ITEM
1
FINANCIAL STATEMENTS
COMPETITIVE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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|
March 31,
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December 31,
|
|
|
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2017
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|
|
2016
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|
Assets
|
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|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
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|
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Current assets:
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|
|
|
|
|
|
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Cash
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|
$
|
2,605,655
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|
|
$
|
2,777,313
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|
Accounts receivable, net
|
|
|
5,160
|
|
|
|
6,542
|
|
Prepaid Expense
|
|
|
7,342
|
|
|
|
12,853
|
|
Total current assets
|
|
|
2,618,157
|
|
|
|
2,796,708
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
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|
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558,946
|
|
|
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603,397
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|
|
|
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|
|
|
|
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Other assets:
|
|
|
|
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Construction in process
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364,634
|
|
|
|
363,779
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|
Deposits and other assets
|
|
|
27,545
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|
|
|
25,905
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|
|
|
|
392,179
|
|
|
|
389,684
|
|
|
|
|
|
|
|
|
|
|
Total assets
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|
$
|
3,569,282
|
|
|
$
|
3,789,789
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|
|
|
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|
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Liabilities and Stockholders' Equity
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Current liabilities:
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Accounts payable
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$
|
64,384
|
|
|
$
|
166,372
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|
Accrued expenses
|
|
|
110,412
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|
|
|
40,748
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|
Deferred revenues, net of commissions
|
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1,895,000
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|
|
|
1,930,000
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Total current liabilities
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|
2,069,796
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|
|
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2,137,120
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|
|
|
|
|
|
|
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Total liabilities
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2,069,796
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|
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2,137,120
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|
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Stockholders' equity:
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Preferred stock, $0.001 par value 100,000,000 shares authorized:
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Class A convertible, no shares issued and outstanding with no liquidation value
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–
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–
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Class B convertible, 1,495,436 shares issued and outstanding with no liquidation value
|
|
|
1,495
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|
|
|
1,495
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Class C convertible, 1,000,000 shares issued and outstanding with no liquidation value
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1,000
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1,000
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Class D convertible, 100,000 shares issued and outstanding with no liquidation value
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100
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|
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100
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Common stock, $0.001 par value, 500,000,000 shares authorized, 337,167,991 shares issued,
332,752,068 shares and 332,752,068 shares outstanding at March 31, 2017 and December 31, 2016, respectively
|
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337,164
|
|
|
|
337,164
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Additional paid-in capital
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18,577,863
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18,504,176
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Accumulated (deficit)
|
|
|
(18,919,720
|
)
|
|
|
(18,522,585
|
)
|
Treasury stock, at cost, 4,415,923 shares and 4,415,923 shares at March 31, 2017 and December
31, 2016, respectively
|
|
|
(118,174
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)
|
|
|
(118,174
|
)
|
Noncontrolling interest
|
|
|
1,619,758
|
|
|
|
1,449,493
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Total stockholders' equity
|
|
|
1,499,486
|
|
|
|
1,652,669
|
|
|
|
|
|
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|
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Total liabilities and stockholders' equity
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|
$
|
3,569,282
|
|
|
$
|
3,789,789
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|
See accompanying notes to condensed consolidated financial statements.
COMPETITIVE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months
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Ended March 31,
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2017
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2016
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Revenue
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$
|
17,747
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|
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$
|
18,485
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Cost of sales
|
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8,936
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|
|
|
10,175
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|
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Gross profit
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8,811
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8,310
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Expenses:
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General and administrative
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348,762
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|
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|
541,960
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Research and development
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|
5,333
|
|
|
|
4,520
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|
Salaries and wages
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|
487,603
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|
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|
197,722
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|
Depreciation and amortization
|
|
|
54,797
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|
|
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52,868
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|
Total operating expenses
|
|
|
896,495
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|
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|
797,070
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|
|
|
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Net operating loss
|
|
|
(887,684
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)
|
|
|
(788,760
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)
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|
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Other income (expense):
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|
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Interest expense
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|
–
|
|
|
|
(276
|
)
|
Interest income
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|
47
|
|
|
|
8
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|
Gain on disposal of asset
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|
277
|
|
|
|
–
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Other expense
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|
–
|
|
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|
(3
|
)
|
Total other income (expense)
|
|
|
324
|
|
|
|
(271
|
)
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|
|
|
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Net loss
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(887,360
|
)
|
|
|
(789,031
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)
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|
|
|
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Net loss attributable to the noncontrolling interest
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|
(490,225
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)
|
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(55,785
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)
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Net loss attributable to Competitive Companies, Inc.
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$
|
(397,135
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)
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$
|
(733,246
|
)
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|
|
|
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Weighted average number of common shares outstanding -
basic and fully diluted
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332,752,068
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|
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334,282,447
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Net loss per share - basic and fully diluted
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|
$
|
–
|
|
|
$
|
–
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|
See accompanying notes to condensed consolidated financial statements.
COMPETITIVE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Three Months
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Ended March 31,
|
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|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(887,360
|
)
|
|
$
|
(789,031
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
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|
|
|
|
|
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|
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Stock-based compensation
|
|
|
10,125
|
|
|
|
10,125
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|
Depreciation and amortization
|
|
|
54,797
|
|
|
|
52,868
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|
Gain on disposal of asset
|
|
|
(277
|
)
|
|
|
–
|
|
Decrease (increase) in assets:
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|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,382
|
|
|
|
(809
|
)
|
Prepaid expenses
|
|
|
5,511
|
|
|
|
3,517
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|
Deposits and other assets
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|
|
(1,640
|
)
|
|
|
–
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|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
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Accounts payable
|
|
|
(101,988
|
)
|
|
|
(139,044
|
)
|
Accrued expenses
|
|
|
9,664
|
|
|
|
(522
|
)
|
Deferred revenues
|
|
|
–
|
|
|
|
105,000
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|
Net cash used in operating activities
|
|
|
(909,786
|
)
|
|
|
(757,896
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)
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|
|
|
|
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Cash flows from investing activities
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|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(10,069
|
)
|
|
|
–
|
|
Purchase of construction in progress equipment
|
|
|
(855
|
)
|
|
|
(2,245
|
)
|
Net cash (used in) investing activities
|
|
|
(10,924
|
)
|
|
|
(2,245
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)
|
|
|
|
|
|
|
|
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Cash flows from financing activities
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|
|
|
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Principal payments on short term and convertible debts
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|
|
–
|
|
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|
(6,000
|
)
|
Proceeds from stock subscription
|
|
|
–
|
|
|
|
62,001
|
|
Proceeds from issuance of Wytec common stock
|
|
|
629,052
|
|
|
|
–
|
|
Proceeds from issuance of Wytec Series B preferred stock
|
|
|
120,000
|
|
|
|
933,750
|
|
Refund of non-issued Wytec Series B preferred stock
|
|
|
–
|
|
|
|
(37,500
|
)
|
Purchase of treasury stock
|
|
|
–
|
|
|
|
(5,000
|
)
|
Net cash provided by financing activities
|
|
|
749,052
|
|
|
|
947,251
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(171,658
|
)
|
|
|
187,110
|
|
Cash - beginning
|
|
|
2,777,313
|
|
|
|
1,085,113
|
|
Cash - ending
|
|
$
|
2,605,655
|
|
|
$
|
1,272,223
|
|
|
|
|
|
|
|
|
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|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
–
|
|
|
$
|
3,181
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion of Wytec Series A preferred stock to Wytec common stock
|
|
$
|
135,000
|
|
|
$
|
–
|
|
Conversion of Wytec Series B preferred stock to Wytec common stock
|
|
$
|
35,000
|
|
|
$
|
–
|
|
Wytec International, Inc. preferred stock issued to satisfy deferred revenue
|
|
$
|
35,000
|
|
|
$
|
–
|
|
See accompanying notes to condensed consolidated financial statements.
Note 1 – Nature of Business and
Basis of Presentation
The condensed consolidated interim financial
statements included herein, presented in accordance with United States generally accepted accounting principles, 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 condensed consolidated interim financial statements be read in conjunction with the
financial statements of the Company for the year ended December 31, 2016 and notes thereto included in the Company's Form 10-K
annual report. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim period
are not indicative of annual results.
Competitive Companies, Inc. (the “Company”
or “CCI”) was incorporated in the state of Nevada in October 2001 and acts as a holding company for its operating subsidiaries.
The Company's headquarters are located in San Antonio, Texas. The Company is involved in providing next generation fixed and mobile
wireless broadband Internet services nationally and internationally to wholesale, retail and enterprise customers with a special
focus on the small medium business market.
The accompanying condensed consolidated
interim financial statements include the accounts of the following entities. All significant inter-company transactions have been
eliminated in the preparation of these financial statements.
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State of
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Relationship
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Name of Entity (1)
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Form of Entity
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Incorporation
|
|
March 31, 2017
|
|
Competitive Companies, Inc.
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|
Corporation
|
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Nevada
|
|
Parent
|
|
Wireless Wisconsin LLC
|
|
Limited Liability Company
|
|
Wisconsin
|
|
Subsidiary (2)
|
|
Innovation Capital Management, Inc.
|
|
Corporation
|
|
Delaware
|
|
Subsidiary (2)
|
|
Innovation Capital Management, LLC
|
|
Limited Liability Company
|
|
Texas
|
|
Subsidiary (2)
|
|
Wytec International, Inc.
|
|
Corporation
|
|
Nevada
|
|
Subsidiary (3)
|
|
Wylink, Inc.
|
|
Corporation
|
|
Texas
|
|
Subsidiary (4)
|
|
Capaciti Networks, Inc.
|
|
Corporation
|
|
Texas
|
|
Subsidiary (5)
|
|
(1) Certain non-operational holding companies
have been excluded.
(2) Wholly-owned subsidiary of Competitive
Companies, Inc.
(3) As of March 31, 2017, CCI owned a 10%
interest in Wytec on an “as converted basis” with respect to Wytec’s Series A and Series B Preferred Stock consolidated
under the variable interest entity model.
(4) Wholly-owned subsidiary of Wytec International,
Inc.
(5) During 2016, Capaciti was sold, in
full, from CCI to Wytec and as of March 31, 2017, Capaciti is a wholly owned subsidiary of Wytec.
The operations of each consolidated subsidiary
is further detailed below:
|
·
|
Wireless Wisconsin LLC (“Wireless WI”) – Provides high speed wireless Internet
connections to residents in rural communities, as well as some DSL internet services to businesses and residents within various
markets throughout rural Wisconsin. The Company operates in both a regulated and non-regulated environment.
|
|
·
|
Innovation Capital Management, Inc. (“ICM”) – Formed to manage capital raising
activities.
|
|
·
|
Innovation Capital Management, LLC (“ICMLLC”) – Formed to engage in strategic
marketing relationships.
|
|
·
|
Wytec International, Inc. (“Wytec”) – Provider of wireless internet access serviced
infrastructures and provides internet access services primarily to the small and medium business market.
|
|
·
|
Wylink, Inc. (“Wylink”) – Applies for and registers links (each a “Registered
Link”).
|
|
·
|
Capaciti Networks, Inc. (“Capaciti”) – Provides the WyQuote system to market
internet access services
|
In October 2016, the Company entered into
an agreement with Wytec pursuant to which the Company agreed to exchange shares of Wytec common stock owned by the Company in consideration
for the cancellation of intercompany debts. After consummation of the transaction, the Company’s percentage ownership of
Wytec decreased to 11% On an “as converted” basis with respect to Wytec’s outstanding convertible Preferred Stock
Wytec is now consolidated as a variable interest entity. The Company is the primary beneficiary of Wytec and controls it through
its governing board and continuity of management.
The condensed 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 $18,919,720 at March 31, 2017, and has reported negative cash
flows from operations in most periods over the last seven years. In addition, the Company does not currently have the cash resources
to meet its operating commitments for the next twelve months. The Company’s ability to continue as a going concern must be
considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and
the competitive nature of the industry in which the Company operates.
The Company’s ability to continue
as a going concern is dependent on the Company’s ability to generate sufficient cash from operations to meet its cash needs
and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance that the Company will be successful
in its efforts to raise additional debt or equity capital and/or that cash generated by operations will be adequate to meet the
Company’s needs. These factors, among others, indicate that the Company may be unable to continue as a going concern for
a reasonable period of time. The condensed consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Note 2 – Property and Equipment
Property and equipment consist of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Telecommunication equipment and computers
|
|
$
|
1,095,191
|
|
|
$
|
1,070,838
|
|
Furniture and fixtures
|
|
|
44,746
|
|
|
|
61,702
|
|
|
|
|
1,139,937
|
|
|
|
1,132,540
|
|
Less accumulated depreciation
|
|
|
(580,991
|
)
|
|
|
(529,143
|
)
|
|
|
$
|
558,946
|
|
|
$
|
603,397
|
|
Depreciation expense totaled $54,797 and
$52,868 for the three months ending March 31, 2017 and 2016, respectively.
Note 3 – Construction in Process
The cost of equipment and materials purchased,
and contract labor incurred, for the construction of network, plant property and equipment, and the installation of registered
links on behalf of customers is held in Construction in Process until construction is completed. No depreciation or amortization
is applied to Construction in Process. Once construction is complete and network element is placed in service, the costs are either
capitalized or expensed as cost of goods sold as appropriate.
Note 4 – Warrants
Wytec currently has a total of 6,774,412
common stock purchase warrants outstanding to purchase a total of 6,774,412 shares of Wytec common stock exercisable until various
dates through December 31, 2017, 1,731,104 of which are exercisable at an exercise price of $5.00 per share, 3,844,808 of which
are exercisable at an exercise price of $1.50 per share, 75,000 of which are exercisable at an exercise price of $1.45 per share,
373,500 of which are exercisable at an exercise price of $1.25 per share, and 750,000 of which are exercisable at an exercise price
of $1.00 per share.
The following is a summary of activity
of CCI and Wytec outstanding common stock warrants:
|
|
Number of CCI Warrants
|
|
|
Number of Wytec Warrants
|
|
Balance, December 31, 2015
|
|
|
87,571,429
|
|
|
|
2,805,672
|
|
Warrants granted
|
|
|
–
|
|
|
|
4,680,608
|
|
Warrants exercised
|
|
|
–
|
|
|
|
207,000
|
|
Warrants repurchased
|
|
|
87,571,429
|
|
|
|
–
|
|
Warrants expired
|
|
|
–
|
|
|
|
170,000
|
|
Balance, December 31, 2016
|
|
|
–
|
|
|
|
7,109,280
|
|
Warrants granted
|
|
|
–
|
|
|
|
50,000
|
|
Warrants exercised
|
|
|
–
|
|
|
|
384,868
|
|
Warrants repurchased
|
|
|
–
|
|
|
|
–
|
|
Warrants expired
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
|
–
|
|
|
|
6,774,412
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2017
|
|
|
–
|
|
|
|
6,774,412
|
|
Note 5 – Changes in Stockholders’
Equity (Deficit)
In October 2012, the Company granted employees
options to purchase 3,000,000 shares of common stock exercisable at $0.01 per share with a three year vesting schedule and expiration
dates four years from the grant date. In August 2015, one of the employees resigned from the Company and forfeited his 1,000,000
stock options. As of December 31, 2016, the remaining 2,000,000 stock options expired.
In April 2014, the Company granted 10,000,000
stock options to purchase 10,000,000 shares of its common stock to the Company’s chief executive officer, exercisable at
$0.025 per share with a three year vesting schedule and an expiration date of April 17, 2019. For the three month periods ended
March 31, 2017 and 2016, the stock-based compensation related to these option grants was $8,500 and $8,500, respectively.
In September 2014, the Company granted
employees options to purchase 1,500,000 shares of common stock each exercisable at $0.02 per share with a three year vesting schedule
and an expiration date of September 1, 2018. In July 2015, one of the employees was terminated from the Company and forfeited his
750,000 stock options prior to the first vesting milestone. For the three month periods ended March 31, 2017 and 2016, the stock-based
compensation related to these option grants was $625 and $625, respectively.
In May 2015, the Company granted 750,000
options to one employee to purchase 750,000 shares of common stock, exercisable at $0.02 per share with a three year vesting schedule
and an expiration date of May 14, 2019. For the three month periods ended March 31, 2017 and 2016, the stock-based compensation
related to these option grants was $1,000 and $1,000, respectively.
During the three months ending March 31,
2016, Wytec issued 311,250 shares of Wytec Series B Preferred Stock and 311,250 common stock purchase warrants for $933,750 in
cash.
During the three months ended March 31,
2017 Wytec issued 40,000 shares of Wytec Series B Preferred Stock and 40,000 Wytec common stock purchase warrants for $120,000
in cash and 10,000 shares of Wytec Series B Preferred Stock and 10,000 Wytec common stock purchase warrants in exchange for one
Registered Link.
During the three months ending March 31,
2016, Wytec refunded $37,500 that had been received for the purpose of issuing 12,500 shares of Wytec Series B Preferred Stock
to one investor. The shares of Wytec Series B Preferred Stock were never issued to the investor, and the funds were returned.
During the three months ending March 31,
2017, Wytec issued 384,868 shares of Wytec common stock in exchange for $569,052 in cash and the exercise of 384,868 common stock
purchase warrants, and Wytec received $60,000 in cash for the purpose of exercising additional common stock purchase warrants but
the holder has not executed the required documents.
Note 6 –Wytec International, Inc.
and Subsidiaries Registration Statement
In October 2016,
the Company’s board of directors and majority shareholders authorized a planned spin-off of Wytec (“Spin-Off”).
As of March 31, 2017, CCI owns 865,552 shares, approximately 10%, of the outstanding common stock of Wytec, (assuming all outstanding
shares of Wytec’s Series A and Series B Preferred Stock are converted into Wytec common stock) and 1,731,104 Wytec common
stock purchase warrants.
On December 9, 2016, CCI filed an information
statement on schedule 14C and on January 10, 2017, Wytec filed a registration statement on form S-1 with the Securities and Exchange
Commission (the “SEC”). These filings describe in detail the terms and conditions of the Spin-Off. Upon the S-1 Registration
Statement being declared effective by the SEC, Wytec will no longer be owned by the Company, as the Company will distribute 100
% of its remaining shares of Wytec common stock and Wytec common stock purchase warrants to its shareholders. Wireless WI, ICM,
and ICM LLC, will continue to be wholly owned subsidiaries of the Company.
Note 7 – Subsequent Events
In April 2017, the Company purchased 386,847
shares of its common stock from a director for a cash payment of $10,000. In April 2017, Wytec issued 483,434 shares of Wytec common
stock to twelve investors pursuant to the exercise of warrants.
In April 2017, Wytec authorized the payment
of a cash bonus of $12,796 to its chief executive officer.
In May 2017, Wytec issued 75,000 shares
of Wytec common stock to two investors pursuant to the exercise of warrants.
Through May 3, 2017, Wytec loaned $341,140
to the Company in the form of an unsecured non-interest bearing account.
In May 2017, Wytec issued a total of 9,500
warrants to purchase 9,500 shares of Wytec common stock to one unrelated service provider. The warrants are exercisable at a price
of $1.50 per share until December 31, 2017.
Effective May 3, 2017, Tina Bagley was
appointed as a director of the Company and as a director of Wytec.
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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failure of the Company to successfully spin off Wytec;
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(q)
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failure to develop and implement a revenue model that will produce revenues and profits;
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(r)
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inability to obtain patent or other protection for our proprietary intellectual property, and the
expiration of some of our existing patents
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(s)
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uncollectible accounts and the need to incur expenses to collect amounts owed to us; and
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(t)
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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”).
Capaciti Networks, Inc. is now a wholly owned subsidiary of Wytec. 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 eventually utilize
its patent pending LPN-16 Micro Cell technology to provide enhanced 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 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 of our “Smart
City” concept. We believe recent national and international relationships have facilitated 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 company that owns three current and two expired 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. .
Wytec’s current product development
involves the design of a “micro cell” solution called 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 the first of its kind specifically developed to participate in the Small Cells as a Service (“SCaaS”)
market which 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 Until January 2016, we sold 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, and has repurchased all but 69 outstanding Links which are still owned by
outside third party buyers.
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 December 9, 2016 CCI filed an Information
Statement on Schedule 14C and on January 10, 2017, Wytec filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission. These filings describe, in detail, the terms and conditions of the spin-off. We anticipate that each CCI shareholder
will receive approximately one share of Wytec common stock for every 388 shares of CCI 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, 2017 at an exercise price of $5.00 per share. The distribution of the
Spin-Off Shares and Spin-Off Warrants is expected to occur after the date Wytec’s Registration Statement on Form S-1 becomes
effective with the Securities and Exchange Commission
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, 2017 and 2016
Revenue for the three months ended March
31, 2017 was $17,747, as compared to revenue of $18,485 for the three months ended March 31, 2016. This decrease in revenue of
$738 or 4% was primarily due to decreases in sales from Wireless Wisconsin, LLC.
Cost of sales for the three months ended
March 31, 2017 was $8,936, a decrease of $1,239, or 12%, from $10,175 for the three months ended March 31, 2016. Our cost of sales
decreased primarily due to managing costs related to our sales operations.
General and administrative expenses were
$348,762 for the three months ended March 31, 2017, as compared to $541,960 for the three months ended March 31, 2016. This resulted
in a decrease of $193,198 or 36% compared to the same period in 2016. The decrease in our general and administrative expenses was
largely a result of decreased activity related to our link program costs during the three months ended March 31, 2017, as sales
of the program ceased in January 2016.
Research and development costs were $5,333
for the three months ended March 31, 2017, as compared to $4,520 of research and development costs for the three months ended March
31, 2016. An increase of $813, or 18% was due to increase an in expenses related to the development of Wytec’s LPN-16.
Salary and wage expenses were $487,603
for the three months ended March 31, 2017, as compared to $197,722 for the three months ended March 31, 2016, which resulted in
an increase of $289,881, or 147% compared to the same period in 2016. The increase in salary and wages is due a bonus paid to the
chief executive officer of the Company to settle an outstanding small business administrative loan that had been personally guaranteed
by the officer related to a former subsidiary that is no longer in operation.
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, 2017, $1,895,000 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.
We anticipate that we will incur operating
losses in the next twelve months. Our revenue is 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, 2017, our cash balance
was $2,605,655. 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 three month period ended March 31, 2017, and determined
that the updates are either not applicable to the Company or will not have a material impact on the Company.