|
WORLD SURVEILLANCE GROUP INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) This Quarterly Report on Form 10-Q, including this Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements regarding future events and our future results. All
statements other than statements of historical facts are statements that could
be deemed forward-looking statements.
Certain statements in this Quarterly Report on Form 10-Q may contain words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," "may," "could," "would" and other similar language and are
considered forward looking statements or information. In addition, any
information or statements that refer to expectations, beliefs, plans,
projections, objectives, performance or other characterizations of future events
or circumstances, including any underlying assumptions, are forward-looking, and
based on our current expectations, estimates, forecasts and projections about
the operating environment, economies and markets in which we operate. Such
forward-looking information or statements are subject to important assumptions,
risks and uncertainties that are difficult to predict, and the actual outcome
may be materially different. Our assumptions, although considered reasonable by
us at the date of this Report, may prove to be inaccurate and consequently our
actual results could differ materially from the expectations set out herein.
We undertake no obligation to revise or publicly release the results of any
revisions to these forward-looking statements or information. You should
carefully review documents we file from time to time with the Securities and
Exchange Commission. A number of factors may materially affect our business,
financial condition, operating results and prospects. These factors include but
are not limited to those set forth in our Registration Statements on Form S-1
and our Annual Report on Form 10-K and elsewhere in this Quarterly Report on
Form 10-Q. Any one of these factors may cause our actual results to differ
materially from recent results or from our anticipated future results. You
should not rely too heavily on the forward-looking statements contained in this
Quarterly Report on Form 10-Q, because these forward-looking statements are
relevant only as of the date they were made.
The following MD&A is intended to help readers understand the results of our
operation and financial condition, and is provided as a supplement to, and
should be read in conjunction with, our condensed consolidated financial
statements and the accompanying Notes to Condensed Consolidated Financial
Statements under Part I, Item1 of this Quarterly Report on Form 10-Q. The
numbers included in this MD&A include the financial results of Global Telesat
Corp. from our acquisition date of such company on May 25, 2011.
Growth and percentage comparisons made herein generally refer to the three and
nine months ended September 30, 2012 compared with the three and nine months
ended September 30, 2011 unless otherwise noted. Where we say "we", "us", "our",
"WSGI" or "the Company", we mean World Surveillance Group Inc. or World
Surveillance Group Inc. and its subsidiaries, as applicable.
The Company
We design, develop and market, and intend to sell, autonomous lighter-than-air
(LTA) unmanned aerial vehicles (UAVs) and aerostats capable of carrying payloads
that provide persistent security and/or wireless communications from air to
ground solutions at low, mid and high altitudes. Our airships and aerostats when
integrated with electronics systems and other high technology payloads, are
designed for use by government-related and commercial entities that require
real-time intelligence, surveillance and reconnaissance or communications
support for military, homeland defense, border control, drug interdiction,
natural disaster relief and maritime missions. Our business focuses primarily on
the design and development of innovative UAVs and aerostats that provide
situational awareness and other communications capabilities via the integration
of wireless capabilities and customer payloads.
Through our wholly owned subsidiary Global Telesat Corp. (GTC), we provide
mobile voice and data communications services globally via satellite to the U.S.
government, defense industry and commercial users. GTC specializes in services
related to the Globalstar satellite constellation, including ground station
construction, satellite telecommunications voice airtime and tracking
services. GTC has an e-commerce mobile satellite solutions portal and is an
authorized reseller of satellite telecommunications equipment and services
offered by other leading satellite network providers such as Inmarsat, Iridium
and Thuraya. GTC's equipment is installed in various ground stations across
Africa, Asia, Australia, Europe and South America. On May 25, 2011 we completed
our acquisition of privately-held Global Telesat Corp. We acquired 100% of the
issued and outstanding securities of GTC, making GTC a wholly owned subsidiary
of the Company.
On September 22, 2008 we filed a Certificate of Merger with the Secretary of
State of the State of Delaware pursuant to which our newly formed wholly-owned
subsidiary, Sanswire Corp., a Delaware corporation, was merged into us and our
corporate name was changed from GlobeTel Communications Corp. to Sanswire Corp.
Effective April 19, 2011, we merged a newly created, wholly-owned Delaware
subsidiary, World Surveillance Group Inc., with and into the Company, with the
Company being the surviving corporation. Our Restated Certificate of
Incorporation is the charter of the surviving corporation except that our name
has been changed to World Surveillance Group Inc. In connection with the change
of our corporate name, effective April 25th our stock ticker symbol, under which
our common stock is now traded, was changed to "WSGI".
19
Our current principal office is at State Road 405, Building M6-306A, Room 1400,
Kennedy Space Center, FL 32815, and our telephone number at that location is
(321) 452-3545. Our internet address is www.wsgi.com. Information contained on
our website is not a part of this report and the inclusion of our website
address in this report is an inactive textual reference only.
Results of Operations
Comparison of Three Months Ended September 30, 2012 and 2011
Revenues. Sales of satellite airtime and usage for the three months ended
September 30, 2012 were $190,951 as compared to $104,051 during the same period
of 2011, reflecting an increase of $86,900 or approximately 83.5% over year ago
levels, in large part as a result of the launch of GTC's e-commerce mobile
satellite solutions website.
Cost of Sales. Cost of sales, principally the costs of airtime and usage fees,
totaled $164,794 for the three months ended September 30, 2012 compared to
$91,643 for the same period of 2011. Gross profit margins rose slightly from
11.9% in 2011 to 13.7% for the three month period ended September 30, 2012.
Operating Expenses. Our operating expenses consist primarily of compensation,
professional fees, research and development and depreciation, as well as
expenses for executive and administrative personnel, insurance, facilities,
travel and related expenses, amortization and other general corporate expenses.
Operating expenses for the three months ended September 30, 2012 totaled
$768,223, compared to the $1,091,001 during the same period of 2011, a reduction
of $322,778, or 29.6%. Reductions in general and administrative expenses of
$388,439, primarily reflect the vesting of share-based compensation awards
during 2011. The reduction in research and development of $115,065 reflects
lower expenditures for testing primarily during the three months ended 2012 as
compared to the same period of 2011. These reductions were partially offset by
the increase in professional fees of $180,726 reflecting increases in legal fees
and settlement activity during the three months ended September 30, 2012 as
compared to the same period of 2011.
Loss From Operations. The loss from operations of $742,066 for the three months
ended September 30, 2012 compares to the loss from operations of $1,078,593 for
the same period of 2011. The decrease of $336,527, or 31.2%, reflects the
increase in sales and the net reduction in operating expenses described above.
Net Other Income (Expense). Net other expenses totaled $244,897 for the three
months ended September 30, 2012, as compared to net other income of $850,070
during the same period of 2011. Significant fluctuations in fair value of
derivatives, principally stock warrants, between September 30, 2012 and 2011
account for $950,592 of the change. Losses on debt conversions of $135,958
during the third quarter of 2012 also contributed to the change.
Net Loss. We had a net loss of $986,963 for the three months ended September 30,
2012 compared to a net loss of $228,523 for the three months ended September 30,
2011, an increased loss of $758,440. The significant reductions in share-based
compensation and the change in the fair value of derivatives accounted for the
majority of the increased net loss during the quarter ended September 30, 2012
as compared to the same period of 2011.
Comparison of Nine Months Ended September 30, 2012 and 2011
Revenues. We had total revenues of $889,344 during the nine months ended
September 30, 2012, comprised of $200,000 in contract revenues and $689,344 in
sales of satellite airtime and usage, which reflects an increase of $759,200
over the total revenues of $130,144 in sales of satellite airtime and usage
reported during the same period of 2011.
Cost of Sales. Cost of sales, principally the costs of airtime and usage fees,
totaled $611,242 for the nine months ended September 30, 2012 compared to
$107,988 for the same period of 2011, an increase of $503,254 due to the
increase in net sales.
Operating Expenses. Our operating expenses consist primarily of compensation,
professional fees, research and development and depreciation, as well as
expenses for executive and administrative personnel, insurance, facilities,
travel and related expenses, and other general corporate expenses. Operating
expenses for the nine months ended September 30, 2012 were $3,522,132, compared
to $3,219,712 for the nine months ended September 30, 2011, an increase of
$302,420 or 9.4%. Increases in general and administrative expenses of $451,720,
and professional fees of $91,011, during the nine months ended 2012 were
partially offset by the decrease in research and development costs of $253,861.
The increase in depreciation expense during 2012 and acquisition expenses during
2011 relate to the GTC acquisition in May 2011.
Loss From Operations. The loss from operations of $3,244,030 for the nine months
ended September 30, 2012 compares to the operating loss of $3,197,556 for the
same period of 2011. The increased loss of $46,474 resulted from the increase in
operating expenses described above, offset by increased revenues.
20
Net Other Income (Expense). Net other income totaled $1,737,273 for the nine
months ended September 30, 2012, compared to net other income of $2,857,401 for
the same period of 2011. The net other income for the nine months ended
September 30, 2012 primarily reflects the $2,331,525 write-off adjustment of the
net liabilities of the discontinued operations and legacy debt. The $373,078
loss on convertible debt conversion relates to the fair value of the converted
common shares and the required cash true-up accrual when the shares are
converted using the floor price of $.075 per share as opposed to the specified
conversion price as computed under the debenture agreement. The $125,364 gain on
the fair value of derivative liabilities in 2012 resulted from the fair value
calculation of the outstanding warrants using the Black-Scholes option pricing
model. Interest expense for the nine months ended 2012 was $346,538 and includes
interest on the notes payable, convertible debt and amortization of the deferred
financing costs. During the same period in 2011, net other income of $2,857,401,
includes a $2,474,753 gain on the extinguishment of liabilities due to a former
joint venture partner; a $733,578 gain on the fair value of derivative
liabilities; and interest expense of $350,930.
Net Loss. We had a net loss of $1,506,757 for the nine months ended September
30, 2012 compared to a net loss of $340,155 for the nine months ended September
30, 2011, an increased loss of $1,166,602, primarily attributable to the
difference in net other income (expense) of $1,120,128, between the two periods.
Liquidity and Capital Resources
Assets. Our cash balance at September 30, 2012 was $14,189 compared to $5,532 at
December 31, 2011. The increases in accounts receivable of $41,553, prepaid
expenses of $24,849 and deferred financing costs of $48,243 were partially
offset by the $137,250 decrease in property and equipment caused by an increase
in accumulated depreciation during the period, accounting for the $24,854
reduction in total assets at September 30, 2012.
Liabilities. During the three months ended June 30, 2012, the Company conducted
a detailed analysis of certain of its accounts payable and accrued liabilities
including (i) liabilities from discontinued operations of $1,365,929, and (ii)
legacy payables and accrued liabilities of $1,787,324. Certain of these
liabilities represented legal judgments and thus were excluded from the
potential write-off and remain on the Company's books. The remaining analyzed
liabilities from discontinued operations and legacy payables and accrued
liabilities are no longer enforceable debts of the Company due to the passage of
the applicable statutes of limitation and were written-off. These liabilities
along with the assets of discontinued operations of $6,406 resulted in the
Company's net write-off of discontinued operations adjustment of $2,331,525.
At September 30, 2012, we had total liabilities of $16,018,674 compared to
$16,977,458 at December 31, 2011, a decrease of $958,784 or 5.6%. This decrease
reflects the $2,331,525 write-off of the net liabilities of the discontinued
operations and legacy debts; the $200,000 decline in deferred revenues due to
recognition of the Space Florida contract revenue; and the $125,364 decline in
the fair value of the derivatives. These reductions were partially offset by the
convertible debt outstanding of $370,000 from the Company's February financing;
the $314,557 increase in accrued interest; and the $216,102 increase in accrued
liabilities.
Cash Flows. Our cash used in operating activities in the nine months ended
September 30, 2012 was $1,014,317 compared to $1,583,868 for the same period of
2011, reflecting a decrease in net cash outflows of $569,551, attributable
largely to the increase in accounts payable of $87,236 and accrued liabilities
of $440,716 during the nine months ended September 30, 2012.
There were no investing activities during the nine months ended September 30,
2012. Net cash used in investing activities totaled $339,366 for the comparable
period of 2011, primarily reflecting the funds used to acquire GTC. .
Net cash provided by financing activities, principally the convertible debt and
additional funding under the EIA, totaled $1,022,974 during the nine months
ended September 30, 2012, compared to $1,941,625 in proceeds received from the
sale of common stock during the nine months ended September 30, 2011.
21
Pursuant to the Stock Purchase Agreement relating to our acquisition of GTC, the
purchase price includes an earn-out equal to 5% of the gross revenues related to
the construction by GTC of certain potential satellite ground stations. These
earn-out payments are unlikely to materially impact our liquidity and capital
resources since payments are required to be made to the former shareholder of
GTC by us only upon the actual receipt of cash from a customer related to a
ground station construction contract. The earn-out payments would have the
effect of reducing our margin on any such contract. We are obligated to make
these earn-out payments until the earlier of May 25, 2036 or the date on which
GTC no longer has the right to construct ground stations under the applicable
agreement with Globalstar.
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
However, as reflected in the accompanying condensed consolidated financial
statements, we incurred a loss from operations of $3,244,030 and negative cash
flow from operations of $1,014,317 for the nine months ended September 30, 2012.
We had a working capital deficit of $15,445,048, a total stockholders deficit of
$13,268,089 and an accumulated deficit of $147,139,256 at September 30, 2012.
These factors raise substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent upon our
ability to raise additional funds either through investments or by generating
revenue from the sale of our products to continue our business operations and
implement our strategic plan, which includes, among other things, continued
development of our UAVs and aerostats, the pursuit or continued development of
strategic relationships and expansion of our subsidiary GTC's business. Our
business plan, which if successfully implemented, will allow us to sell UAVs,
aerostats and other products for a profit thereby reducing our dependence on
raising additional funds from outside sources. The condensed consolidated
financial statements do not include any adjustments that might be necessary if
we are unable to continue as a going concern. We anticipate a net loss to
continue for at least the next six months.
Additional cash will be needed to support our ongoing operations until such time
that operations provide sufficient cash flow to cover expenditures. We are
currently pursuing both short and long-term financing options from private
investors as well as through institutional investors. We are also working to
commercialize our Argus One airship, our aerostats and GTC products to begin
generating revenues from customers. We anticipate generating revenues from the
sale of our airships in 2013, our aerostats in 2012 and are already generating
revenue from our GTC products. The costs associated with our strategic plan are
variable and contingent on our ability to raise capital or begin generating
revenue from customer contracts, but we expect to need funding of approximately
$3 million over the next 12 months. We have an agreement with La Jolla Cove
Investors for $5.0 million of funding. We continue to have discussions with
other entities relating to funding, but there can be no assurance that such
funding will be received in the amounts required, on a timely basis, or at
all. While we believe we will be able to continue to raise capital from various
funding sources in such amounts sufficient to sustain operations at our current
levels for the next 12 months, if we are not able to do so and if we are not
able to generate revenue through the sale of our products, we would likely need
to modify our strategy or cut back or terminate some of our operations. If we
are able to raise additional funds through the issuance of equity securities,
substantial dilution to existing shareholders may result. However, if our plans
are not achieved and/or if significant unanticipated events occur or if we are
unable to obtain the necessary additional funding on favorable terms or at all,
we will likely have to modify our business plan and reduce, delay or discontinue
some or all of our operations to continue as a going concern or seek a buyer for
all or a portion of our assets. As of the date hereof, we continue to raise
capital to sustain our current operations.
Off-Balance Sheet Arrangements
We do not enter into off-balance sheet financing as a matter of practice except
for the use of operating leases for office space and computer equipment. In
accordance with U.S. GAAP, neither the lease liability nor the underlying assets
are carried on the balance sheet, as the terms of the leases do not meet the
criteria for capitalization.
Critical Accounting Policies and Use of Estimates
Our Management's Discussion and Analysis of Financial Condition and Results of
Operation is based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America (U.S. GAAP). The preparation of our condensed
consolidated financial statements in accordance with U.S. GAAP requires us to
make certain estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements,
the reported amounts and classification of revenues and expense during the
periods presented, and the disclosure of contingent assets and liabilities. We
evaluate our estimates and assumptions on an ongoing basis and material changes
in these estimates or assumptions could occur in the future. Changes in
estimates are recorded in the period in which they become known. We base our
estimates on historical experience and various other assumptions that we believe
to be reasonable under the circumstances and at that time, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates if past experience or other assumptions
do not turn out to be substantially accurate.
Please refer to our Note 1 of our condensed consolidated financial statements
contained in this Quarterly Report on Form 10-Q, and our Management's Discussion
and Analysis of Financial Condition and Results of Operation contained in Part
II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December
31, 2011 and Note 1 of our consolidated financial statements contained therein
for a more complete discussion of our critical accounting policies and use of
estimates.
22
[ Back To LatinAmerica.tmcnet.com's Homepage's Homepage ]
|
Internet Telephony Magazine
Click here to read latest issue
CUSTOMER 
Cloud Computing Magazine
Click here to read latest issue
M2M Evolution Magazine
Call Center/CRM
Info Tech 
IP Communications 
Mobile 
Green 
Satellite 
Robotics 
