This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this current report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as "anticipates," "expects," "believes," "plans," "predicts," and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward- looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. 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
Discussion and Analysis
Our plan of operation over the next twelve months 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 will require a minimum of $500,000 dollarsin additional debt or equity funding in the next twelve months to pursue our business plan, the majority of which amount will be focused on expanding Summit Digital'sbusiness by acquiring existing operations. Such financing is not currently committed and there can be no assurance that such financing will be available within the next twelve months.
Summary of Summit Digital Business Activities and Strategy
Summit Digitalis 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'starget 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 Digitalmay 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 Digitalintends to support and extend these packages by offering wireless data and voice service within its system footprint. Summit Digitalbelieves 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.
Summit Digitalintends 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
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
· 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.
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 Digitalbelieves, 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 Digitalbelieves that many of these systems can be acquired in exchange for a combination of cash and stock. Once systems have been acquired, Summit Digitalwill 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 Digitaldoes not intend to incur debt or sell shares to finance system upgrades. Summit Digitalwill 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 Digitalhas the right to insert local advertising into programming from major networks such as CNN, ESPN, Fox Newsand many others. This ad insertion is accomplished through an interface between the network and Summit Digital'ssystem, with the network providing cue tones that open time slots for Summit Digital'sadvertisers. Again, this is a revenue opportunity not currently exploited by the cable systems Summit Digitalseeks to acquire, and upgrading systems to accommodate this form of advertising presents a significant opportunity to generate additional revenue from existing infrastructure. Summit Digital'sbusiness 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 Digitalwill not surrender controlling interest in systems it acquires and will not incur long-term debt to acquire systems or upgrade
provide services and build customer and community relationships outside the traditional residential
service model. Two initiatives in the 1st half of 2012 illustrate this commitment and the results it can
areas. A web-based backbone permits data storage by
provide vital evidence and understanding in criminal and other incidents.
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
operators to continuously monitor operations and provide remote control for their robotic milkers.
Agricultural operations in the rural
and there is enormous scope for leveraging
infrastructure to increase efficiency and create opportunity for
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:
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.
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
· Wireless services can bring in subscribers solely interested in wireless access. More important, it
can drive a "quadruple play" option in which
combining TV, home broadband, voice communications, and wireless access.
expansion plan. Subscriber Base
Summit Digitalcurrently serves 841 subscribers in the States of Oklahomaand Michigan, with an average monthly billing of approximately $61. At June 30, 2012, Summit Digitalserved 840 subscribers in the States of Oklahomaand Michigan, with monthly billing of approximately $61.
technology. These installations will serve up to 2500 residents within
Summit Digitalhopes to complete these negotiations and close the acquisitions by early 2013 though there is no assurance that all or any of these acquisitions will be completed. Summit Digitalis targeting 100,000 total subscribers within three years, which it believes is a conservative estimate of potential, provided that adequate financing can be obtained. Per-subscriber billing in the systems Summit Digitalhas targeted, typically based only on cable TV services, is under $50/month.
· Many of the systems available for acquisition carry significant debt burdens.
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
physically adjacent territory, maximizing the potential of existing infrastructure.
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
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.
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.
WWA Group'sbusiness development strategy is prone to significant risks and uncertainties that are having an immediate impact on its efforts to realize net cash flow. Should WWA Groupbe 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, WWA Group'sability to continue its business operations will remain in jeopardy. Results of Operations
During the three month period ended
Results of Operations for the Three-Months ended
2014 2013 Revenues (net) $ 130,043 $ 136,987 Operating expenses Cost of Goods Sold 73,530 71,499
General, selling and administrative
expenses 52,588 39,385 Salaries and Wages 125,430 25,979 Depreciation 3,330 3,012 Total operating expenses 181,348 68,376 Loss from operations (124,835 ) (2,888) Other income (expense): Interest expense (41,841 ) - Gain (loss) on derivative liability 27,339 - Other income (expense) 8,657 950 Total other income (expense) 5,845 950 Net loss $ (130,680 ) $ (1,938) Net Income/Loss Net loss for the three month period ended
March 31, 2014was $130,680, compared to a net loss of $1,938for 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.
Our revenue for the three month period ended
March 31, 2014was $130,043as compared to $136,987for the comparable period for 2013. The decrease in our revenues is a result of discontinued cable service in Oklahomadue to lack
of profitability. Gross Income
Gross income for the three month period ended
March 31, 2014was $56,513as compared to $65,488for the three month period ended March 31, 2013. The decrease in gross income over the comparative period can be attributed to higher programming costs in the current period. Cost of goods sold will continue to increase as a percentage of sales as cable programming costs continue to rise. Operating Expenses
Our operating expenses for the three month period ended
March 31, 2014was $181,348compared to $68,376for the comparable 2013 period. The increase in our operating costs for the current period is primarily a result of $50,000in 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 costs associated with being a public company.
Other income for the three month period ended
March 31, 2014was $5,845, as compared to other income of $950for the three 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
March 31, December 31, 2014 2013 Change Cash
$ 8,35711,214 $ (2,857)Total Current Assets 47,149 58,558 (11,409) Total Assets 213,252 227,990 (14,738) Total Current Liabilities 313,748 209,992 103,756 Total Liabilities $ 314,101 $ 212,329$ 101,772
We had a working capital deficit of
$266,599as of March 31, 2014. At March 31, 2014, our current assets were $47,149, which consisted of $8,357in cash, $28,780in accounts receivable and $10,012in prepaids and other current assets. Our current liabilities were $313,748, which consisted of $65,583of accounts payable, $181,009of accrued expenses, convertible notes payable (net) of $60,778and $6,378of current portion of long-term debt. The accrued expenses include $50,000in 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 three month period ended March 31, 2014was $(4,917)as compared to net cash used of $(12,135)for the three month period ended March 31, 2013. The change in cash used in operating activities was not material after eliminating the effects of accrued compensation, $100,000, and amortization of discount, $25,278and gain from re-measurement of derivative liability, $(27,339), related to convertible notes. Net Cash provided by financing activities was $13,078for the period ended March 31, 2014, as compared to $0for the comparable 2014 period. Cash flow provided by financing operations in the current period is attributed to proceeds from convertible debt of $15,000, offset by repayment of long term debt of $1,922.
We intend to continue to generate cash flows from financing activities through debt and, or equity financing as needed to fulfill our business plan.
The company has obtained convertible debt financing from an unrelated third party in the amount of
The Company may need to secure additional short term funding to continue to conduct business until a significant funding of debt or equity financing of at least
$500,000can 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. 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 Groupdoes not intend to pay cash dividends in the foreseeable future.
Off Balance Sheet Arrangements
March 31, 2014, WWA Grouphas 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.
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, 2013and 2012 included in WWA Group'sForm 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
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.
WWA Group'sauditors have expressed an opinion as to its ability to continue as a going concern as a result of recurring losses from operations. WWA Group'sability 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'sability 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 Groupto 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.