Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
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:
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(a)
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volatility or decline of our stock price;
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(b)
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potential fluctuation in quarterly results;
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(c)
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our failure of to earn revenues or profits;
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(d)
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inadequate capital to continue or expand its business;
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(e)
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insufficient revenues to cover operating costs;
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(f)
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inability to raise additional capital or financing to implement its business plans;
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(g)
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dilution experienced by our shareholders in their ownership of the Company because of the issuance
of additional securities by us, or the exercise of outstanding convertible securities;
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(h)
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inability to complete research and development of our technology with little or no current revenue;
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(i)
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failure to further commercialize our technology or to make sales;
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(j)
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loss of customers and reduction in demand for our products and services;
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(k)
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rapid and significant changes in markets;
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(l)
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technological innovations causing our technology to become obsolete;
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(m)
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increased competition from existing competitors and new entrants in the market;
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(n)
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litigation with or legal claims and allegations by outside parties, reducing revenue and increasing
costs;
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(o)
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inability to start or acquire new businesses, or lack of success of new businesses started or acquired
by us, if any;
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(p)
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insufficient revenues to cover operating costs;
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(qj)
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failure of our Registered Links Program to produce revenues or profits;
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(r)
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inability to obtain patent or other protection for our proprietary intellectual property;
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(m)
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uncollectible accounts and the need to incur expenses to collect amounts owed to us; and
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(n)
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we do not have an Audit Committee nor sufficient independent directors.
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There is no assurance that we will be profitable,
we may not be able to successfully develop, manage or market our products and services, we may not be able to attract or retain
qualified executives and technology personnel, we may not be able to obtain customers for our products or services or successfully
compete, our products and services may become obsolete, government regulation may hinder our 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 our 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. The cautionary statements contained or referred to in this
section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting
on our behalf may issue. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form
10-Q, or to reflect the occurrence of unanticipated events.
Business
Competitive Companies, Inc.
(the “Company”)
was originally incorporated in the state of Nevada in October 2001 and acts as a holding company for its operating subsidiaries,
Wytec International, Inc. (“Wytec”), Wylink, Inc., Wireless Wisconsin LLC, Capaciti Networks, Inc., Innovation Capital
Management, Inc., and Innovation Capital Management LLC (collectively, the “Subsidiaries”). The Company and its Subsidiaries
(also collectively referred to as “CCI”) are involved in providing next generation fixed and mobile wireless broadband
Internet services nationally and internationally to wholesale, retail and enterprise customers.
Due to developments in our intellectual property
and the continued development of our municipal and governmental relationships along with the addition of key personnel and consultants,
management intended to enter into 30 markets by year-end 2015. This strategy was redesigned to reduce market entry costs and enhance
marketing capabilities along with the development of a commissioned based agent sales channel and telemarketing. Included in our
market entry schedule are new products and services for small and medium businesses and our continued optimization strategies for
assisting municipalities in leveraging current assets such as utility poles for maximum utilization related to the provisioning
of telecommunications and machine to machine (“M2M”) services.
Our current business strategy incorporates
the use of millimeter wave technology utilizing wireless frequencies from 5GHz to 80GHz spectrum. Wytec, CCI’s subsidiary,
has constructed the use of these spectrums in three (3) markets including San Antonio, Texas., Columbus, Ohio and Denver, Colorado
and has commercialized a broadband Internet service directed to the small medium business (known as “SMB”) in two of
three markets. The initial focus of service is directed to highly concentrated areas such as the Central Business District (CBD)
of each market and to expand the service to high density business zones outside of the CBD. The Company plans to utilize its patent
pending LPN-16 Micro Cell technology to provide coverage to these zones.
We believe the use of millimeter wave spectrum
is a key component to the development of a 5G network and further support to what has now become popularized as the “Smart
City”. Smart Cities are designed to advance multiple mobile communications services, including but not limited to, public
safety, first responder, machine to machine, and carrier offload services.
Currently our network design is capable of
delivering bandwidth services of up to 1.5 gigabits per second to a wide range of customers including small, midsize and large
corporate operations located in Tier One, Tier Two, and Tier Three (the term “Tier” defines the population size of
the link location) cities throughout the United States. Our millimeter wave technology serves as the backbone for our platform
networks capable of supporting a host of high capacity data throughput objectives.
On December 18, 2015, Wytec performed an outside
speed test on the first LPN-16 working prototype and produced record performance speeds in excess of 500 Mbps to a smart phone
and 600 Mbps to a laptop computer. Earlier speed tests and network demonstrations enabled us, through Wytec, to consummate our
first services agreement with the City of Columbus on July 7, 2014, Wytec has now substantially completed its footprint coverage
of the Central Business District (“CBD”) of Columbus, Ohio and San Antonio, Texas in preparation for the Company’s
new marketing and sales strategy.
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 wired internet services, and move toward the design, development,
and implementation of 4G/5G networks with an accelerated concentration towards the development and support of our “Smart
City” concept. We believe recent national and international relationships have enhanced the progression of our “Smart
City” development in conjunction with the growing relationships with city and state governments.
On November 8, 2011, we acquired Wytec, a non-operational
company that owns five U.S. patents related to 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/5G backhaul configuration,
we intend to advance a derivative of the technology for usage in future 5G millimeter backhaul deployments. Millimeter wave technology
continues to grow as the predominate choice in gigabyte data transmission for the future 5G network.
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 International, Inc. into Wytec LLC. GPC
acts as the general member of the LLC and will assist in the monetization of the five patents. On September 20, 2016, GPC, the
Managing Partner of Wytec, LLC, assigned its partial ownership in the patents to Wytec, terminating the definitive agreement.
Wytec’s current product development involves
the continued design of the LPN-16 designed to meet the stringent bandwidth needs of both government “first responder”
services as well as “carrier offload” services. Management believes the LPN-16 solution is unique in Small Cell technology
with its multiple frequency “noninterference” characteristics. Small Cells as a Service (“SCaaS”) market
has been forecasted by SNS Research to reach $15 billion globally by 2020. In addition to the SCaaS market, management believes
the LPN-16 will support the needs of the massive growth of the machine to machine (“M2M”) market forecasted by SNS
Research to account for nearly $196 billion in global revenues by the end of 2020.
Wytec’s LPN-16 is proprietary intellectual
property of Wytec International, Inc for which management has applied for U.S. patent protection rights in the second quarter of
2014 and is a significant part of Wytec’s Intelligent Community Wi-Fi Network (“IWiN”). We intend to file international
patent applications for the technology in the near future. Design and engineering of the LPN-16 have been completed with development
of the first units being tested in an outdoor environment in San Antonio, Texas.
On June 9, 2012, our wholly owned subsidiary,
Wytec, formed a wholly owned subsidiary, Wylink, Inc., a Texas corporation, to market and sell millimeter wave spectrum in the
licensed 60 & 90 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 sell point-to-point registered links (“Registered Links”) as part of our backhaul solution in support
of our 4G/5G Wi-Fi network. The cash received from the sale of our Registered Links is recorded as “deferred revenue”
and will be recorded as revenue once the telecommunication equipment is installed for the link owners. Management closed the Wylink
application program in January 2016.
Management now focuses its primary business
on the development of Smart City broadband networks utilizing 4G/5G technologies capable of delivering speeds that are many times
faster than current cellular networks and which can be utilized for a range of services for carriers, governmental and business
applications.
Most recently, CCI management has developed
a strategic business plan to spin-off its subsidiary, Wytec into the public market. On July 31, 2016, Wytec completed its two
(2) year audit as a requirement to begin the process of filing a Registration Statement on Form S-1 with the Securities and Exchange
Commission. We anticipate that each CCI shareholder will receive one share of Wytec common stock for every 388 shares of Wytec
common stock owned (“Spin-Off Shares”) and two Wytec common stock purchase warrants (“Spin-Off Warrants”)
for each share of Wytec common stock received. The Spin-Off Warrants will be exercisable until December 31, 2018 at an exercise
price of $3.00 per share. The distribution of the Spin-Off Shares and Spin-Off Warrants is expected to occur on the date Wytec’s
Registration Statement on Form S-1 becomes effective.
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 Nine Months
Ended September 30, 2016 and 2015
Revenue for the nine months ended September
30, 2016 was $115,226, as compared to revenue of $62,239 for the nine months ended September 30, 2015. This increase in revenue
of $52,987 or 85% was primarily due to increases in sales from Capaciti Networks, Inc, and Wireless Wisconsin, LLC and a registered
link going live with Wytec International, Inc.
Cost of sales for the nine months ended September
30, 2016 was $36,579, a decrease of $3,337, or 8%, from $39,916 for the nine months ended September 30, 2015. Our cost of sales
decreased primarily due to managing costs related to our sales operations.
General and administrative expenses were $1,775,081
for the nine months ended September 30, 2016, as compared to $1,283,670 for the nine months ended September 30, 2015. This resulted
in an increase of $491,411 or 38% compared to the same period in 2015. The increase in our general and administrative expenses
was largely a result of increased activity related to our link program costs during the nine months ended September 30, 2016.
Research and development costs were $5,942 for
the nine months ended September 30, 2016 compared to $6,438 for the nine months ended September 30, 2015. The decrease of $496,
or 8% was due to a decrease in expenses related to the development of Wytec’s LPN-16.
Salary and wage expenses were $617,849 for
the nine months ended September 30, 2016, as compared to $607,806 for the nine months ended September 30, 2015, which resulted
in an increase of $10,043, or 2% compared to the same period in 2015. The increase in salary and wages was due to an increase to
the compensation of the Company’s chief executive officer during the nine months ended September 30, 2016.
Interest expense for the nine months ended
September 30, 2016 was $12,169, as compared to $133,946 for the nine months ended September 30, 2015. This resulted in a decrease
of $121,777 or 91% compared to the same period in 2015. The decrease was primarily due to the retirement of convertible and nonconvertible
debentures.
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 September 30, 2016, we had a working capital deficit of $144,035. As of September 30, 2016,
$2,210,000 of our current liabilities is deferred revenue on Link sales that have been funded by the customer, for which obligations
to the customer have not yet been completed.
As of September 30, 2016, all our outstanding
convertible debentures mature within the next twelve months and are classified as current liabilities in the accompanying consolidated
balance sheet.
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 September 30, 2016, our cash balance
was $2,920,024. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, private
placements of Wytec’s capital 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.
Recently Issued Accounting Standards
The Company has reviewed the updates issued
by the Financial Accounting Standards Board (“FASB”) during the nine month period ended September 30, 2016, and determined
that the updates are either not applicable to the Company or will not have a material impact on the Company.