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WWA GROUP INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with our financial statements and notes thereto included in this current report. Our fiscal year end is December 31. Discussion and Analysis Our plan of operation is to become a multi-system operator that provides cable television, high speed internet and related services to rural communities in the United States. We estimated that we would require a minimum of $500,000 dollars in additional debt or equity funding during this fiscal year to pursue our business plan, the majority of which amount will be focused on expanding Summit Digital's business by acquiring existing operations. We have obtained some convertible debt financing during the fiscal year to supplement our cash flows from operations. At this time, we have no commitment to fund our entire working capital needs and there can be no assurance that such financing will be available to us. Our business development strategy is prone to significant risks and uncertainties that are having an immediate impact on its efforts to realize net cash flow. Should we be unable to generate income or reduce expenses to the point where it can meet operating expenses through debt or equity financing, which can in no way be assured, our ability to continue its business operations will remain in jeopardy. Summary of Summit Digital Business Activities and Strategy Summit Digital is focused on acquiring existing underutilized cable systems in rural, semi-rural and gated community markets, aggregating them into a single Multi-System Operator structure and creating growth by upgrading management, improving efficiency, cutting costs, and fully exploiting the opportunities presented by bundling multiple services such as basic TV, premium TV, pay-per-view, broadband Internet, and voice telephony. These bundled service packages have become the industry standard in major urban markets served by major cable providers, but systems in Summit Digital's target market typically lag behind in adopting them, offering a substantial opportunity to increase penetration and per- customer revenue by offering these comprehensive service packages. Summit Digital may at times build new cable systems or wireless infrastructure to serve areas where no infrastructure is in place, but the primary intent is to acquire underutilized existing systems. Summit Digital intends to support and extend these packages by offering wireless data and voice service within its system footprint. Summit Digital believes that other value-added services delivered through cable infrastructure, such as pay-per-view events, digital video and digital video recording, high-definition TV and interstitial advertising also represent significant potential revenue streams that have not been effectively exploited by its acquisition targets. Compatible services such as provision of wireless internet provide additional potential revenue streams. See also, "Business Opportunities" below. Summit Digital intends to take decisive steps to streamline management, improve efficiency, and reduce costs in systems it acquires using the following areas of emphasis: ? Any debt that is attached to these systems by the prior ownership will be restructured. ? Billing, collection, call center and scheduling services will be centralized, significantly reducing costs for each system. ? Head end technicians located at corporate headquarters will direct employees and monitor their performance, standardizing and service practices and quality control. ? Theft by potential subscribers who attempt to steal services can have a significant impact on the viability of rural cable systems. Measures to prevent theft will be installed, including regular audits conducted by our own installers as well as independent contractors. ? Equipment purchasing will be combined to achieve economies of scale and reduce costs. ? Structured management systems stressing continuous documentation, performance evaluation, and action to address weaknesses will be installed, addressing a common management deficiency in small single-system operators. Many small to medium sized single-system operators of the type common in rural and semi-rural America have not been developed to their full capacity, for two primary reasons. ? Many of these systems were overburdened with debt that was incurred on the initial construction of their cable systems. Overly optimistic projections and unrealistic performance expectations 9 not backed up by appropriate technology and management expertise, combined with lack of an established basis for prediction in many markets led system owners to take on excessive debt, which enabled their entry to the business but also left them unable to sustain their business profitably. ? The technology that supports the upgraded services that Summit intends to provide has only recently become cost-effective for smaller rural systems. Even with today's superior and less expensive technology, small individual cable systems rarely have the economies of scale or the financing necessary to effectively exploit these technologies. Summit Digital's knowledgeable technical team and ability to combine equipment purchases will provide the knowledge and the leverage with suppliers that are needed to effectively introduce these technologies. Summit Digital believes, based on extensive interviews and contacts with management at local systems, that the managers and owners of many of these systems are interested in acquisition on favorable terms by an MSO built around the principle of maximizing the potential of these systems. Based on interviews with small system managers, Summit Digital believes that many of these systems can be acquired in exchange for a combination of cash and stock. Once systems have been acquired, Summit Digital will upgrade them to support broadband Internet and voice telephony and aggressively market these combined services both to existing subscribers and non- subscribers within the system footprint. Existing cash flows, cash flows from acquired systems, and acquisition terms will allow Summit to pay for system upgrades as systems are built out. Summit Digital does not intend to incur debt or sell shares to finance system upgrades. Summit Digital will add an additional revenue stream to its acquired cable systems through its capacity to insert local advertising, known as interstitials, to cable TV content. Summit Digital has the right to insert local advertising into programming from major networks such as CNN, ESPN, Fox News and many others. This ad insertion is accomplished through an interface between the network and Summit Digital's system, with the network providing cue tones that open time slots for Summit Digital's advertisers. Again, this is a revenue opportunity not currently exploited by the cable systems Summit Digital seeks to acquire, and upgrading systems to accommodate this form of advertising presents a significant opportunity to generate additional revenue from existing infrastructure. Summit Digital's business strategy is to acquire systems meeting viability criteria, aggregate them in a multiple system operator format, improve management, reduce costs, and add revenue by aggressively promoting high-value services such as high speed broadband internet and pay-per-view TV and by adding advertising income and wireless services to the system revenue mix. Summit Digital will not surrender controlling interest in systems it acquires and will not incur long-term debt to acquire systems or upgrade acquired systems. Summit Digital believes that it can substantially increase both our subscriber base and our revenue per subscriber by following this strategy. Innovation Summit Digital actively pursues innovative ways of using existing technology and infrastructure to provide services and build customer and community relationships outside the traditional residential service model. Two initiatives during 2012 illustrate this commitment and the results it can bring. ? Summit Digital installed a sophisticated CCTV monitoring system for the community of McBain, Michigan, allowing continuous surveillance of key commercial and road areas. A web-based backbone permits data storage by Summit Digital as well as monitoring by the State Police. The system is designed to facilitate rapid response in emergencies and to provide vital evidence and understanding in criminal and other incidents. Summit Digital is compensated by an installation fee and will receive a long term monthly fee for managing the system. Similar systems will be offered to other municipalities within Summit Digital's service footprint. ? Summit Digital installed a web-based system for a major dairy farm, allowing the farm operators to continuously monitor operations and provide remote control for their robotic milkers. Agricultural operations in the rural American Midwest are becoming increasingly sophisticated and there is enormous scope for leveraging Summit Digital's existing technology and 10 infrastructure to increase efficiency and create opportunity for Summit Digital and for its clients. Summit Digital will continue to explore innovative ways to supply needed services to individual, business, industrial and local government customers, using the full scope of opportunities provided by available technology. Wireless Internet Use of wireless internet services is exploding in the US, driven by rapidly expanding sales of smartphones, tablets, and other mobile devices. Cisco Systems estimates that mobile traffic will expand from 0.6 exabytes/month in 2011 to 1.2 exabytes/month in 2012 and will reach 6.3 exabytes/month in 2015. Cable operators across the US have recognized that the cable business and the WiFi business have close synergies and that WiFi represents a considerable opportunity for cable companies. The synergy is based on a number of elements: ? As the amount of data transferred over wireless networks expands, the critical need for backhaul services - the link between wireless broadcast points and the internet backbone - becomes increasingly critical. Cable infrastructure is ideally suited to providing these services, enabling cable companies that also manage wireless sites to support their own backhaul needs instead of paying for them, as non-cable operators must. · The ability of cable companies to use existing infrastructure for backhaul also drastically reduces the expense of acquiring rights of way: Dan Rice, vice president of access network technology for CableLabs, estimates that as much of 70% of the expense of establishing an outdoor WiFi infrastructure can be in "civil" costs such as real estate and permitting, expenses that are substantially lower for companies that already have infrastructure in place. These cost advantages make it possible for cable companies to compete aggressively on wireless service pricing while retaining high margins. ? Wireless technology also provides an option that can supersede wiring to reach hard-to-wire areas or as an option to homes in which the installed coaxial cable falls short. These are significant features in Summit Digital's target market. ? Wireless services can bring in subscribers solely interested in wireless access. More important, it can drive a "quadruple play" option in which Summit Digital can offer a single-bill package combining TV, home broadband, voice communications, and wireless access. ? Summit Digital intends to pursue opportunities in this promising sector as an integral part of its expansion plan. Subscriber Base As of June 30, 2014, Summit Digital serves 841 subscribers in the States of Oklahoma and Michigan, with an average monthly billing of approximately $61. Proposed Expansion for 2014 Summit Digital is aggressively pursuing expansion opportunities: · Summit Digital has entered into an agreement with the village of Marion Michigan. The community has allowed us to begin to offer wireless high speed internet services by using their local water tower and will soon be under contract to use the Fire Departments tower to reach further out in the city. · Summit Digital is under negotiations to acquire two substantial wireless internet providers located in the Midwest. · Summit Digital has now opened a new office located in Portland Michigan. This facility is the home for our new call center and corporate offices. We have been approached by the city leaders to provide wireless internet services to the businesses and residents of this community. We anticipate to begin building the infra structure to offer these services in the month of September. · Summit Digital is under negotiations with Cox cable of Tulsa Oklahoma. Upon the completion of these negotiations we will be able to offer higher internet speeds combined with more cost effective bandwidth pricing. This will be of substantial value as we continue to grow our Oklahoma operations. 11 Acquisition Criteria Summit Digital's acquisition strategy relies on careful assessment of acquisition candidates by a management team with extensive experience in the cable industry. ? Many of the systems available for acquisition carry significant debt burdens. Summit Digital will only go through with acquisitions if owners and/or creditors are willing to restructure debt. Typically this involves an exchange of debt and equity, with owners/creditors exchanging debt for stock. Since these individuals are in the business, they understand the inherent viability and potential of Summit Digital's business model, and these offers have so far met a generally positive reception. ? Summit Digital focuses on areas that offer potential for aggregating multiple systems in physically adjacent territory, maximizing the potential of existing infrastructure. ? Summit Digital targets area with existing unserved demand for broadband Internet. Typically this means acquiring systems that do not offer broadband Internet at the time of acquisition, offering potential for immediate increase in subscribers and per-subscriber billing by adding broadband Internet to the service package and aggressively promoting it. ? Economic viability of acquisition candidates is evaluated by Summit Digital's management team, which has extensive experience in the cable business. In some cases the team may prefer to negotiate directly with creditors or a bankruptcy court; in others the system is deemed non-viable and the acquisition is abandoned. ? Markets must be assessed for growth potential. Some rural markets are economically stagnant with a decreasing population that will not support growth in our industry. Acquisitions in these areas will not be pursued. Business Opportunities We see medical marijuana as a rapidly expanding field of business: That potential is generating intense interest at all levels of commerce and among cable and internet providers throughout the country. In response to this demand, we are developing an Internet streaming video channel dedicated solely to Medical Marijuana business opportunities and legal, technical, and lifestyle issues. On May 28, 2014 the Company entered into a license agreement with Brad Lane ("Lane") for the exclusive rights to Cannabis Planet Productions, Cannabis Planet TV and intellectual property related there to. Subject to Lane meeting certain conditions precedent, the Company has agreed to issue Lane 1,000,000 shares of its Series A Preferred Stock and shares of common stock equivalent in ownership percentage to that owned by the Company's current officers, Messrs. Tom Nix and Stephen Spencer. The agreement may be unwound by either party with cause upon a thirty day written notice. 12 Results of Operations During the three and six month periods ended June 30, 2014, WWA Group operated as a multi system operator in Michigan and Oklahoma through Summit Digital, Inc. Results of Operations for the Three-Months ended June 30, 2014 compared to June 30, 2013 For the Three-Months Ended June 30, 2014 2013 Revenues (net) $ 138,830 $ 155,309 Operating expenses Cost of Goods Sold 72,463 93,739 General, selling and administrative expenses 75,619 43,048 Salaries and Wages 31,803 26,974 Depreciation 4,141 3,033 Total operating expenses 111,563 73,055 Loss from operations (45,196 ) (11,485) Other income (expense): Interest income (expense) 10,402 - Gain (loss) on derivative liability - - Other income (expense) 12,110 14,601 Total other income (expense) 22,512 14,601 Net loss $ (22,684 ) $ 3,116 Net Income/Loss Net loss for the three-month period ended June 30, 2014 was $(22,684), compared to a net income of $3,116 for the three month period ended March 31, 2013. Our net loss for the current period is primarily due to expenses at the corporate level incurred since the reverse merger, along with the variances that arise from a period-over-period increase in cost of goods sold, partially offset by a gain on derivative liability and an increase in other income. Revenue Our revenue for the three month period ended June 30, 2014 was $138,830 as compared to $155,309 for the comparable period for 2013. The decrease in our revenues is a result of discontinued cable service in Oklahoma due to lackof profitability. Gross Income Gross income for the three month period ended June 30, 2014 was $66,367 as compared to $61,570 for the three month period ended June 30, 2013. The increase in gross income over the comparative period can be attributed to the customer base moving from the higher cost of goods sold of cable to the lower cost of goods sold of internet. 13 Operating Expenses Our operating expenses for the three month period ended June 30, 2014 were $111,563 compared to $73,055 for the comparable 2013 period. Operating expenses have increased during the current period due primarily to the legal and accountant costs associated with meeting the Company's public company financial reporting obligations. Other Income/Expenses Other income for the three month period ended June 30, 2014 was $22,512, as compared to other income of $14,601 for the three month comparable period ending June 30, 2013. Other income/expense represents non-operating income/ expense from sources other than our subscriber base. Income Tax Expense (Benefit) We have a prospective income tax benefit resulting from a net operating loss carry-forward and start-up costs that will offset any future operating profit. Results of Operations for the Six-Months ended June 30, 2014 compared to June 30, 2013 For the Six-Months Ended June 30, 2014 2013 Revenues (net) $ 268,873 $ 292,047 Operating expenses Cost of Goods Sold 145,993 165,239 General, selling and administrative expenses 128,207 82,823 Salaries and Wages 157,233 52,953 Depreciation 7,471 6,045 Total operating expenses 292,911 141,821 Loss from operations (170,031 ) (15,013) Other income (expense): Interest income (expense) (31,439) - Gain (loss) on derivative liability 27,339 - Other income (expense) 20,767 15,801 Total other income (expense) 16,667 15,801 Net loss $ (153,364 ) $ 788 Net Income/Loss Net loss for the six-month period ended June 30, 2014 was $(153,364), compared to a net income of $788 for the six-month period ended June 30, 2013. Our net loss for the current period is primarily due to expenses at the corporate level incurred since the reverse merger, along with the variances that arise from a period-over-period increase in cost of goods sold, partially offset by a gain on derivative liability and an increase in other income. Revenue Our revenue for the six month period ended June 30, 2014 was $268,873 as compared to $292,047 for the comparable period for 2013. The decrease in our revenues is a result of discontinued cable service in Oklahoma due to lackof profitability. Gross Income Gross income for the six month period ended June 30, 2014 was $122,880 as compared to $126,808 for the six month period ended June 30, 2013. The decrease in gross income over the comparative period represents a 3% change and can be attributed primarily to decreasing revenues offset slightly by higher margins from internet customers. 14 Operating Expenses Our operating expenses for the six month period ended June 30, 2014 was $292,911 compared to $141,821 for the comparable 2013 period. The increase in our operating costs for the current period is primarily a result of $50,000 in compensation granted to each of our officers, for a total of $100,000, on January 2, 2014. The compensation was accrued on the financial books of the Company until such as time as we are able to make the payments. Additionally, operating expenses have increased during the current period due to the legal and accountant costs associated with meeting the Company's public company financial reporting obligations. Other Income/Expenses Other income for the six month period ended June 30, 2014 was $16,667, as compared to other income of $15,801for the six month comparable 2013 period. Other income/expense represents non-operating income/expense from sources other than our subscriber base. Income Tax Expense (Benefit) We have a prospective income tax benefit resulting from a net operating loss carry-forward and start-up costs that will offset any future operating profit. Liquidity and Capital Resources June 30, December 31, Change 2014 2013 Cash $ 64,753 $ 11,214 $ 53,539 Total Current Assets 98,613 58,558 40,055 Total Assets 264,632 227,990 36,642 Total Current Liabilities 348,250 209,992 138,258 Total Liabilities $ 348,250 $ 212,329 $ 135,921 We had a working capital deficit of $266,599 as of June 30, 2014. At June 30, 2014, our current assets were $98,613, which consisted of $64,753 in cash, $30,581in accounts receivable and $3,279 other current assets. Our current liabilities were $348,250, which consisted of $85,900 of accounts payable, $151,087 of accrued expenses, convertible notes payable (net) of $105,500 and $5,763 of current portion of long-term debt. The accrued expenses include $50,000 in compensation granted to each of our officers, for a total of $100,000, on January 2, 2014. Net cash used by operating activities for the six month period ended June 30, 2014 was $(28,335) as compared to net cash used of $(142,128) for the six month period ended June 30, 2013. The change in cash used in operating activities was not material after eliminating the effects of accrued compensation, $100,000, and $(27,339), related to convertible notes. Net Cash provided by financing activities was $106,885 for the period ended June 30, 2014, as compared to $11,028 for the comparable 2013 period. Cash flow provided by financing operations in the current period is attributed primarily to proceeds from convertible debt of $105,500. We intend to continue to generate cash flows from financing activities through debt and, or equity financing as needed to fulfill our business plan. 15 At June 30, 2014, we had convertible debt financing from an unrelated third party in the aggregate amount of $105,500. These funds are used in the short term to pay the expenses of being a public company and conducting business in that regard. As indicated above, the Company will need to secure additional short term funding to continue to conduct business until a significant funding of debt or equity financing, estimated to be $500,000, can be obtained. This significant funding will allow us to make cable system acquisitions, as per our business plan, which would provide a cash flow from operations, enabling us to support our corporate activities, and develop an Internet streaming video channel dedicated solely to medical marijuana business opportunities and legal, technical, and lifestyle issues. Our inability to obtain sufficient funding will have a material adverse effect on our ability to generate revenue and our ability to continue operations. WWA Group does not intend to pay cash dividends in the foreseeable future.WWA Group had no commitments for future capital expenditures that were material at June 30, 2014. WWA Group has no defined benefit plan or contractual commitment with any of its officers or directors. WWA Group had no lines of credit or other bank financing arrangements as of June 30, 2014. WWA Group has no current plans for the purchase or sale of any plant or equipment. WWA Group has no current plans to make any changes in the number of employees. Off Balance Sheet Arrangements As of June 30, 2014, WWA Group has no significant 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 is material to stockholders. Future Financings We anticipate continuing to rely on debt or equity sales of our shares of common stock in order to continue to fund our business operations. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our plan of operations. Critical Accounting Policies In Note 1 to the audited condensed financial statements for the period ended December 31, 2013 and 2012 included in WWA Group's Form 10-K, we discuss those accounting policies that are considered to be significant in determining the results of operations and our financial position. We believe that the accounting principles utilized by us conform to accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions. With respect to revenue recognition, we apply the following critical accounting policies in the preparation of its financial statements Forward Looking Statements and Factors That May Affect Future Results and Financial Condition The statements contained in the section titled Results of Operations and Description of Business, with the exception of historical facts, are forward looking statements. A safe-harbor provision may not be applicable to the forward-looking statements made in this current report. Forward-looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning: · our anticipated financial performance; · the sufficiency of existing capital resources; · our ability to fund cash requirements for future operations; · uncertainties related to the growth of our subsidiaries' businesses and the acceptance of their 16 products and services; · the volatility of the stock market; and · general economic conditions. We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated, including the factors set forth in the section entitled Risk Factors included elsewhere in this report. We also wish to advise readers not to place any undue reliance on the forward looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than is required by law. Going Concern WWA Group's auditors have expressed an opinion as to its ability to continue as a going concern as a result of recurring losses from operations. WWA Group's ability to continue as a going concern is subject to its ability to realize a profit from operations and /or obtain funding from outside sources. Management's plan to address WWA Group's ability to continue as a going concern includes obtaining funding from the private placement of debt or equity and realizing revenues from additional business opportunities. Management believes that it will be able to obtain funding to enable WWA Group to continue as a going concern through the methods discussed above, though there can be no assurances that such methods will prove successful. Recent Accounting Pronouncements Please see Note 1 to our consolidated financial statements for recent accounting pronouncements. Stock-Based Compensation We have adopted Accounting Standards Codification Topic ("ASC") 718, Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services. |