UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-QSB

 

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

 

For the quarterly period ended June 30, 2007

 

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

 

Commission file number 333-76630

 

COMPETITIVE COMPANIES, INC.

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

 

 

3751 Merced Drive, Suite A

Riverside, California 92503

(Address of principal executive offices)

 

(951) 687-6100

(Issuer’s telephone number)

 

Copies of Communications to:

Stoecklein Law Group

402 West Broadway, Suite 400

San Diego, CA 92101

(619) 595-4882

Fax (619) 595-4883

 

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

 

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

 

The number of shares of Common Stock, $0.001 par value, outstanding on August 2, 2007, was 56,187,050 shares.

 

 

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PART 1 – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

The accompanying notes are an integral part of these financial statements.

 

 

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The accompanying notes are an integral part of these financial statements.

 

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The accompanying notes are an integral part of these financial statements.

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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, 2006 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 $2,695,276 and a working capital deficit of $106,832 at June 30, 2007, 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.

 

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Competitive Companies, Inc.

Notes to Consolidated Financial Statements

 

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:

 

		June 30,			December 31,
		2007			2006
Telecommunication equipment and computers		$	274,008		$	267,354
Furniture & Fixtures			3,353			3,353
Leasehold Improvements			13,539			13,539
			290,900			284,246
Less accumulated depreciation			(189,660)			(172,976)
		$	101,240		$	111,270

 

Depreciation expense totaled $16,684 and $19,565 for the six months ended June 30, 2007 and 2006, respectively.

 

Note 4 – Long Term Debt

 

Long-term debt consists of the following at June 30, 2007 and December 31, 2006:

 

 

Future maturities of long-term debt are as follows as of June 30:

 

 

Interest expense totaled $1,112 and $25,770 for the six months ended June 30, 2007 and 2006, respectively.

 

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Competitive Companies, Inc.

Notes to Consolidated Financial Statements

 

Note 5 – 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 $13,650 and $17,169 during the six months ended June 30, 2007 and 2006, respectively.

 

Future minimum lease payments required are as follow:

 

 

Note 6 – Stockholders’ equity (deficit)

 

Common stock

 

During the six months ended June 30, 2007, the Company issued 3,220,000 shares of its $0.001 par value for cash totaling $322,000.

 

During the six months ended June 30, 2007, the Company issued 100,000 shares for consulting services valued at $10,000; the fair market value of the underlying shares.

 

During the six months ended June 30, 2007, the Company received $44,000 in exchange for 440,000 shares of its $0.001 par value common stock for subscriptions payable at June 30, 2007. Of the 440,000 shares, 140,000 shares remain un-issued as of the date of this report.

 

Note 7 – Subsequent Events

 

Subsequent to June 30, 2007, the Company received $37,000 in exchange for subscription agreements totaling 370,000 shares of its $0.001 par value common stock. The shares have since been issued prior to the date of this report.

 

Subsequent to June 30, 2007, the Company issued 300,000 shares of common stock for a subscription agreement that was authorized, but un-issued as of June 30, 2007.

 

 

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FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Factors That May Affect Our Results of Operation” in this document and in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

 

 

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Item 2. Management’s Discussion and Analysis

 

OVERVIEW AND OUTLOOK

 

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

 

On May 5, 2005, CCI merged with CA Networks, Inc. (“CAN”), which provided retail local and long distance telephone service and DSL Internet service in Kentucky. The company operated as “The Telephone Company” in Kentucky and had been providing retail service since November 2004. According to the terms of the Merger Agreement and Plan of Reorganization we agreed to issue to the shareholders of CAN 40,599,999 shares of common stock of CCI in exchange for 40,599,999 shares of common stock of CAN.

 

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 in California, Mississippi and Kentucky, and CCI Residential Services Inc. (“CCI Residential”), which is a non-regulated telephone company providing local and long distance telephone service, high-speed Internet and cable television service to large apartment complexes in California, Alabama, and Mississippi.

 

CCI no longer has operations within Kentucky and has focused on continuing its operations of providing telecommunications services to California, Alabama, and Mississippi. 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. Our subsidiary, Competitive Communications, is regulated whereas our subsidiary, CCI Residential, is unregulated.

 

During the third quarter of 2006, we also announced our intention to lease the first 20,000 Intellant antennas from Waylinks, Inc, which is expected to be available for deployment in 2007. Waylinks, patented antennas are wire replacement antenna that have the capacity to transmit bandwidth at a very high speed, which will help reduce costs of the “The Last Mile”. The Last Mile or final delivery of services has in the past always been one of the most costly parts of the telecom industry. The Waylinks Intellant is a network appliance that is used to provide high-speed wireless broadband to customers unable to receive cost effective service from the existing network. The Intellant is a landline replacement device for use to extend broadband access across free space.  The Intellant device works differently than the traditional wireless devices in that it not only receives the signal but actually amplifies the signal it receives and boosts it downline.

 

 

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Hopefully, the Waylinks antenna will allow us to deliver VoIP phone service, high definition television service and internet service to customers living in the vicinity of the apartment complexes we service, at a reduced cost. We anticipate that the Intellant antennas will allow from point of presence (POP) and allow us to expand the bulk of our services beyond apartment complexes. If and when these become operational, the devices would combine to form a high-speed mesh wireless infrastructure.  CCI anticipates that this broadband infrastructure is capable of delivering broadband access to widely dispersed clients without the need for a tower-based distribution system.

 

By using the Intellant for delivery of broadband access, it is anticipated that a service provider will be able grow its customer base with minimal cost of deployment.  With the elimination of wire line and fiber infrastructure sharing between telecommunications companies and by the Federal Communications Commission for new network deployment, this wireless broadband should give service providers the opportunity to continue to grow their customer base and provide cost effective competition in a competitive communications environment.

 

In April 2006, we announced the addition of Mr. Tomberlin, who agreed to act as a consultant in helping to identify and develop new revenue sources. Through this relationship we entered into discussions to acquire the right to provide over 20,000 residential units throughout the U.S. with Cable TV, telephone and high speed internet services. However, subsequent to the quarter ended June 30, 2007, we terminated our relationship with Mr. Tomberlin. No agreements were ever finalized with regards to the 20,000 residential units.

 

Results of Operations for the Three Months Ended June 30, 2007 and 2006.

 

The following table summarizes selected items from the statement of operations for the three months ended June 30, 2007 compared to June 30, 2006.

 

INCOME:

 

 

 

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Revenues

 

Revenues for the three months ended June 30, 2007 were $225,860 compared to $314,582 in the three months ended June 30, 2006. This resulted in a decrease in revenues of $88,722, or 28%, from the same period one year ago. The primary reason for this decrease in revenues when compared to the same period last year was a result of no longer having the Kentucky operations. We have eliminated some sources of revenue but felt it was necessary to better manage our operations. During the second quarter we began the evaluation process of locating new revenues sources but have not been able to capitalize on any as of yet.

 

Cost of sales

 

Cost of sales for the three months ended June 30, 2007 was $113,668, a decrease of $148,562, or 57%, from $262,230 for the three months ended June 30, 2006. The decrease was due to eliminating underutilized circuits and also due to our efforts and our decision to continually manage and reduce costs, where applicable. Additionally, we had a reduction in costs associated with our previous Kentucky operations.

 

Gross profit

 

Gross profit as a percentage of revenue increased from 17% for the three months ended June 30, 2006 to 50% for the three months ended June 30, 2007. Although our top line revenues decreased, our gross profit increased as a result of better managing our cost of sales and with the sale of the Kentucky operations. We have made a strong effort to manage and reduce our cost of sales and during the three months ended June 30, 2007 we were able to proportionally decrease this percentage more than ever before.

 

EXPENSES:

 

 

General and Administrative expenses

 

General and administrative expenses were $160,972 for the three months ended June 30, 2007 versus $51,275 for the three months ended June 30, 2006, which resulted in an increase of $109,697 or 214%. The increase was due to an increase in the Company’s advertising and

 

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promotional efforts as well as some consulting expenses, which we had not previously experienced during the same period in 2006.

 

Salaries and Wages

 

Salary and wage expenses were $114,637 for the three months ended June 30, 2007 versus $38,386 for the three months ended June 30, 2006. This resulted in an increase of $76,251, or 199%, over the same period in 2006. During the fourth quarter of 2006, we increased management’s salaries, which have carried through 2007 but were not experienced during the same period in 2006.

 

Bad Debt

 

Bad debt expenses for the three months ended June 30, 2007 decreased by $9,511 over the same period in 2006 as a result of recovering debt that we had previously written off.

 

Net Operating Loss

 

The net operating loss for the three months ended June 30, 2007 was $169,039, versus a net operating loss of $53,143 for the three months ended June 30, 2006, an increase in net loss of $115,896. This increase in net loss is primarily attributable to large increases experienced in our general and administrative expenses as well as our higher salaries and wage expenses.

 

Results of Operations for the Six Months Ended June 30, 2007 and 2006.

 

The following table summarizes selected items from the statement of operations for the six months ended June 30, 2007 compared to June 30, 2006.

 

INCOME:

 

Revenues

 

Revenues for the six months ended June 30, 2007 were $459,801 compared to $600,195 in the six months ended June 30, 2006. This resulted in a decrease in revenues of $140,394, or 23%, from the same period one year ago. The primary reason for this decrease in revenues when compared to the same period last year was a result of no longer having the Kentucky operations.

 

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We have eliminated some sources of revenue but felt it was necessary to better manage our operations. As mentioned above, we began during the second quarter the evaluation process of locating new revenues sources but have not been able to capitalize on any as of yet.

 

Cost of sales

 

Cost of sales for the six months ended June 30, 2007 was $241,694, a decrease of $257,909, or 52%, from $499,603 for the six months ended June 30, 2006. The decrease was due to eliminating underutilized circuits and also due to our efforts and our decision to continually to manage and reduce cost, where applicable. Additionally, we no longer have costs associated with our previous Kentucky operations, which had been previously experienced during the 2006 year.

 

Gross profit

 

Gross profit as a percentage of revenue increased from 17% for the six months ended June 30, 2006 to 47% for the six months ended June 30, 2007. Although our top line revenues decreased, our gross profit increased as a result of better managing our cost of sales and with the sale of the Kentucky operations. As mentioned above, we have made a strong effort to manage and reduce our cost of sales, which ultimately increased our gross profit percentage of revenue.

 

EXPENSES:

 

 

General and Administrative expenses

 

General and administrative expenses were $297,329 for the six months ended June 30, 2007 versus $176,655 for the six months ended June 30, 2006, which resulted in an increase of $120,674 or 68%. The increase was due primarily because of an increase in the Company’s advertising and promotional efforts.

 

 

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Salaries and Wages

 

Salary and wage expenses were $237,462 for the six months ended June 30, 2007 versus $227,184 for the three months ended June 30, 2006. This resulted in an increase of $10,278, or 5%, over the same period in 2006. As mentioned above we increased management’s salaries during the last quarter of 2006 and those have carried forward through the first two quarters of 2007. We expect that we may need to increase our personnel in the future if we continue to expand our operations and prepare for our entry into the VoIP field.

 

Depreciation

 

Depreciation expenses were $16,684 for the six months ended June 30, 2007 versus $19,565 for the six months ended June 30, 2006. This resulted in a decrease of $2,881, or 15%, over the same period in 2006. The decrease was due to no new assets being acquired and the decrease was normal depreciation.

 

Bad Debt

 

Bad debt expenses for the six months ended June 30, 2007 were $17,236 as compared to $12,544 for the same period in 2006, which resulted in an increase of $4,692. The increase was primarily due to an increase in the Company’s allowance for doubtful accounts, which was increased to provide an additional allowance to cover the increased number of accounts that have been sent to a third party collection agency for further collection efforts.

 

Net Operating Loss

 

The net operating loss for the six months ended June 30, 2007 was $361,654, versus a net operating loss of $335,356 for the six months ended June 30, 2006, an increase in net loss of $26,298. This increase in net loss is primarily attributable to large increases experienced in our general and administrative expenses as well as our higher salaries and wage expenses.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following table summarizes total current assets, liabilities and working capital at June 30, 2007 compared to December 31, 2006.

 

 

 

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While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development. As of June 30, 2007, we had current assets of $100,304 and current liabilities of $207,136, which resulted in a working capital deficit of $106,832. Our poor financial condition raises substantial doubt about our ability to continue as a going concern and we have incurred losses since inception and may incur future losses.

 

Our future capital requirements will depend on many factors, including the expansion of our VoIP services; actual usage of Waylinks’ antennas; the cost and availability of third-party financing for development; addition of new revenue sources; and administrative and legal expenses. We have conducted a private placement of equity shares at $0.10 per share during the last two quarters of 2006 and through the first two quarters of 2007. Upon closing the first private placement, we had sold approximately 1,950,000 shares to 16 accredited investors. At the end of the first quarter we began another private placement of equity shares at $0.10 per share. As of the time of this filing we have sold approximately 2,640,000 shares pursuant to the second private placement and we have raised a total of $322,000 in cash from both private placements. However, should we not be able to co! ntinue 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 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

 

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 $2,695,276 and a working capital deficit of $106,832 at June 30, 2007, 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 t! hey 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

 

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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.

 

Off-Balance Sheet Arrangements

 

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

 

Application of Critical Accounting Policies and Pronouncements

 

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

 

Recent Issued Accounting Pronouncements

 

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement 115” that provides companies with an option to report certain financial assets and liabilities in their entirety at fair value. This statement is effective for fiscal years beginning after November 15, 2007. The fair value option may be applied instrument by instrument, and may be applied only to entire instruments. A business entity would report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. We are evaluating SFAS 159 and have not yet determined the impact the adoption will have on the consolidated financial! statements.

 

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. This statement defines fair value, establishes a framework for measuring fair value for both assets and liabilities through a fair value hierarchy and expands disclosure requirements. SFAS 157 is effective for financial statements issued or fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are evaluating SFAS 157 and have not yet determined the impact the adoption will have on the consolidated financial statements.

 

 

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In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.”  FIN 48 prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition for tax related positions.  FIN 48 becomes effective for the Company on January 1, 2007.  The Company is currently in the process of determining the effect, if any; the adoption of FIN 48 will have on the consolidated financial statements.

 

FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS

 

Risks Relating with Our Business and Marketplace  

 

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

 

Our net operating losses for the year ended December 31, 2006 totaled $493,186. As of June 30, 2007, we only had $3,501 in cash available to finance our operations and a working capital deficit of $106,832. 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 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. We anticipate that we will require up to approximately $700,000 to fund our continued operations for the next twelve months, depending on revenue from operations. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our

 

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ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Any additional equity financing may involve substantial dilution to our then existing stockholders.

 

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

 

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

 

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

 

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

 

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. Competition within our industry is characterized by price and the ability to offer enhanced services, which we may not be able to do as well as our competitors. 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.

 

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

 

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

 

We may not be able to adapt to rapid technological changes in the communications industry and more specifically VoIP services.

 

The telecommunications industry is subject to rapid changes in technology and we may not be able to predict those changes as they relate to our services. Additionally, we are still in the experimental stages of our VoIP services, which is does not have developed and accepted standards. We anticipate new technologies may emerge in this industry and we will be required to compete or differentiate our services. We must adapt by continuing to improve and expand our services and also develop new technologies as our customers’ needs grow. Any changes in the industry or technologies may require additional capital to allow for us to remain competitive.

 

In addition, market acceptance of VoIP is dependent on the adoption of industry standards so that products from multiple manufacturers can communicate with each other. Currently there is no agreement between industry leaders, which may also affect our ability to expand our services to new customers. As standards evolve, we may be required to modify our existing products or develop new versions.

 

Risks Factors Relating to our Common Stock  

 

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

 

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

 

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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.

 

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:

 

 

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.

 

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

 

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

 

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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.

 

NASD 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, the National Association of Securities Dealers (NASD) 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 NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD 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 3. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, Henri Hornby, our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Mr. Hornby, our Chief Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures are effective in timely alerting him to material information required to be included in our periodic SEC filings. There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affecte! d, or reasonably likely to materially affect, our internal control over financial reporting.

 

It should be noted, however, that no matter how well designed and operated, a control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems (including faulty judgments in decision making or breakdowns resulting from simple errors or mistakes), there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions. Additionally, controls can be circumvented by individual acts, collusion or by management override of the controls in place.

 

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PART II--OTHER INFORMATION

 

 

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 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Towards the end of the first quarter and into the second quarter we began conducting a second private placement of equity shares at $0.10 per share. As of the quarter ended June 30, 2007 we sold approximately 2,310,000 shares to 14 accredited investors for approximate proceeds of $231,000. Of the 2,310,000 shares sold, 140,000 shares remain unissued as of the date of this report.

 

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

 

Subsequent Issuances

 

Subsequent to the second quarter of 2007, we continued to conduct the private placement of equity shares at $0.10 per share. As of the date of this report we have sold an additional 370,000 shares to 3 accredited investors.

 

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

 

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None.

 

 

None.

 

 

None.

 

Item 6. Exhibits

 

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

COMPETITIVE COMPANIES, INC.

(Registrant)

 

 

Henri Hornby, Chief Executive Officer

(On behalf of the Registrant

and as Principal Financial Officer)

 

Date: August 14, 2007

 

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