authorized; none outstanding -
Common stock $.0001 par value; 70,000,000 share authorized;
47,966,310 shares issued and outstanding 4,796
Additional paid-in capital 1,349,312
Deficit (1,415,269)
Total stockholders' deficit (61,161)
Total Liabilities and Stockholder's Deficit $ 495,843
============
_____________________________________________________________________________
See condensed notes to consolidated financial statements
3
COMPETITIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
___________________________________________________________________________________________________
For the Six For the For the Three For the Three
Months Ended Period January Months Ended Months Ended
June 30, 14, 2004 to June 30, June 30,
2005 June 30, 2004 2005 2004
Revenues $ 198,615 $ - $ 192,285 $ -
Cost of revenue 235,339 - 235,339 -
Gross profit (loss) (36,724) - (43,054) -
Other Operating Expenses 1,154,221 112,162 1,035,584 56,081
Net Loss $ (1,190,945) $ (112,162) $ (1,078,638) $ (56,081)
============= ============ ============= ============
Loss per share
Basic and diluted $ (0.03) $ (0.00) $ (0.03) $ (0.00)
============= ============ ============= ============
Weighted average number of
shares outstanding - basic and
Diluted 39,232,000 32,622,000 39,983,600 33,019,000
============= ============ ============= ============
___________________________________________________________________________________________________
See condensed notes to consolidated financial statements
4
COMPETITIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
___________________________________________________________________________________________
For the Period
For the Six January 14,
Months Ended 2004
June 30, to June 30,
2005 2004
Cash Flows from Operating Activities
Net loss $ (1,190,945) $ (112,162)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 11,500 -
Provision for bad debt 1,708 -
Non cash compensation expense 778,000 3,200
Change in assets and liabilities (105,880)
Net cash provided by (used in) operating activities (505,617) 28,006
Cash Flows from Investing Activities
Purchases of property and equipment - (4,758)
Net cash used in investment activities - (4,758)
Cash Flows from Financing Activities
Proceeds received from sale of stock 403,319 222,962
Purchase of preferred stock (40,000) -
Principal payments from debt and capital leases (13,104) (11,544)
Net cash provided by(used in) financing activities 350,215 211,418
Net increase (decrease) in cash (155,402) 97,698
Cash and cash equivalents at the beginning of the period 157,576 -
Cash and cash equivalents at the end of the period $ 2,174 $ 97,698
============= ============
Supplementary Disclosure of Non Cash Investing and Financing Activities - During
the six months ended June 30, 2005, we assumed certain net liabilities having a
value of approximately $167,000 in exchange for shares of our common stock
valued at $510,000 (see Note A).
___________________________________________________________________________________________
See condensed notes to consolidated financial statements
5
COMPETITIVE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
________________________________________________________________________________
NOTE A - BACKGROUND AND FORMATION, AND NATURE OF OPERATIONS
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 to 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 price consisted of the
following:
A) 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
B) Direct costs of the business combination 19,435
C) Net liabilities assumed 167,077
Total $ 778,000
Because the net book value of Competitive' assets and liabilities approximated
their fair values on the date of acquisition, the purchase price above has been
reflected as an expense on the Company's books and records. Since the
transaction was accounted for as a purchase, CAN's 2005 consolidated results of
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operations only include the results of operations of Competitive since the date
of acquisition. If the results of operations of Competitive were included in the
accompanying consolidated financial statements for the period between January 1,
2005 and the date of the acquisition, then 2005 revenues, expenses, net loss and
net loss per share would have increased approximately as follows:
Qtr Ended June 30 Six Months Ended June 30
Revenues $ 90,000 $ 371,000
Expenses $ 113,000 $ 392,000
Net Loss $ 23,000 $ 21,000
Net Loss Per Share $ - $ -
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, however at the current time, we are
considering whether or not this is feasible as we are not currently trading. 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.
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.
Basis of Presentation
Our accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and the instructions to Form 10-QSB
and Rule 10-1 of Regulation S-X of the Securities and Exchange Commission (the
"SEC"). Accordingly, these consolidated financial statements do not include all
of the footnotes required by accounting principles generally accepted in the
United States of America. In our opinion, all adjustments (consisting of normal
and recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
2005 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2005. The accompanying consolidated financial statements
and the notes thereto should be read in conjunction with Competitive's audited
consolidated financial statements as of December 31, 2004 and for the years
ended December 31, 2004 and 2003 contained in Competitive's Form 10-KSB, and the
audited financial statements of CAN contained in the Company's 8-K/A filing
dated June 27, 2005.
Recent Pronouncements
With the exception of SFAS 123(R) "Share-Based Payments", we do not believe any
other recent accounting pronouncements could have an impact on our consolidated
financial statements.
In December 2004, FASB Statement Number 123 ("FAS 123 (R)"), Share-Based
Payments. FAS 123 (R) was issued. This statement requires all entities to
recognize compensation expense in an amount equal to the fair value of
shared-based payments such as stock options granted to employees. We will be
required to apply FAS 123 (R) on a modified prospective method. Under this
method, we are required to record compensation expense (as previous awards
7
continue to vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. In addition, we may elect to adopt
FAS 123 (R) by restating previously issued financial statements, basing the
amounts on the expense previously calculated and reported in the pro forma
disclosures that had been required by FAS 123. FAS 123 (R) is effective for the
first reporting period beginning after December 15, 2005. Because all of our
stock options outstanding have already fully vested, we do not believe the
adoption of FAS 123 (R) will have a material impact on our consolidated
financial statements.
NOTE B - 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 losses from
operations and are experiencing difficulty in generating sufficient cash flow to
pay certain indebtedness which was due in April 2004 (the note has not been paid
and is in default). In addition, we do not currently have the cash resources to
meet our operating commitments for a period of 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 and the competitive environment in which we operate.
As discussed in Note A, we have closed a merger with Competitive, which is a
public company. We anticipate this merger will provide us with better access to
debt or equity capital and/or that will help to improve our results of
operations through our ability to offer additional services to our customers and
through the negotiation of better line usage charges and sharing of operating
overhead. 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.
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.
8
NOTE C - ISSUANCE OF OPTIONS
During the period ended June 30, 2005, we issued 1,877,000 options to purchase
shares of our common stock to certain employees, which options vested
immediately. Because the exercise price of the options ($.10) was equal to the
fair value of our common stock at the date of the grant, and because we continue
to use the intrinsic value method under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," to account for our stock-based
employee compensation arrangements, no stock based compensation has been
recorded as a result of the issuance of such options.
NOTE D - OTHER RELATED PARTY TRANSACTIONS
During the quarter ended June 30, 2005, we paid consulting fees of approximately
$60,800 to certain officers and directors. The amount is included in
compensation and benefits in the accompanying consolidated statement of
operations.
NOTE E - SUBSEQUENT EVENTS
During the quarter ended June 30, 2005, we entered an acquisition agreement to
purchase an unrelated entity. However, because this entity failed to comply with
the terms of the acquisition agreement, we were unable to consummate the
acquisition, and abandoned our efforts relative to such matter in September
2005. During the period between the date of the acquisition agreement and our
decision to abandon the proposed acquisition, we invested approximately $109,000
in such entity. This amount, which is included in other assets in the
accompanying consolidated balance sheet, was determined to be impaired as of the
date of our decision to abandon the acquisition and accordingly, we charged
operations for $109,000 in September 2005.
Subsequent to September 30, 2005, our Board of Directors authorized the grant of
3,750,000 options to our Directors for services provided in such quarter. The
options vest immediately and have exercise prices of $.10 per share which amount
is equal to the fair value of our common stock as of the date of the grant.
Because we account for equity instruments issued to non-employees based on the
fair value of the consideration received or the fair value of the equity
instruments, whichever is more reliably measurable, we anticipate that stock
based compensation will be applicable for these options in the fourth quarter of
our fiscal year ended December 31, 2005.
________________________________________________________________________________
End of financial statements.
9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS-COMPETITIVE COMPANIES, INC.
Statement of Operations. At this time comparisons of operations to the January
14, 2004 to June 30, 2004 period are not possible, because of the
merger/acquisition between Competitive Companies, Inc. and CA Networks.
Therefore, we will focus the financial comparisons on the three and six months
ending June 30, 2005 and include information from 2004 as it relates to customer
base only.
Revenues. Revenues were $198,615 and $192,285 during the six and three months
ended June 30, 2005. respectively as compared to no revenues during the
corresponding periods of the preceding fiscal year. This is because prior to our
acquisition of Competitive Companies, Inc. in May 2005, we were a development
stage enterprise that had not commenced its planned principal operations. In
2005, we acquired Competitive Companies, Inc and started to generate revenues
from telephone services we provide to apartment complexes. While not evident in
the consolidated statements of operations(as Competitive's financials are not
presented for 2004), Competitive's revenues declined somewhat because of
competitive pricing. We have partially compensated for the competitive pricing
from the special free long distance calling plans and free local calling minutes
offered by most wire and cellular telephone companies by reducing our prices for
long distance services. Even with our more aggressive pricing and package plans,
we have not been able to increase our number of apartment complex telephone
customers.
Some apartment complex customers have continued to use cellular telephones as
their only telephone. The apartment owners have also reported a decline in the
apartment complex occupancy rates at several properties, which has directly
affected our customer base. The number of apartment complex telephone customers
decreased by 235 (14%) from 1,712 through the second quarter of 2004 to 1,477
through the second quarter of 2005. The cable television service revenue also
decreased slightly through the second quarter of 2005 as compared through the
second quarter of 2004. This has resulted in our serving approximately 6% or 40
fewer cable television customers through the end of the second quarter of 2005
compared through the end of the second quarter 2004.
Our introduction of high-speed Internet services and competitively priced
telephone-cable television-high speed Internet package have helped to increase
our apartment complex Internet service customer base by 43 (23%) customers from
189 through the second quarter of 2004 to 232 through the second quarter of
2005. We believe that the apartment complexes will maintain current occupancy
rates at least through the end of 2005 provided no major changes occur in the
economy. We anticipate revenue may continue to be slightly reduced due to
competitive telephone pricing, cellular service competition, and satellite
television competition.
Additionally, sales to business and residential customers have been slower than
anticipated. This is due to low margins associated with re-sale of the major
local exchange carrier services and higher bad debt with this customer base as
apposed to the apartment complex customer base. We will start to address the
lower margins as we build our infrastructure that will support our wireless
concept. Our improved pricing for telephone service, cable television service,
and high-speed Internet service is competitive with major providers, and
provides a bundled package that is not available to our customers from any of
our competitors. Acquisition of new contracts with apartment owners for
telephone, television, and high-speed internet services to their complexes is
contingent on potential additional financing, which we will continue to pursue.
10
Other Operating Expenses. Other operating expenses for the six months
ended June 30, 2005 were $1,154,221. This amount was made up primarily of
compensation and benefits of $1,000,008, occupancy of $76,471 and other expenses
of $67,828. Compensation was primarily attributable to $778,000 of non-cash
expenses arising from our acquisition of Competitive.
LIQUIDITY AND CAPITAL RESOURCES
Cash received from operations in 2005 was primarily from telephone and cable
subscriber revenue generated by our telephone and cable TV service at apartment
complexes. Additional revenue was generated from residential and business
telephone customers and high-speed Internet service to selected apartment
complexes.
We used cash for operating and investing activities during the period ended June
30, 2005. These cash outflows were primarily financed through sales of our
common stock.
We are in default on a $207,450 note payable due April 28, 2004, bearing
interest at 15%, and a note payable, bearing interest at 10% and under which we
currently owe principal and interest of approximately $55,000.
We do not have adequate cash to pay the aforementioned notes and/or meet our
other operating commitments for the next year.
CAUTIONARY STATEMENT
This Form 10-QSB, press releases and certain information provided periodically
in writing or orally by our officers or our agents contain statements which
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act, as amended and Section 21E of the Securities Exchange Act of
1934. The words expect, anticipate, believe, goal, plan, intend, estimate and
similar expressions and variations thereof if used are intended to specifically
identify forward-looking statements. Those statements appear in a number of
places in this Form 10-QSB and in other places, particularly, Management's
Discussion and Analysis or Results of Operations, and include statements
regarding the intent, belief or current expectations us, our directors or our
officers with respect to, among other things: (i) our liquidity and capital
resources; (ii) our financing opportunities and plans and (iii) our future
performance and operating results. Investors and prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors. The factors that might cause such differences
include, among others, the following: (i) any material inability of us to
successfully internally develop our products; (ii) any adverse effect or
limitations caused by Governmental regulations; (iii) any adverse effect on our
positive cash flow and abilities to obtain acceptable financing in connection
with our growth plans; (iv) any increased competition in business; (v) any
11
inability of us to successfully conduct our business in new markets; and (vi)
other risks including those identified in our filings with the Securities and
Exchange Commission. We undertake no obligation to publicly update or revise the
forward looking statements made in this Form 10-QSB to reflect events or
circumstances after the date of this Form 10-QSB or to reflect the occurrence of
unanticipated events.
Item 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) that are
designed to ensure that information required to be disclosed in our periodic
reports filed under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management and our board of directors, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognize that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
We carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of June 30, 2005. This evaluation was
carried out under the supervision and with the participation of our management,
including our principal (chief) executive officer and principal (chief)
financial officer. Based upon the evaluation, our principal (chief) executive
officer and principal (chief) financial officer concluded that our disclosure
controls and procedures were of limited effectiveness at the reasonable
assurance level at such date.
Through the merger with Competitive Companies, Inc. we became a public company
in May 2005. We have hired outside consultants and professionals to assist us
with our SEC reporting requirements, however we continue to evaluate our needs
as they relate to accounting and disclosure controls and procedures and plan to
implement new disclosure controls and procedures. As part of this plan and
implementation, we are re-evaluating, re-designing, and documenting policies and
procedures, putting those procedures in operation and monitoring the
effectiveness of the procedures.
Changes in Internal Controls Over Financial Reporting
In connection with the evaluation of the Company's internal controls during the
Company's fiscal quarter ended June 30, 2005, the Company's Principal Executive
Officer and Principal Financial Officer have determined that there are no
changes to the Company's internal controls over financial reporting that has
materially affected, or are reasonably likely to materially effect, the
Company's internal controls over financial reporting.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
During the quarter ending June 30, 2005, we issued shares of our common stock
for consulting services and cash. The stock was issued to U.S. persons in
transactions that were exempt from registration under section 4(2) promulgated
under the Securities Act of 1933. No commissions were paid.
12
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Securities Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibits
31 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
and Acting Chief Financial Officer, Russell Preston
32 Section 1350 Certification, Russell Preston
SIGNATURE
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.
By /s/ Russell Preston
Russell Preston, Chief Executive Officer
and Acting Chief Financial Officer
Date: January 5, 2006