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COMPETITIVE COMPANIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report. Various statements have been made in this Quarterly Report on Form 10-Q that may constitute "forward-looking statements." Forward-looking statements may also be made in Competitive Companies, Inc.'s other reports filed with or furnished to the United States Securities and Exchange Commission (the "SEC") and in other documents. In addition, from time to time, Competitive Companies, Inc. ("CCI," "we," "us," "our," or the "Company") through its management may make oral forward-looking statements. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements. . The most important facts that could prevent us from achieving our stated goals include, but are not limited to, the following: (a) volatility or decline of the Company's stock price; (b) potential fluctuation in quarterly results; (c) failure of the Company to earn revenues or profits; (d) inadequate capital to continue or expand its business, and inability to raise additional capital or financing to implement its business plans; (e) failure to further commercialize its technology or to make sales; (f) loss of customers and reduction in demand for the Company's products and services; (g) rapid and significant changes in markets; (h) litigation with or legal claims and allegations by outside parties, reducing revenue and increasing costs; (i) insufficient revenues to cover operating costs; (j) failure of our Registered Links Program to produce revenues or profits; (k) aspects of our business are not proprietary and in general we is subject to inherent competition; (l) further dilution of existing shareholders' ownership in us; (m) uncollectible accounts and the need to incur expenses to collect amounts owed to the Company; (n) the Company does not have an Audit Committee nor sufficient independent directors. There is no assurance that the Company will be profitable, the Company may not be able to successfully develop, manage or market its products and services, the Company may not be able to attract or retain qualified executives and technology personnel, the Company may not be able to obtain customers for its products or services or successfully compete, the Company's products and services may become obsolete, government regulation may hinder the Company's business, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants, and stock options, the exercise of outstanding warrants and stock options, or other risks inherent in the Company's businesses. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. 9 Business Competitive Companies, Inc. (the "Company" or "CCI") was originally incorporated in the state of Nevada in October 2001 and acts as a holding company for its operating subsidiaries, Competitive Communications, Inc., Wytec International, Inc., Wytec International, Inc., Wylink, Inc., Wireless Wisconsin LLC (formerly DiscoverNet, Inc.), Innovation Capital Management, Inc. (ICM) and Innovation Capital Management LLC (ICMLLC) (collectively, the "Subsidiaries"). The Company and its Subsidiaries (sometimes also collectively referred to as "CCI") are involved in providing next generation fixed and mobile wireless broadband Internet services nationally and internationally to both wholesale and retail customers. However, the Company's recent developments in municipal and governmental relationships, patent portfolio development and new leadership in key personnel, we are shifting a significant balance of our focus to delivering an aggregation of unique services. These services are in support of the expanding concept of "intelligent/smart city" development. Included in these unique services are the Company's optimization strategies for assisting municipalities in leveraging current assets for maximum utilization to their communities. We accomplish these objectives by applying proprietary carrier-grade technology while maintaining a vendor agnostic position. The benefits of this position allow CCI to continually perform its in-depth due-diligence and constantly assess next generation technology. This allows the Company to meet one of its primary Core Values of "delivering tomorrow's solutions today". CCI is currently in high-level discussions with ten U.S. city governments including Columbus, Ohio. The initial 4G Wi-Fi Pilot Project in Columbus, Ohio consisted of Three (3) Phases beginning with a 4G Wi-Fi speed test performed on December 5, 2012. As a result of the success performed with Phase 1 (over 100 Mbps), the City approved Phase 2 to include a 4G Wi-Fi network development through the Department of Technology utilizing key buildings in Columbus, Ohio such as the Center of Science and Industry (COSI), Veterans Memorial, Police Headquarters and City Hall. This Phase was designed to test certain technical features including load balancing, secure SSID connections, path differentiation, millimeter wave backhaul and stability of mobile throughput speeds. This resulted in another record performance with speeds over 150 Mbps to a laptop computer and resulted in the drafting of CCI's first contractual agreement with the City for services rendered. The Agreement, when completed, will consist of a network development covering a substantial portion of the Central Business District (CBD) of Columbus, Ohio providing among other services, direct connections to public safety devices and high capacity Wi-Fi access to both commercial and residential services. This network infrastructure will be capable of delivering bandwidth services ranging from 5 megabits per second up to 1.5 gigabits per second to midsize and large corporate operations located in the CBD area. Through the Company's subsidiary, Wireless Wisconsin, LLC provides high speed wireless Internet connections to residents in rural communities, as well as some dial-up internet services to businesses and residents within various markets throughout rural Wisconsin. We operate in both a regulated and non-regulated environment. Our current plan now includes the delivery of 4G mobile broadband services via Wi-Fi in major and rural markets throughout the United States. Wytec International, Inc. designs, manufactures and installs next generation "proprietary" carrier-class Wi-Fi solutions to Mobile Service Operations (MSO's), National Telecommunications Operators (NTO's) and corporate enterprises. Wytec owns five world class patents held in a partnership with General Patent Corporation focused on high capacity millimeter wave technology. The Company plans to develop its future network infrastructure utilizing the third generation of its multi-channeling patented technology known as Causeway III™ representing over fifteen years of design, development and installation. The Company has most recently engaged Southwest Research Institute, one of the largest research facilities in the world, to assist in the design of its next generation of millimeter wave enhancements utilizing multi-channeling technology. 10 Wylink Inc., a wholly owned subsidiary of Wytec, operates and manages a unique sales organization engaged in the sale of FCC Registered Links participating in the 70 and 80 gigahertz licensed frequency program (the "Program"). The Program allows qualified individuals to own a segment of the "backhaul" infrastructure of the Company's city-wide business deployment. A total of eight cities have been chosen for initial deployment of the Company's Registered Link Program. The first market, Columbus, Ohio has most recently sold out of its Registered Links representing 52 Links averaging $25,000 per Link totaling $1,300,000 in sales. Sales for markets two through eight have already begun with enthused participation. Each market is chosen carefully with multiple considerations including local government acceptance and select city participation. Participation includes access point real estate and fiber optics positioning. Wylink's management estimates Wylink's total sales for 2013 will be 200 Registered Links in eight markets averaging $28,000 per Link totaling approximately $5,600,000 of projected revenue. There is no assurance, however, as to whether or not Wylink will sell more Registered Links or how many Registered Links Wylink will sell in 2013. Furthermore, with each Registered Link it sells, Wylink incurs liability to provide and install telecommunications equipment at its cost for the Link owner, and monthly lease payments for access to a portion of the Link's capacity. Innovation Capital Management, Inc., ("ICM, Inc.") operates as the Company's private equity placement division focused on raising capital and developing joint ventures and acquisitions while Innovation Capital Management, LLC ("ICM LLC") focuses on structuring strategic marketing relationships for the Company's products and services. ICM is currently managing the issuance of a five (5) million dollar private placement offering for Wytec International, Inc. The offering consists of Convertible Secured Notes of Wytec and is secured by an unperfected security interest in Wytec's share of net proceeds from the licensing, enforcement and commercial use of its five (5) patents covering Local Multipoint Distribution Service (LMDS) technology. The conversion price is $0.01 per share and the notes bear simple interest at the rate of 12% per annum. As of March 31, 2013, Wytec had issued $300,000 of its convertible notes and expects to fully subscribe the offering by August 2013, although there is no assurance as to how much capital Wytec will raise from its offering of notes. Products Wireless Wisconsin LLC CCI, through its wholly owned subsidiary, Wireless Wisconsin LLC, currently provides residential customers in Western Wisconsin dial-up, DSL, and wireless broadband services. Both DSL and dial-up internet are provided via a wholesale relationship with Ikano Wholesale. This wholesale relationship provides multiple territory access to many markets throughout North America and allows CCI to expand its coverage nationwide. The Company's local "fixed" broadband wireless services are currently restricted to areas located in western Wisconsin with plans to include mobile 4G Internet access and expand to other Wisconsin markets utilizing millimeter wave backhaul technology. Wytec International, Inc. Product sales for CCI are performed through its wholly owned subsidiary, Wytec International, Inc. and include proprietary equipment under the Company's Original Equipment Manufacturer (OEM) relationships. Future equipment sales will include the Company's patented multi-channeling technology for both licensed and unlicensed spectrum configured for both point to point and point to multipoint network configuration. Primary sales are currently being achieved through Wytec's wholly owned subsidiary, Wylink, Inc., designed to promote the business opportunity afforded under the FCC 70-80 GHz allocation program. In essence, Wylink promotes and sells the opportunity for a qualified applicant to own and operate its own Registered Link established as a part of the CCI backhaul network. Link Owners receive income from subscribers of the Link including CCI's commitment to support its Wi-Fi network. To date, Wylink has sold 85 Registered Links representing total sales to date of $2,200,000 with total funded sales of 51 Registered Links at $1,290,000. Each sale consists of point to point OEM equipment, installation and lease for up to 25% of the capacity of the Link. The Company has authorized a total of 200 Links to be sold for the eight selected markets for an average Link price of $28,500 which would represent approximately $5,700,000 in projected Registered Link sales if all 200 links were sold. 11 Currently CCI's primary service product consists of Wylink's FCC Registered Link application and registration service for the 70 and 80 Gigahertz FCC "protected frequency" supporting the backbone of CCI's 4G Wi-Fi network. In addition to supporting its 4G mobile service, the network provides high capacity Internet to fixed wireless commercial Internet service providers. FCC Registered Links are capable of delivering at least one (1) Gigabyte or more of data throughput to multiple points throughout the network. This enables each point within the network to deliver 100 Mbps or more to the end user including mobile and fixed wireless customers. Service products include 4G Wi-Fi service to Mobile Service Operators (MSO's), also known as "carriers", hot spots, hot spot aggregators, hot zones such as special sports events and other large data capacity users. Wylink, Inc. As a subsidiary of Wytec International, Inc., Wytec, Inc. was developed as a partnership with General Patent Corporation (GPC) to hold the interest of Wytec's five (5) world class patents involving multi-channeling technology and to provide protection and enforcement services to the value of its intellectual property. To date, no patent enforcement has been applied to Wytec's interest in its patent portfolio. Services Mobile Service Operator (MSO) As part of its network infrastructure planning and services to municipal governments, CCI has become a premier participant in the emerging $2.2 billion MSO Offload Services Industry. This Industry has only begun to be recognized over the past few years as a result of the massive data usage created by the continued advancement in smart phones and smart devices. As a result, MSO's have begun experiencing unprecedented service interruptions (dropped calls) and slower internet speed due to the lack of licensed spectrum necessary to support the additional data demand. As mobile service quality has decreased, MSO's have begun looking for solutions to overcome the lack of licensed spectrum. For the first time in the history of the telecommunications industry, MSO's have now accepted unlicensed Wi-Fi spectrum as part of the solution. Thus Wi-Fi offload services have become a serious consideration to address the MSO licensed spectrum shortage. CCI has embraced the accelerating offload services Industry with the development of its own proprietary Wi-Fi offload service to include both its patented LMDS backhaul technology and its exclusive Original Equipment Manufacturer (OEM) relationships to design, deploy and manage the fastest and most reliable network in America. Preliminary tests have now proven that the resulting CCI network will support end user speeds exceeding 100 Megabits per Second (Mbps) for a mobile device. Consequently, what was considered a distance choice of consideration; Wi-Fi Offload, has become a primary consideration to remedy the data consumption issue. Carriers such as AT&T have now incorporated the Wi-Fi alternative with the development of more than 20,000 Hot Spots from which to "offload" its data traffic. Most, if not all other carriers, are following suit by offloading their data traffic to Hot Spot Aggregators who have accumulated relationships with multiple Hot Spot locations through data management software. It has been reported that carriers need to "offload" approximately 35% of their data traffic to deliver a quality experience to their 4G customers. Even with the Hot Spot offloading alternative, studies have shown that only about 3% of the 35% offload needs are being accomplished through Hot Spot alternatives. 12 CCI, through one of its operating subsidiaries, has developed another offloading alternative through the development of a city-wide "carrier-grade" Wi-Fi network utilizing a strategic approach involving a carrier agnostic relationship with city management. This agnostic relationship approach allows the utilization of key access point (AP) locations throughout the city for the expansion of data capacity through micro-cell development essential for carriers to deliver "true" 4G services throughout their entire coverage area. Additionally, it allows CCI to offer the same service to multiple carriers simultaneously through its unique 16 Service Set Identifier (SSID) technology. Currently, no other provider in the U.S. can offer this capability outside of CCI, giving the Company a unique differentiator and barrier to entry from its closest competitor. On December 5, 2012, CCI established a historical event in being the first in the United States to perform a true 4G delivery in Columbus, Ohio by transmitting 117 Mbps of throughput to a mobile device. This has now set the standard and caught the interest of multiple major carriers throughout the United States in considering CCI for its unique offload services. CCI management believes securing carrier interest to the level of securing a Wi-Fi offload service contract could still be a year in development. This is due to the fact that an acceptable business case for carrier offload charges are still in its infancy and requires sophisticated software to establish the case and the price charged for the service. CCI is in the process of developing this software and expects to complete it by the end of the second quarter of 2013. Internet Services CCI had been installing and offering high-speed internet service to selected apartment complex customers since May 2002. It offered high-speed internet access services via DSL. However, through open access rights provided to cable operators in early 2008, the Company was unable to compete with better capitalized cable providers and discontinued this service in 2009. Today the Company is primarily focused on delivering 4G mobile broadband utilizing millimeter wave technology rural markets across North America. Overview of Current Operations We continue to shift our focus away from our past revenue sources, such as, web hosting, dial-up, wireless, DSL and fixed wireless internet services to the design, development and implementation of 4G mobile Wi-Fi with special concentration in developing offload services for carriers within the Central Business District ("CBD") of tier one and tier two cities across North America. On November 8, 2011, we acquired Wytec, a non-operational company along with five U.S. patents related to Local Multipoint Distribution Service ("LMDS"). LMDS deals primarily in the transmission of point-to-point and point-to-multipoint data distribution utilizing millimeter wave spectrum. Though the patents are currently unusable in our current 4G backhaul configuration, we intend to develop the technology for usage in future 4G millimeter backhaul deployments. Millimeter links are now utilized as the predominate choice in gigabyte data transmission in support of 4G network deployments. On March 9, 2012, our wholly owned subsidiary Wytec formed a wholly owned subsidiary, Wylink, Inc., a Texas corporation, to market and sale millimeter wave spectrum in the licensed 70 & 80 Gigahertz frequency channels. The Federal Communications Commission ("FCC") has developed a unique application program giving the ability for qualified applicants to own millimeter spectrum under a program known as the Registered Link Program. We intend to sell point-to-point "Registered Links" as part of our backhaul solution in support of our 4G Wi-Fi network. As of March 31, 2013, Wylink had sold fifty-one (51) Registered Links for a total of $1,290,000. The sale of our Registered Links is treated as customer deposits and booked as "deferred revenue" and is included in our cash flow statement. On September 7, 2012, Wytec entered into a definitive agreement with General Patent Corporation ("GPC") to form Wytec LLC, a Delaware limited liability company, for the purpose of transferring ownership of our five patents originally owned by Wytec into Wytec LLC. GPC will act as the General Partner of the corporation and will assist in the monetization of the five patents. Management now focuses its primary business direction on the development of 4G mobile broadband networks capable of delivering 100 Mbps to mobile devices and utilized as a multi-carrier "offload" solution. We plan to construct at least ten (10) Central Business District ("CBD") operations within North America by year end 2013. 13 Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the financial statements. We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the uncollectability of our trade accounts receivable balances. If we determine that the financial conditions of any of our customers deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made. Accounts receivable are written off when all collection attempts have failed. We follow the provisions of Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements" for revenue recognition and SAB 104. Under Staff Accounting Bulletin 101, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable and (iv) collection is reasonably assured. Income taxes are accounted for under the asset and liability method. Under this method, to the extent that we believe that the deferred tax asset is not likely to be recovered, a valuation allowance is provided. In making this determination, we consider estimated future taxable income and taxable timing differences expected in the future. Actual results may differ from those estimates. Result of Operations for the Three Months Ended March 31, 2013 and 2012 Revenue for the three months ended March 31, 2013 was $15,583 compared to revenue of $19,547 for the three months ended March 31, 2012. This decrease in revenue of $3,964 or 20% was primarily due to the loss of market share to competing companies from cellular and satellite based technologies. We are currently expanding our product lines to increase our revenue through alternative means, such as, "mobile" 4G services and the establishment of a Registered Links Program, whereby we intend to sell point to point links between two known GPS coordinates that make up a part of a backhaul network feeding into a microcell mobile broadband network. Cost of sales for the three months ended March 31, 2013 was $13,313, a decrease of $7,329, or 36%, from $20,642 for the three months ended March 31, 2012. Our cost of sales decreased primarily due to reductions in costs related to sales operations. Gross profit as a percentage of revenue increased from (6%) from the three months ended March 30, 2012 to 15% for the three months ended March 31, 2013. Gross profit as a percentage of revenue increased due to our ability to slightly reduce cost of sales on the same scale as our reduction in revenues. General and administrative expenses were $409,166 for the three months ended March 31, 2013, as compared to $241,444 for the three months ended March 31, 2012. This resulted in an increase of $167,222 or 69%. The increase in our general and administrative expenses was largely a result of developing new technologies that we expect will help increase future revenues and costs incurred in the acquisition of our wholly owned subsidiary, Wytec International, Inc. and the related patent technologies. 14 Salary and wage expenses were $213,497 for the three months ended March 31, 2013, as compared to $54,817 for the three months ended March 31, 2012, which resulted in an increase of $158,680, or 289%. The increase in salary and wages is due to several new employees added along with an increase in compensation (including stock compensation) of certain current employees. Interest expense for the three months ended March 31, 2013 was $55,992, as compared to $76,272 for the three months ended March 31, 2012. This resulted in a decrease of $20,280 or 27% compared to the same period in 2012. The decrease was primarily due to our decreased convertible debentures held during the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Liquidity and Capital Resources While we have raised capital to meet our working capital and financing needs in the past, additional financing will be required in order to meet our current and projected cash requirements for operations. As of March 31, 2013, we had a working capital (deficit) of ($2,308,950). As of March 31, 2013, all of our outstanding convertible and promissory notes are currently in default or mature within the next twelve months and are classified as current liabilities in the accompanying consolidated balance sheet. We plan to remedy the defaults through conversions or through repayments once future financing is secured. During the three months ended March 31, 2013, the Company received a total of $50,000 from private lenders in exchange for unsecured convertible promissory notes with various maturity dates between [ ] and August 14, 2013. The convertible promissory notes bear interest at rates of 12.5% and 8.0% per annum and mature 179 days from their origination dates. The principal is convertible into shares of our common stock at the discretion of the note holder at a price equal to eighty percent (80%) of the average closing price of the Company's common stock for the ten (10) trading days prior to the conversion date, or 110% of the average closing price as of the Closing Date of the each note, whichever is greater. We anticipate that we will incur operating losses in the next twelve months. Our revenues are not expected to exceed our investment and operating costs 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 operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, effectively monitor and manage our claims for payments that are owed to us, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations. Satisfaction of our cash obligations for the next 12 months. As of March 31, 2013, our cash balance was $224,772. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, private placements of our common stock, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient revenue to meet our working capital requirements. Consequently, we intend to attempt to find sources of additional capital in the future to fund our growth and expansion through additional equity or debt financing or credit facilities. There is no assurance that we would be able to meet our working capital requirements through the private placement of equity or debt or from any other source. 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 of operations, liquidity, capital expenditures or capital resources that are material to investors. 15 Recently Issued Accounting Standards The Company has reviewed the updates issued by the Financial Accounting Standards Board ("FASB") during the three month period ended March 31, 2013, and determined that the updates are either not applicable to the Company or will not have a material impact on the Company. |