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WIRELESS ATTACHMENTS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) FORWARD-LOOKING STATEMENT NOTICE When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company's future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Further, persons reviewing this report are advised that actual results may differ materially from those included within the forward-looking statements because of various factors such as: º the Company's lack of revenues and earnings to date and its possible inability to achieve meaningful revenues or earnings in the future; º the Company has limited assets and working capital and may not be able to continue in operation without the infusion of additional capital; º our expectation to incur losses for at least the next 18 months º we may need to raise additional funds and these funds may not be available to us when we need them in which case we may need to change our business plan, sell or merge our business or face bankruptcy; º the speculative nature of the Company's proposed operations; º our dependence upon our management's efforts and/or the loss of any or all of our management; º our management team's limited experience in our industry; º the fact that we have not developed a product, may not succeed in developing a product and, if developed, such product may not be commercially viable; º our dependence on strategic partners for development, manufacture and distribution of our planned products; º we may be unable to adequately protect or enforce our intellectual property rights, which may have a detrimental effect on our business; º our lack of market research and a marketing organization; and º our dependence on our license agreement with Apple, Inc. OUR HISTORY AND BUSINESS History Wireless Attachments, Inc. ("WAI," "we" or the "Company") incorporated in the State of Colorado on September 22, 2010, under the name Wireless Attachments, Inc. Since September 22, 2010, WAI has been in the research and development phase. We expect to be in the research and development phase for at least the next 12 months. We intend to develop solar cloth membranes and solar charging units for outdoor active wear that convert sunlight into electrical power and that can be used for charging and operating mobile devices such as the iPhone and iPod. 9 Table of Contents On November 5, 2010, Apple, Inc. granted the Company a non-exclusive license to design, develop, manufacture and sell accessories that are made for Apple's iPod and iPhone. Our operations are materially dependent on our license agreement with Apple, Inc. and Apple, Inc. may approve or disapprove any proposed product for any reason and may terminate the license for any or no reason upon 60 days notice. Product Development The Company intends to develop and market two types of products: (1) Photovoltaic Cloth Membranes ("PCMs") that will work in conjunction with (2) Solar Charging Units ("SCUs"), which we also intend to develop. On October, 4, 2012, Apple approved our product plan and assigned our initial product a product identification number. We intend to conduct research and development in-house and through partnerships or under contracts with other companies. At this time, we do not have any research and development contracts with other companies. Initially, we plan to engage outside developers to assist in the development of our planned products. Our current thoughts on how to develop our products may change during the development process and the technologies, devices and materials we may expect to use in the development of our proposed products may change accordingly. Currently, the Company is researching the materials, processes and technologies for consideration in the manufacture of its planned PCMs and SCUs. We anticipate being in this phase of our research and development for at least the next six months. After we exit this stage of research and development, we expect it will take an additional three to six months to create working prototypes. We must submit these prototypes to Apple, Inc. for approval and certification. Our license agreement with Apple, Inc. requires certification by Apple, Inc. of the prototypes and then again when we have production ready products. Apple launched a pilot program called "One Touch" that empowers Apple's authorized test labs to perform all requisite compliance testing. Apple is rolling out One Touch in phases based on accessory functionality. Under the One Touch model, we will submit two production-ready samples to one of Apple's third party test labs. The Company hopes to have samples ready for Apple's test lab in 12 months. At the time we submit the production ready products, we must also submit a product plan of distribution to Apple, Inc. to achieve certification. There is no guarantee that Apple, Inc. will approve our production ready products and plan of distribution. Without this certification, the Company would not have products to market, and the Company may have to cease all operations. Our access to PCM and SCU technologies is no greater than other developers intent on developing the same or similar products. Accordingly, we have no special access to potential PCM and SCU technologies that would provide a developmental advantage. Because we are in the initial concept of product development, our selection of any technology is preliminary and may change as the product development process continues. The Company has been exploring the use of thin-film technologies for use in the manufacture of its products, including dye-sensitized solar cells (also known as Gratzel cells). Gratzel cells use a molecular dye that absorbs sunlight and converts the photons' energy into electricity. Historically, a major problem with Gratzel cells has been their use of organic liquid electrolytes that leak and corrode the cells reducing cell life. Professor John Badding of Penn State University has been researching a silicon-based optical fiber with solar-cell capabilities that can be scalable to many meters in length. The research opens the door to the possibility of weaving together solar-cell silicon wires to create flexible, curved, or twisted solar fabrics. Professor Badding's team has built a new optical fiber that is thinner than the width of a human hair and integrates electronic components, bypassing the need to integrate fiber-optics with chips. Professor Badding was quoted on Penn State's web site in December of 2012 as saying "Long, fiber-based solar cells give us the potential to do something we couldn't really do before: We can take the silicon fibers and weave them together into a fabric with a wide range of applications such as power generation, battery charging, chemical sensing, and biomedical devices." The Company does not have a relationship with Professor Badding, but believes that Professor Badding's research may influence the Company's product development. At the conclusion of our product development, the Company will refine its market research, model cost of goods sold by projecting out the availability and costs of raw materials and the costs associated with outsourcing manufacturing and third party logistics and develop a detailed sales and marketing plan and associated costs. We have not developed a functioning product and we have not yet obtained objective evidence that our planned products can reliably perform the functions or provide the benefits described in this report. 10 Table of Contents Growth Strategy The Company plans to partner with contract manufacturers that already have the equipment and capability to produce our planned PCM and SCU products on a contract basis. We intend to derive revenue from direct sales of our PCMs and SCUs to manufacturers of cloth-based consumer products. The Company does not plan to develop its own suite of end-user clothing and bags, but rather to create PCMs and SCUs that can be incorporated into merchandise created by manufacturers of active wear, bags and other cloth-based consumer products. Our primary initial focus will be developing PCMs and SCUs that can be used by outdoor and sporting clothing manufacturers. There can be no assurance, however, that we will be able to develop such PCMs or SCUs or, if we are able to develop them, that we will be successful in marketing them at a profit. Market We intend initially to market and sell our products only in the United States, where we believe that the market for our products is limited. The available market research data that we have located and our assumptions behind our estimate of market size are discussed below. Because we are unable to find U.S. market forecasts or estimates for our intended products, we have necessarily made assumptions in estimating the range of the potential market size for those products. Our assumptions are also set forth below. We have researched markets for other solar products (not necessarily related to charging units for mobile phones and products similar to iPods) and have extrapolated information from those data and research. The forecasting of market size for relatively new products, however, is, by its nature, not an exact process, and there can be no assurance that our assumptions are valid or that our estimates will prove to be accurate. Moreover, the aggregate potential market size for our intended products is no indication of our potential revenues or unit sales. As the market for solar products has grown, we have seen corresponding growth in the solar battery charger market. Some examples of different chargers that use solar energy are (1) digital camera battery chargers, (2) chargers for cell phones and iPods, (3) backpacks made with photovoltaic components, (4) chargers for hearing aid batteries (5) and chargers for laptop computers. The Company could not find any data or research reports that specifically addressed the market for solar powered chargers for the Apple iPod and iPhone. However, by examining other data and research materials from a broader range of solar product markets, we have tried to estimate the U.S. market for solar powered chargers for the Company's proposed target market, as described below. On October 25, 2012, Apple reported it had sold 26.9 million iPhones during the fourth quarter for a total of 125 million iPhones for the fiscal year ending September 29, 2012, and 5.3 million iPods during the third quarter for a total of 35 million iPods for fiscal 2013. Gartner reported on November 14, 2012 and based on third quarter 2012 reports, Apple is third (behind Samsung and Nokia) in the global mobile phone market - with a 5.5% market share. Apple's market share dropped from 6.9% reported by CNET in August of 2012 and based on second quarter 2012 reports. However, Apple increased its market share from 3.9% in the same period in 2011 primarily due to sales of the iPhone 4S and expansion into foreign markets. Nokia, Motorola, LG, HTC and BlackBerry maker - Research in Motion - all saw their market share drop year over year for the third quarter, while Apple, Samsung, ZTE, Huawei Device and TCL Communication watched their market share rise. ABI Research estimates the overall mobile phone accessories market at $36 billion for 2012 and is projecting aftermarket mobile phone accessories sales in excess of $50 billion by 2015. Batteries and solar chargers are used primarily in the off-grid solar markets, but also in on-grid markets, where the customer requires power during periods that the electricity grid is unavailable. GSMA, an association that represents mobile operators with connections across 219 countries, released a report in October of 2009 that estimated the global market for off-grid charging solutions for all types of mobile phones at $2.3 billion. The worldwide on-grid segment grew by 20% in 2009, and the off-grid market grew 23% in 2009, faster than on-grid for the first time in 15 years but on a much smaller base. 11 Table of Contents The Company was unable to ascertain from this report (or any other source) the U.S. portion of the off-grid charging market for mobile phones. According to the 2011 U.S. Solar Market Insight Report prepared by the Solar Energy Industries Association and GTM Research, the U.S. market's share of global PV installations rose from 5% to 7% in 2011. The report went on to say, "we forecast U.S. market share to increase steadily over the next five years, ultimately reaching nearly 15% in 2016." From these data, WAI has estimated a U. S. market for solar charging solutions for mobile phones and other portable devices in 2013 between $93 million and $206 million. We estimated the low end of the 2013 market size by multiplying the U.S. 2011 market share of PV installations (7%) by the compounded annual growth rate in the U.S. market share of those installations projected by GTM Research (17.98%) for two years (from 2011 to 2013) and multiplied that figure by the GSMA's 2009 estimate of the market size for off-grid charging solutions ($2.3 billion). Finally, we multiplied that result by the growth rate in the off-grid market in 2009 of 23% (discounted to 20% from 2009 to 2010 to account for the lagging economy and further discounted to 15% from 2010 to 2011 to account for the continued lagging economy). We then applied to the resulting number a discount factor of 70% to account for (i) the widespread availability of cheaper and more convenient on-grid charging solutions within the U.S. market and (ii) the fact that there are mobile phones other than Apple products. The 70% discount factor also represents the fact that the Company will be offering solutions for iPods and not just iPhones. We estimated the high end of the 2013 market size by multiplying the number of projected 2012 iPhone and iPod sales times the average selling price of $43.69 of solar charging solutions that we found currently available in the marketplace and multiplied that product by our estimate of U.S. adopters of solar energy charging solutions of 3%. We anticipate that the percentage of U.S. adopters of solar energy charging solutions will be smaller than in other countries with fewer on-grid resources and due to the availability in the U.S. of cheaper and more convenient on-grid solutions. Due to the inherent uncertainties in the published estimates and projections that we have relied on (including inherent uncertainties associated with predicting future events in general), our own assumptions, and the fact that we have extrapolated data from the larger PV installation market to the market for PV battery charging solutions for portable products, there can be no assurance that our estimate of the potential U.S. market for our intended products will prove to be accurate. Backpacks, brief cases and bags with built-in flexible solar panels are already available in today's marketplace. Bags with photovoltaic panels are used to power personal electronics and laptop computers. We believe the market for solar charging solutions will continue to grow and by developing cloth membranes that are not only washable, but pliable, that active wear manufacturers and other OEM's of cloth-based merchandise will find our membranes a unique solution to gaining new market share. It is our intent to create cloth membranes with solar panels that are not quite as noticeable, bulky and unattractive as current solutions. We expect to create a more elegant and efficient solution than those products already in the marketplace. By creating solar-charging cloth membranes that can be sewn into outdoor clothing and sportswear, we expect our customers will be able to create consumer products for those individuals that want to live an active lifestyle and remain connected. Competition In general, the accessory market for iPhones and iPods is highly competitive. We will be competing with those companies that develop solar chargers and power accessories for Apple's products, such as Better Energy Systems, Inc. and Earthtech Products. More specifically, we believe we will be competing with those companies developing photovoltaic materials, like Konarka Technologies and Solarmer Energy, Inc., that are licensed or sold to OEM's. Competing developers may be able to engage in larger scale branding, advertising and developing activities more extensively than we can. Further, with sufficient financial backing, talented designers and developers can become competitors within several months of establishing a business. We will compete primarily on the basis of design, development, quality and service. Our business depends on our ability to shape and stimulate consumer tastes and demands by developing innovative and exciting products, as well as on our ability to remain competitive in the areas of quality and price. 12 Table of Contents Colorado State University ("CSU") received a $15,000 grant from the EPA as part of a competition to design functional, good-looking and affordable solar clothing. Eulanda Sanders and Ajoy Sarkar, associate professors in the Department of Design and Merchandising, along with four students, are currently developing natural-fiber outdoor clothing prototypes that harvest energy while the wearer participates in outdoor activities. In May of 2012, Jaymi Heimbuch of Treehugger quotes the CSU team as saying: "First, the clothing will use the most recent research and technology to make natural fibers such as cotton and linen as outdoor savvy as other petroleum-based textiles which are heralded by outdoor enthusiasts for warmth, UV ray protection, comfort and moisture-wicking. Second, the clothing will provide a solar source of energy for electronic devices, reducing alkaline battery use." The CSU team is using UV-treated natural fiber fabric, such as cotton or linen, rather than petroleum-based textiles. The researchers have discovered that the right selection of fabric and weave, thickness, weight, dyeing and finishing of natural fabrics provides excellent protection from UV rays. The group has developed prototypes of three jackets, a vest and two helmets -one ski helmet with Blue tooth capabilities and one for possible military use. On June 6, 2012, Ascent Solar Technology, Inc., headquartered in Thornton, Colorado, announced that it had launched a charger for the Apple iPhone 4/4S smart phone. Branded under Ascent's new EnerPlexTM line of consumer products, the charger incorporates the company's solar cells into a protective iPhone 4/4S case, along with a thin battery. On June 19, 2012, Ascent announced that it had received an order for 50,000 of is solar-powered chargers and cases. On September 11, 2012, the Chicago Tribune, published a story about Everpurse. Everpurse produces a lightweight zippered clutch with a dedicated pocket that keeps an iPhone charged at 50% or above for 24 hours under standard usage. The clutch can be carried by itself or slipped into a larger bag. The Everpurse system comes with a charging pad, roughly the length and width of a paperback, that can fully charge the special pocket in roughly six hours. Everpurse is in the process of raising $100,000 via the crowdfunding platform. Recent Developments We completed a private offering on March 15, 2011 whereby 35 investors purchased 154,800 shares of our Common Stock for an aggregate price of $15,480. We issued these securities without registration pursuant to Rule 504 of Regulation D promulgated under Section 3(b) of the Securities Act. On April 24, 2012, the Board of Directors of the Company recommended to the shareholders that it would be in the best interests of the Company to forward split the Company's common stock, par value $.0001, on a 60 for 1 basis. Steve S. Sinohui, the Company's sole director, Chief Executive Officer and owner of 92.82% of the shares of the Company's common stock, approved the forward split. On July 3, 2012, September 12, 2012 and November 13, 2012, the Company's President and controlling shareholder, Steve S. Sinohui, loaned the Company $15,000, $5,000 and $3,500, respectively. The notes are due on December 31, 2014, unless extended, and bear no interest unless not paid, in which case interest will be charged at a rate of 10% annually. Need for Additional Financing WAI intends to be researching the materials, technologies and processes necessary to create its planned products for at least the next six months. Thereafter, we anticipate it will take an additional three to six months to create working prototypes. Our VP of Product Development estimates it will take $30,000 to $50,000 to create the first prototypes of the PCM and SCU. It will be necessary after six months for the Company to raise additional financing to fund the development of its first prototypes, to bring the prototypes to production, for sales and marketing, staffing and for general operating expenses. At this time, we are unsure of how much funding we will need once we complete research and development, because we are unsure of the technologies we will employ to have our planned products manufactured. However, management estimates that we will require additional funding between $100,000 and $250,000 to fund the development of our first prototypes, to bring the prototypes to production, for sales and marketing, staffing and for general operating expenses. The Company intends to use the next six months to continue its market research, to model the cost of goods sold by projecting the availability and costs of raw materials and the costs associated with outsourcing manufacturing and third party logistics and to develop a complete sales and marketing plan and associated costs. If we are unable to raise additional funds, our stock would likely become worthless and we may be forced to abandon our business plan. As of the date of this report, we do not have any specific plans for raising additional funds for operations beyond the first six months. 13 Table of Contents RESULTS OF OPERATIONS The Company was not profitable during the year ended March 31, 2012 and has not been profitable during the first nine months of fiscal 2013. Three Month Periods Ended December 31, 2012 and 2011 The Company had no revenues from continuing operations for the three-month period ended December 31, 2012 and no revenues for the same three-month period in 2011. General and administrative expenses for the three-month period ended December 31, 2012 were $2,423 compared to $2,957 for the same period in 2011. Expenses consisted of general corporate administration, rent, Internet service provider, legal and professional expenses, transfer agent fees and accounting costs. Because of the foregoing factors, the Company realized a net loss of $2,420 for the three months ended December 31, 2012 as compared to net loss of $2,953 for the same period in 2011. Nine Month Periods Ended December 31, 2012 and 2011 The Company had no revenues from continuing operations for the nine-month period ended December 31, 2012 and no revenues for the same nine-month period in 2011. General and administrative expenses for the nine-month period ended December 31, 2012 were $38,153 compared to $12,862 for the same period in 2011. Expenses consisted of general corporate administration, rent, Internet service provider, legal and professional expenses, transfer agent fees and accounting costs. The increase in expenses was due primarily to costs associated with the required filings of the Company's quarterly and annual reports as well as an increase in associated accounting costs. Because of the foregoing factors, the Company realized a net loss of $38,150 for the nine months ended December 31, 2012 as compared to net loss of $12,850 for the same period in 2011. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2012, the Company had assets consisting of $2,004 cash on hand. Current liabilities consisted of accounts payable of $370. The Company believes that current and anticipated future cash requirements for the next three months cannot be met with the cash on hand and from revenue from current customers. On July 3, 2012, September 12, 2012 and November 13, 2012 the Company's President and controlling shareholder, Steve S. Sinohui, loaned the Company $15,000, $5,000 and $3,500, respectively. The notes are due on December 31, 2014, unless extended and bear no interest unless not paid, in which case interest will be charged at a rate of 10% annually. WAI intends to be researching the materials, technologies and processes necessary to create its planned products for at least the next six months. Thereafter, we anticipate it will take an additional three to six months to create working prototypes. Our VP of Product Development, Craig Lassen, estimates it will take $30,000 to $50,000 to create the first prototypes of the PCM and SCU. It will be necessary after six months for the Company to raise additional financing to fund the development of its first prototypes, to bring the prototypes to production, for sales and marketing, staffing and for general operating expenses. At this time, we are unsure of how much funding we will need once we complete research and development, because we are unsure of the technologies we will employ to have our planned products manufactured. However, management estimates that we will require additional funding between $100,000 and $250,000 to fund the development of our first prototypes, to bring the prototypes to production, for sales and marketing, staffing and for general operating expenses. 14 Table of Contents Additional capital may be raised through additional private financings as well as borrowings and other resources. To the extent that additional capital is raised through the sale of equity or equity-related securities, the issuance of such securities could result in dilution of our stockholders. There can be no assurance that additional funding will be available on favorable terms, if at all. If adequate funds are not available when we need them, we may be required to curtail our operations. No assurance can be given; however, that we will have access to the capital markets in the future, or that financing will be available on acceptable terms to satisfy our cash requirements needed to implement our business strategies. Our inability to access the capital markets or obtain acceptable financing could have a material adverse effect on our results of operations and financial condition and could severely threaten our ability as a going concern. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward -looking statement that involves risks and uncertainties, and actual results could vary because of a number of factors. |