Attached files
| file | filename |
|---|---|
| EX-31 - RULE 13A-14(A) CERTIFICATION BY CFO - Cornerworld Corp | ex_31-2.htm |
| EX-32 - SECTION 1350 CERTIFICATION BY CEO - Cornerworld Corp | ex_32-1.htm |
| EX-32 - SECTION 1350 CERTIFICATION BY CFO - Cornerworld Corp | ex_32-2.htm |
| EX-31 - RULE 13A-14(A) CERTIFICATION BY CEO - Cornerworld Corp | ex_31-1.htm |
| EXCEL - IDEA: XBRL DOCUMENT - Cornerworld Corp | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the Quarterly Period Ended September 30, 2014 |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from_________ to _______ |
Commission File Number: 333-128614
CORNERWORLD CORPORATION
(Exact name of registrant as specified in its charter)
Nevada |
| 98-0441869 |
(State of incorporation) |
| (I.R.S. Employer Identification No.) |
13101 Preston Road, Suite 510
Dallas, Texas 75240
(Address of principal executive offices)
(888) 837-3910
(Registrant’s telephone number including area code)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No ____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ____ Accelerated filer ____ Non-accelerated filer ____ Smaller reporting company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ____ No X
The number of shares outstanding of the registrant’s common stock, $0.001 par value per share, as of November 12, 2014 was 162,937,110.
CORNERWORLD CORPORATION
INDEX
Item |
| Page |
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| PART I. FINANCIAL INFORMATION |
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1 | Financial Statements (Unaudited): |
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| Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Audited) | 1 |
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| Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2014 and 2013 | 2 |
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| Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2014 | 3 |
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| Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2014 and 2013 | 4 |
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| Notes to Condensed Consolidated Financial Statements | 5 |
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2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
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3 | Quantitative and Qualitative Disclosures about Market Risk | 17 |
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4 | Controls and Procedures | 17 |
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| PART II. OTHER INFORMATION |
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1 | Legal Proceedings | 18 |
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1A | Risk Factors | 18 |
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2 | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
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3 | Defaults Upon Senior Securities | 18 |
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4 | Mine Safety Disclosures | 18 |
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5 | Other Information | 18 |
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6 | Exhibits | 18 |
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| Signatures | 19 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CornerWorld Corporation
Condensed Consolidated Balance Sheets
|
| September 30, 2014 |
| December 31, 2013 |
| ||
|
| (Unaudited) |
|
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| ||
Assets |
|
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|
|
|
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Current assets: |
|
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|
|
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Cash |
| $ | 166,762 |
| $ | 857,954 |
|
Accounts receivable, net |
|
| 71,092 |
|
| 119,904 |
|
Prepaid expenses and other current assets |
|
| 60,842 |
|
| 152,317 |
|
Total current assets |
|
| 298,696 |
|
| 1,130,175 |
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|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 5,355 |
|
| 19,486 |
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Other assets |
|
| 28,003 |
|
| 28,000 |
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TOTAL ASSETS |
| $ | 332,054 |
| $ | 1,177,661 |
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Liabilities and Stockholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable |
| $ | 283,617 |
| $ | 225,064 |
|
Accrued expenses |
|
| 325,776 |
|
| 347,967 |
|
Notes payable related parties |
|
| 127,460 |
|
| 101,968 |
|
Lease payable, current portion |
|
| 5,302 |
|
| 10,704 |
|
Deferred revenue |
|
| 58,627 |
|
| 70,322 |
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Total current liabilities |
|
| 800,782 |
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| 756,025 |
|
Long-term liabilities: |
|
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|
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|
Notes payable related parties, net of current portion |
|
| 211,498 |
|
| 236,990 |
|
Lease payable, net of current portion |
|
| — |
|
| 2,383 |
|
Total liabilities |
|
| 1,012,280 |
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| 995,398 |
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Commitments and Contingencies |
|
| — |
|
| — |
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Stockholders’ equity (deficit): |
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Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding |
|
| — |
|
| — |
|
Common stock, $0.001 par value, 250,000,000 shares authorized; 162,937,110 and 156,813,704 shares issued and outstanding, at September 30, 2014 and December 31, 2013, respectively |
|
| 162,937 |
|
| 156,813 |
|
Additional paid-in capital |
|
| 11,803,865 |
|
| 11,801,224 |
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Accumulated deficit |
|
| (12,647,028 | ) |
| (11,775,774 | ) |
Total stockholders’ equity (deficit) |
|
| (680,226 | ) |
| 182,263 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| $ | 332,054 |
| $ | 1,177,661 |
|
See Notes to Condensed Consolidated Financial Statements.
- 1 -
CornerWorld Corporation
Condensed Consolidated Statements of Operations
(unaudited)
|
| For the Three Months |
| For the Nine Months |
| ||||||||
|
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| ||||
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Sales, net |
| $ | 223,149 |
| $ | 255,557 |
| $ | 705,689 |
| $ | 868,480 |
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Costs of goods sold |
|
| 116,166 |
|
| 109,741 |
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| 406,177 |
|
| 370,647 |
|
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Gross profit |
|
| 106,983 |
|
| 145,816 |
|
| 299,512 |
|
| 497,833 |
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Expenses: |
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|
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Selling, general and administrative expenses |
|
| 353,097 |
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| 560,418 |
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| 1,133,214 |
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| 2,006,958 |
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Depreciation |
|
| 2,677 |
|
| 14,428 |
|
| 14,131 |
|
| 45,831 |
|
Total Operating expenses |
|
| 355,774 |
|
| 574,846 |
|
| 1,147,345 |
|
| 2,052,789 |
|
Operating loss |
|
| (248,791 | ) |
| (429,030 | ) |
| (847,833 | ) |
| (1,554,956 | ) |
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Other income (expense), net: |
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Interest expense |
|
| (6,802 | ) |
| (14,961 | ) |
| (20,108 | ) |
| (72,724 | ) |
Other income (expense), net |
|
| — |
|
| (225,079 | ) |
| (3,313 | ) |
| (779,988 | ) |
Total other expense, net |
|
| (6,802 | ) |
| (240,040 | ) |
| (23,421 | ) |
| (852,712 | ) |
Loss from continuing operations before income taxes |
|
| (255,593 | ) |
| (669,070 | ) |
| (871,254 | ) |
| (2,407,668 | ) |
Income taxes |
|
| — |
|
| — |
|
| — |
|
| — |
|
Loss from continuing operations |
|
| (255,593 | ) |
| (669,070 | ) |
| (871,254 | ) |
| (2,407,668 | ) |
Income from discontinued operations, net of tax |
|
| — |
|
| 308,651 |
|
| — |
|
| 842,277 |
|
Gain from discontinued operations, net of tax |
|
| — |
|
| 1,988,456 |
|
| — |
|
| 1,988,543 |
|
Net income (loss) |
| $ | (255,593 | ) | $ | 1,628,037 |
| $ | (871,254 | ) | $ | 423,152 |
|
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Basic loss per share from continuing operations |
| $ | 0.00 |
| $ | 0.00 |
| $ | 0.00 |
| $ | (0.02 | ) |
Basic earnings per share from discontinued operations |
| $ | 0.00 |
| $ | 0.01 |
| $ | 0.00 |
| $ | 0.02 |
|
Basic earnings (loss) per share |
| $ | 0.00 |
| $ | 0.01 |
| $ | 0.00 |
| $ | 0.00 |
|
Diluted loss per share from continuing operations |
| $ | 0.00 |
| $ | 0.00 |
| $ | 0.00 |
| $ | (0.01 | ) |
Diluted earnings per share from discontinued operations |
| $ | 0.00 |
| $ | 0.01 |
| $ | 0.00 |
| $ | 0.02 |
|
Diluted earnings (loss) per share |
| $ | 0.00 |
| $ | 0.01 |
| $ | 0.00 |
| $ | 0.00 |
|
|
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Basic weighted average number shares outstanding |
|
| 162,937,110 |
|
| 157,166,965 |
|
| 161,524,016 |
|
| 157,264,253 |
|
Diluted weighted average number shares outstanding |
|
| 162,937,110 |
|
| 163,300,371 |
|
| 161,524,016 |
|
| 163,397,659 |
|
See Notes to Condensed Consolidated Financial Statements.
- 2 -
CornerWorld Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(unaudited)
|
|
|
| Additional |
|
|
| Total |
| |||||||
|
| Common Shares |
| Paid-in |
| Accumulated |
| Stockholders’ |
| |||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, December 31, 2013 |
|
| 156,813,704 |
| $ | 156,813 |
| $ | 11,801,224 |
| $ | (11,775,774 | ) | $ | 182,263 |
|
Stock-based compensation expense |
|
| — |
|
| — |
|
| 8,765 |
|
| — |
|
| 8,765 |
|
Cash-less exercise of warrants |
|
| 6,123,406 |
|
| 6,124 |
|
| (6,124 | ) |
| — |
|
| — |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| (871,254 | ) |
| (871,254 | ) |
Balance, September 30, 2014 |
|
| 162,937,110 |
| $ | 162,937 |
| $ | 11,803,865 |
| $ | (12,647,028 | ) | $ | (680,226 | ) |
See Notes to Condensed Consolidated Financial Statements.
- 3 -
CornerWorld Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
| For the Nine Months ended |
| ||||
|
| 2014 |
| 2013 |
| ||
|
|
|
|
|
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
Net income (loss) |
| $ | (871,254 | ) | $ | 423,152 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
Depreciation |
|
| 14,131 |
|
| 45,831 |
|
Provision for doubtful accounts |
|
| 52,132 |
|
| 66,046 |
|
Stock-based compensation |
|
| 8,765 |
|
| 65,274 |
|
Changes in operating assets and liabilities, net of acquisitions and divestitures: |
|
|
|
|
|
|
|
Accounts receivable |
|
| (3,320 | ) |
| 146,158 |
|
Prepaid expenses and other current assets |
|
| 91,475 |
|
| (6,116 | ) |
Other assets |
|
| (3 | ) |
| 31 |
|
Impairment of goodwill |
|
| — |
|
| 554,986 |
|
Accounts payable |
|
| 58,553 |
|
| 15,231 |
|
Accrued expenses |
|
| (22,191 | ) |
| (295,824 | ) |
Deferred revenue |
|
| (11,695 | ) |
| (27,188 | ) |
Changes in assets and liabilities of discontinued operations |
|
| — |
|
| 6,984,376 |
|
Net cash provided by (used in) operating activities |
|
| (683,407 | ) |
| 7,971,957 |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| — |
|
| (7,525 | ) |
Net cash used in investing activities |
|
| — |
|
| (7,525 | ) |
|
|
|
|
|
|
|
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Cash Flows from Financing Activities |
|
|
|
|
|
|
|
Payments on capital leases |
|
| (7,785 | ) |
| (8,032 | ) |
Principal payments on related party notes payable |
|
| — |
|
| (2,142,915 | ) |
Principal payments on notes payable |
|
| — |
|
| (5,324,999 | ) |
Cash paid for settlement of common stock put warrant |
|
| — |
|
| (929,017 | ) |
Financing fees |
|
| — |
|
| (224,000 | ) |
Net cash used in financing activities |
|
| (7,785 | ) |
| (8,628,963 | ) |
Net decrease in cash |
|
| (691,192 | ) |
| (664,531 | ) |
Cash at beginning of period |
|
| 857,954 |
|
| 1,415,260 |
|
Cash at end of period |
| $ | 166,762 |
| $ | 750,729 |
|
|
|
|
|
|
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|
Cash paid for: |
|
|
|
|
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|
|
Interest |
| $ | — |
| $ |
|
|
Income taxes |
| $ | — |
| $ | — |
|
See Notes to Condensed Consolidated Financial Statements.
- 4 -
CornerWorld Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2014
1. Basis of Presentation
Interim Unaudited Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements of CornerWorld Corporation (“CornerWorld” or the “Company”) as of September 30, 2014 and for the three and nine month periods ended September 30, 2014 and 2013 contained in this Quarterly Report (collectively, the “Unaudited Interim Condensed Consolidated Financial Statements”) were prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for all periods presented. The results of operations for the three and nine month periods ended September 30, 2014 are not necessarily indicative of the results that may be expected for the entire fiscal year.
The accompanying Unaudited Interim Condensed Consolidated Financial Statements have been prepared in accordance with the regulations for interim financial information of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited accompanying statements of financial condition and related interim statements of operations, cash flows, and stockholders’ deficit include all adjustments (which consist only of normal and recurring adjustments) considered necessary for a fair presentation in conformity with U.S. GAAP. These Unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the CornerWorld consolidated financial statements as of and for the eight month ended December 31, 2013, as filed with the SEC on Form 10-K.
Organization
The Company was incorporated in the State of Nevada, on November 9, 2004. Effective May 1, 2007, the Company changed its name to CornerWorld Corporation.
The Company provides certain marketing services through its operating subsidiary Enversa Companies LLC, a Texas limited liability company (“Enversa”). CornerWorld is the sole member of Enversa. Enversa is a technology-oriented direct response marketing company. Using its proprietary technology, Enversa identifies qualified leads for advertisers thereby connecting them with potential consumers. Enversa utilizes a pay-for-performance pricing model which is very appealing to clients because it ensures that they are billed solely for campaign performance. Enversa also operates several ad networks. Enversa also provides search engine optimization services (“SEO”), domain leasing and website management services on a recurring monthly basis.
The Company provides telecommunications services, including telephony and internet services, through its wholly-owned subsidiary, Woodland Holdings Corp. (“Woodland Holdings”) who provides such services through its wholly owned subsidiaries Phone Services and More, L.L.C., doing business as Visitatel (“PSM”) and T2 Communications, L.L.C. (“T2 Communications”). As a provider of Internet and VoIP services, T2 Communications delivers leading-edge technology to business customers in Michigan and Texas. Offerings include: phone lines, Internet connections, long distance and toll-free services. T2 Communications is a Competitive Local Exchange Carrier (CLEC). PSM, also a CLEC, holds an FCC 214 License as a wholesale long distance service provider to the carrier community and large commercial users of transport minutes.
The Company’s year-end is December 31st.
- 5 -
CornerWorld Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)
2. Summary of Significant Accounting Policies
This summary of significant accounting policies is presented to assist in understanding the Company’s condensed consolidated financial statements. The condensed consolidated financial statements and notes are representations of the Company’s management who is responsible for their integrity and objectivity. These accounting policies conform to US GAAP and have been consistently applied in the preparation of the financial statements. The financial statements are stated in United States of America dollars.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include, among others, the realizability of accounts receivable, recoverability of property and equipment and valuation of stock-based compensation and deferred tax assets. Actual results could differ from these estimates.
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) No. 850 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of the Company’s cash and cash equivalents, accounts receivable, accounts receivable-related party, accounts payable, accounts payable-related party, accrued liabilities, and notes payable approximate their estimated fair values due to their short-term maturities. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements.
Revenue Recognition
The Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as revised by SAB 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectibility is probable. Sales are recorded net of sales discounts.
At Enversa, revenue is recognized along with the related cost of revenue as services are delivered. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. Amounts billed to clients in advance of delivery of services are classified under current liabilities as deferred revenue. Revenue is also recognized monthly from domain leases. For T2 Communications, the majority of revenue is derived from month-to-month, bundled service contracts for the phone and internet services used by each customer. Revenue is recognized as the services are provided.
Income Taxes
The Company accounts for income tax in accordance with ASC No. 740 which requires the use of the asset and liability method of accounting of income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC No. 360. The Company’s only long-lived assets are a patent and property and equipment. The ASC requires a company to assess the recoverability of its long-lived assets whenever events and circumstances indicate the carrying value of an asset or asset group may not be recoverable from estimated future cash flows expected to result from its use and eventual disposition. The patent, which was issued on March 4, 2014, is currently being valued at its net realizable value of $0. Management does not believe that its fixed assets are impaired. No impairment charges have been recorded as of September 30, 2014.
- 6 -
CornerWorld Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)
Stock-Based Compensation
The Company accounts for awards made under its two stock-based compensation plans pursuant to the fair value provisions of ASC No. 718. ASC No. 718 requires the recognition of stock-based compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. ASC No. 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The Company accounts for stock-based compensation in accordance with ASC No. 718 and estimates its fair value based on using the Black-Scholes option pricing model. The Company’s determination of fair value of share-based payment awards is made as of their respective dates of grant using that option pricing model and is affected by the Company’s stock price as well as a number of subjective assumptions. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behavior. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. The Black-Scholes option pricing model was developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s options have certain characteristics that are significantly different from traded options, the existing valuation models may not provide an accurate measure of the fair value of the Company’s options. Although the fair value of the Company’s options is determined in accordance with ASC No. 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. The calculated compensation cost is recognized on a straight-line basis over the vesting period of the options. See also Note 6 Stock Based Compensation, for more details.
Reclassifications
On April 29, 2014, the Company announced that it had changed its fiscal year end from April 30 to December 31. As such, these financial statements have been compiled in a manner to reflect the change in the Company’s fiscal year end. Accordingly, certain prior year accounts have been reclassified to conform to the current year’s presentation.
3. Debt
|
| As of |
| ||||
|
| September 30, |
| December 31, |
| ||
Long-term Debt |
|
|
|
|
|
|
|
Note payable to CEO; the note matures July 31, 2016. At September 30, 2014, the interest rate was 6.25%. This note is collateralized by all assets of the Company. See also note 7, Related Party Transactions. |
|
| 338,958 |
|
| 338,958 |
|
Total debt |
|
| 338,958 |
|
| 338,958 |
|
Less current portion of long-term debt |
|
| (127,460 | ) |
| (101,968 | ) |
Non-current portion of long-term debt |
| $ | 211,498 |
| $ | 236,990 |
|
The note payable, due to the Company’s CEO, contains no restrictive covenants or events of default other than non-payment.
4. Commitments and Contingencies
Litigation
The Company is occasionally involved in other litigation matters relating to claims arising from the ordinary course of business. The Company’s management believes that there are no claims or actions pending or threatened against the Company, the ultimate disposition of which would have a material adverse effect on our business, results of operations and financial condition.
- 7 -
CornerWorld Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)
5. Stock-Based Compensation
Incentive Stock Plan
On August 17, 2007, the Company’s board of directors adopted and implemented the Company’s 2007 Incentive Stock Plan. Under the Incentive Stock Plan, the Company is authorized to issue 4,000,000 shares of its common stock to the Company’s directors, officers, employees, advisors or consultants.
Any Incentive Stock Option granted to an employee of the Company shall become exercisable over a period of no longer than 5 years, and no less than 20% of the shares covered thereby shall become exercisable annually. 20% of shares vest annually beginning on the first anniversary of the grant. The options expire 5 years from the grant date.
The Company granted 1,650,000 options pursuant to this plan during the nine month period ended September 30, 2014.
Stock Compensation Plan
On August 17, 2007, the Company’s board of directors adopted and implemented the Company’s 2007 Stock Compensation Plan. The total number of shares of the Company’s common stock which may be purchased or granted directly by Options, Stock Awards or Warrants under the Compensation Plan shall not exceed 4,000,000 shares of the Company’s common stock.
Awards granted to a participant of the Company shall become exercisable over a period of no longer than 5 years, and may vest as determined at the Company’s discretion at the time of grant.
The Company granted 1,550,000 stock options pursuant to this plan during the nine month period ended September 30, 2014.
A summary of the shares reserved for grant and awards available for grant under each Stock Plan is as follows:
| September 30, 2014 | |||
|
| Shares Reserved |
| Awards Available |
|
|
|
|
|
Incentive Stock Plan |
| 4,000,000 |
| 1,785,000 |
Stock Compensation Plan |
| 4,000,000 |
| 2,375,000 |
|
| 8,000,000 |
| 4,160,000 |
The Company issues awards to employees, qualified consultants and directors that generally vest over time based solely on continued employment or service during the related vesting period and are exercisable over a five to ten year service period. Options are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant.
The fair value of each stock-based award is estimated on the grant date using the Black-Scholes option-pricing model. Expected volatilities are based on the historical volatility of the Company’s stock price. The expected term of options granted subsequent to the adoption ASC 718 is derived using the simplified method as defined in the SEC’s SAB No. 107. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury interest rates in effect at the time of grant. The fair value of options granted was estimated using the following weighted-average assumptions:
|
| For the three month periods Ended September 30 |
| For the nine month periods Ended September 30 |
| ||||||||
|
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Expected term (in years) |
| 5.0 |
|
| — |
|
| 5.0 |
|
| 5.0 |
|
|
Expected volatility |
| 125 | % |
| — | % |
| 125 | % |
| 99.1 | % |
|
Risk-free interest rate |
| 1.6 | % |
| — | % |
| 1.5 | % |
| 1.0 | % |
|
Dividend yield |
| 0.00 | % |
| — | % |
| 0.00 | % |
| 0.0 | % |
|
- 8 -
CornerWorld Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)
A summary of activity under the Stock Plans and changes during the nine month period ended September 30, 2014 is presented below:
|
|
|
|
| Weighted-Average |
|
|
|
| ||||
|
| Shares |
| Exercise |
| Remaining |
| Aggregate |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013 |
|
| 640,000 |
| $ | 0.22 |
|
| 1.63 |
| $ | — |
|
Issued |
|
| 3,200,000 |
|
| 0.11 |
|
| — |
|
| — |
|
Cancelled/forfeited |
|
| — |
|
| — |
|
|
|
|
|
|
|
Exercised |
|
| — |
|
| — |
|
|
|
|
|
|
|
Outstanding at September 30, 2014 |
|
| 3,840,000 |
| $ | 0.13 |
|
| 3.91 |
| $ | — |
|
Options expected to vest |
|
| 3,840,000 |
| $ | 0.13 |
|
| 3.91 |
| $ | — |
|
Options exercisable at end of period |
|
| 978,750 |
| $ | 0.18 |
|
| 2.21 |
| $ | — |
|
For the three month periods ended September 30, 2014 and 2013, the Company recognized $3,000 and $(11,859) of stock-based compensation expense, respectively. For the nine month periods ended September 30, 2014 and 2013, the Company recognized $8,765 and $65,274 of stock-based compensation expense, respectively. As of September 30, 2014 there was $30,622 of total unrecognized compensation cost, net of forfeitures, related to unvested employee and director stock option compensation arrangements. That cost is expected to be recognized on a straight-line basis over the next 3.91 weighted average years.
6. Business Segments
Our business consists primarily of two integrated business segments: (i) marketing services and (ii) communications services. Our corporate administrative functions are tracked separately and the associated costs are not pushed down to the operating segments. The following table summarizes selected financial information for each operating segment:
|
| Marketing |
| Communications |
| Corporate |
| Consolidated |
| ||||
Three Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 163,361 |
| $ | 59,788 |
| $ | — |
| $ | 223,149 |
|
Income (loss) from continuing operations before tax |
|
| 30,621 |
|
| (8,150 | ) |
| (278,064 | ) |
| (255,593 | ) |
Net income (loss) |
|
| 30,621 |
|
| (8,150 | ) |
| (278,064 | ) |
| (255,593 | ) |
Total assets |
|
| 103,964 |
|
| 158,619 |
|
| 69,471 |
|
| 332,054 |
|
Depreciation |
|
| — |
|
| 2,677 |
|
| — |
|
| 2,677 |
|
|
| Marketing |
| Communications |
| Corporate |
| Consolidated |
| ||||
Three Months Ended September 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 226,946 |
| $ | 28,611 |
| $ | — |
| $ | 255,557 |
|
Loss from continuing operations before tax |
|
| (102,718 | ) |
| (326,429 | ) |
| (239,923 | ) |
| (669,070 | ) |
Net (loss) income |
|
| (102,718 | ) |
| 1,766,364 |
|
| (35,609 | ) |
| 1,628,037 |
|
Total assets |
|
| 100,425 |
|
| 118,377 |
|
| 788,441 |
|
| 1,007,243 |
|
Depreciation |
|
| 2,362 |
|
| 4,600 |
|
| 7,466 |
|
| 14,428 |
|
- 9 -
CornerWorld Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)
|
| Marketing |
| Communications |
| Corporate |
| Consolidated |
| ||||
Nine Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 527,227 |
| $ | 178,462 |
| $ | — |
| $ | 705,689 |
|
Income (loss) from continuing operations before tax |
|
| 6,584 |
|
| (65,234 | ) |
| (812,604 | ) |
| (871,254 | ) |
Net income (loss) |
|
| 6,584 |
|
| (65,234 | ) |
| (812,604 | ) |
| (871,254 | ) |
Total assets |
|
| 103,964 |
|
| 158,619 |
|
| 69,471 |
|
| 332,054 |
|
Depreciation |
|
| — |
|
| 8,032 |
|
| 6,099 |
|
| 14,131 |
|
|
| Marketing |
| Communications |
| Corporate |
| Consolidated |
| ||||
Nine Months Ended September 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 763,645 |
| $ | 104,835 |
| $ | — |
| $ | 868,480 |
|
Income (loss) from continuing operations before tax |
|
| (19,167 | ) |
| (522,956 | ) |
| (1,865,545 | ) |
| (2,407,668 | ) |
Net (loss) income |
|
| (19,167 | ) |
| 2,222,116 |
|
| (1,779,797 | ) |
| 423,152 |
|
Total assets |
|
| 100,425 |
|
| 118,377 |
|
| 788,441 |
|
| 1,007,243 |
|
Depreciation |
|
| 5,137 |
|
| 13,798 |
|
| 26,896 |
|
| 45,831 |
|
There were no intersegment sales. All of the Company’s business activities are conducted within the United States geographic boundaries.
7. Related Party Transactions
On March 30, 2011, the Company entered into a subordinated $389,942 promissory note (the “Senior Note”) with Scott N. Beck, the Company’s Chief Executive Officer. Interest on the outstanding principal amount under the Senior Note is payable at the Company’s discretion at a rate of 6.25% per annum and monthly principal payments totaling $12,746 have been deferred until December 31, 2014. The Company recorded interest of $6,716 and $10,002 on this facility during the three month periods ended September 30, 2014 and 2013, respectively and $19,627 and $28,964 on this facility during the nine month periods ended September 30, 2014 and 2013, respectively. The balance of this note totaled $338,958 at September 30, 2014.
The Company is party to a lease agreement with 13101 Preston Road, LP pursuant to which it leases office space for its corporate headquarters. The limited partners of 13101 Preston Road, LP are trusts controlled by the family of the Company’s Chief Executive Officer. The Company paid $7,500 in rent during each of the three month periods ended September 30, 2014 and 2013 and paid $22,500 and $42,500 in rent during the nine month periods ended September 30, 2014 and 2013, respectively.
In addition, the Company provides accounting, human resources and certain IT services to an entity controlled by the family of the Company’s Chief Executive Officer for $5,000 per month. The Company received $15,000 from this entity during each of the three month periods ended September 30, 2014 and 2013 and $45,000 from this entity during each of the nine month periods ended September 30, 2014 and 2013.
8. Subsequent Events
Subsequent to the date of the issuance of these statements, there were no occurrences that had a material impact on the financial statements.
- 10 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
CornerWorld Corporation (hereinafter referred to as “CornerWorld,” the “Company,” “we,” “our,” or “us”) is a marketing and telecommunication services company building services for the increased accessibility of content across mobile, television and Internet platforms.
Nine Months ended September 30, 2014 Highlights:
| · | On March 4, 2014 the US Patent and Trademark office issued patent number 8,665,785, Systems and Methods for Establishing a Telecommunications Bridge Between a User Device and a Node, to the Company. The Company had originally filed the patent on March 8, 2010. |
Service Offerings
Our business consists primarily of two integrated business segments: (i) marketing services and (ii) communications services. Our corporate administrative functions are tracked separately and the associated costs are not pushed down to the operating segments. See also Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements – Business Segments for additional segment information.
Critical Accounting Policies and Estimates
Use of Estimates and Critical Accounting Policies
In preparing our Unaudited Condensed Consolidated Financial Statements, we make estimates, assumptions and judgments that can have a significant effect on our revenues, income (loss) from operations, and net income (loss), as well as on the value of certain assets on our consolidated balance sheet. We believe that there are several accounting policies that are critical to an understanding of our historical and future performance as these policies affect the reported amounts of revenues, expenses and significant estimates and judgments applied by management. While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include allowance for doubtful accounts, impairment of long-lived assets (including goodwill), revenue recognition and stock-based compensation. In addition, please refer to Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further discussion of our accounting policies.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based on an estimate of buckets of customer accounts receivable, stratified by age, that, historically, have proven to be uncollectible; in addition, in certain cases, the allowance estimate is supplemented by specific identification of larger customer accounts and our best estimate of the likelihood of potential loss, taking into account such factors as the financial condition and payment history of major customers. We evaluate the collectability of our receivables at least quarterly. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The differences could be material and could significantly impact cash flows from operating activities.
Impairment of Long-Lived Assets
The Company’s management assesses the recoverability of its long-lived assets by determining whether the depreciation and of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management.
- 11 -
Income Taxes
The Company accounts for income tax in accordance with ASC No. 740 which requires the use of the asset and liability method of accounting of income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Revenue Recognition
It is the Company’s policy that revenue from product sales or services will be recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Stock-Based Compensation
The Company accounts for awards made under its two stock-based compensation plans pursuant to the fair value provisions of ASC No. 718. ASC No. 718 requires the recognition of stock-based compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. ASC No. 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The Company accounts for stock-based compensation in accordance with ASC No. 718 and estimates its fair value based on using the Black-Scholes option valuation model.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model also requires the input of highly subjective assumptions including:
| (a) | The expected volatility of our common stock price, which we determine based on comparable companies; |
|
|
|
| (b) | Expected dividends (which do not apply, as we do not anticipate issuing dividends); |
|
|
|
| (c) | Expected life of the award, which is estimated based on the historical award exercise behavior of our employees; and |
|
|
|
| (d) | The risk-free interest rate which we determine based on the yield of a U.S. Treasury bond whose maturity period equals the options expected term. |
These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. In the future, we may elect to use different assumptions under the Black-Scholes valuation model or a different valuation model, which could result in a significantly different impact on our net income or loss.
The Company’s determination of fair value of share-based payment awards is made as of their respective dates of grant using the Black Scholes option valuation model. Because the Company’s options have certain characteristics that are significantly different from traded options, the Black Scholes option valuation model may not provide an accurate measure of the fair value of the Company’s options. Although the fair value of the Company’s options is determined in accordance with ASC No. 718, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. The calculated compensation cost is recognized on a straight-line basis over the vesting period of the options.
See also Note 5 – Stock Based Compensation of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding our accounting policies for stock-based compensation.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued during the nine month period ended September 30, 2014, none of which are expected to have a material impact on the Company’s consolidated financial position, operations, or cash flows.
- 12 -
Results of Operations
Comparison of the three months ended September 30, 2014 to the three months ended September 30, 2013
Consolidated CornerWorld Corporation
Revenues:
We had Revenues totaling $223,149 for the three month period ended September 30, 2014 as compared to $255,557 for the three month period ended September 30, 2013. The decrease of $32,408, or 12.7%, is primarily due to revenue decreases in our marketing services segment resulting from the deterioration of the market for lead generation in the for-profit education space. The decreases were offset, to some extent, by increased billings in our communications services segment.
Depreciation:
Depreciation expenses totaled $2,677 for the three month period ended September 30, 2014 as compared to $14,428 for the three month period ended September 30, 2013. The decrease of $11,751 is due to the fact that several of our larger telecommunications fixed assets have become fully depreciated.
Loss from Continuing Operations Before Taxes:
Loss from Continuing Operations Before Taxes totaled $255,593 for the three month period ended September 30, 2014 as compared to a Loss from Continuing Operations Before Taxes of $669,070 for the corresponding period in the prior year. The improvement of $413,477 is primarily due to reductions in selling, general and administrative (“SG&A”) expenses, which included reductions in headcount and rent.
Net Income (Loss):
Net Loss totaled $255,593 for the three months ended September 30, 2014 as compared to Net Income of $1,628,037 for the corresponding period in the prior year. The Net Income (Loss) decrease of $1,883,630 is due to the fact that prior year Net Income numbers included earnings from discontinued operations totaling $308,651 as well as a gain on the sale of discontinued operations totaling $1,988,456.
Marketing services
Our marketing services segment consists of our Enversa division.
Revenues:
Our marketing services segment had Revenues totaling $163,361 for the three month period ended September 30, 2014 as compared to $226,946 for the three month period ended September 30, 2013. The decrease of $63,585, or 28%, is due to the deterioration in the for-profit educational lead generation space and significant ongoing challenges and customer churn in our search engine optimization and website leasing businesses.
Depreciation:
Our marketing services segment had Depreciation expenses totaling $0 for the three month period ended September 30, 2014 as compared to $2,362 for the three month period ended September 30, 2013. The decrease was due to all of our marketing fixed assets becoming fully depreciated.
Income (Loss) from Continuing Operations Before Taxes and Net Income (Loss):
Income from Continuing Operations Before Taxes and Net Income totaled $30,621 for the three months ended September 30, 2014 as compared to Net Loss from Continuing Operations Before Taxes and Net Loss of $102,718 for the corresponding period in the prior year. The improvement is due to the significant reductions in SG&A expenses, which took place primarily in the form of headcount reductions which was offset, to some degree, by the aforementioned reductions in revenue.
- 13 -
Communications services
Our communications services segment consists of our Woodland division.
Revenues:
Our communications services segment had Revenues totaling $59,788 for the three month period ended September 30, 2014 as compared to $28,611 for the three month period ended September 30, 2013. The increase in revenue is due to a new contract signed by one of our CLEC’s that enables it to bill and collect revenues from carrier access billing.
Depreciation:
Our communications services segment had Depreciation expenses totaling $2,677 for the three month period ended September 30, 2014 versus $4,600 for the corresponding period in the prior year. The decrease is due to more of our telecom assets becoming fully depreciated.
Loss from Continuing Operations Before Taxes:
Loss from Continuing Operations Before Taxes totaled $8,150 for the three month period ended September 30, 2014 as compared to a Loss from Continuing Operations Before Taxes totaling $326,429 for the corresponding period in the prior year. The improvement of $318,279 is primarily due to reductions in selling, general and administrative (“SG&A”) expenses which included the closure of our Michigan office along with the termination of its associated personnel as well the fact that the prior year’s results included a $225,000 investment banking fee related to the divestiture of our discontinued operations.
Net Income (Loss):
Net Loss totaled $8,150 for the three months ended September 30, 2014 as compared to Net Income of $1,766,364 for the corresponding period in the prior year. The decrease of $1,774,514 is due to the fact that prior year Net Income numbers included earnings from discontinued operations totaling $348,535 as well as a gain on the sale of discontinued operations totaling $1,744,258.
Corporate
Depreciation:
Corporate had Depreciation expenses totaling $0 for the three month period ended September 30, 2014 versus $7,466 for the corresponding period in 2013. The decrease is due to the disposal of selected fixed assets as we downsized our corporate operations.
Loss from Continuing Operations Before Taxes:
Loss from Continuing Operations Before Taxes totaled $278,064 for the three month period ended September 30, 2014 as compared to a Loss from Continuing Operations Before Taxes of $239,923 for the corresponding period in the prior year. The decrease of $38,141 is primarily due to increases in SG&A expenses related to the hiring a development team to complete the buildout of our TinyDial mobile application, the patent for which, we received approval from the US Patent Office in March 2014.
Net Loss:
Net Loss totaled $278,064 for the three months ended September 30, 2014 as compared to $35,609 for the corresponding period in the prior year. The Net Loss improvement of $242,455 is due to the elimination of interest expenses at Corporate associated with our discontinued operations which was offset, to some extent, by the aforementioned increases in SG&A expenses related to the buildout of our TinyDial mobile application.
- 14 -
Results of Operations
Comparison of the nine months ended September 30, 2014 to the nine months ended September 30, 2013
Consolidated CornerWorld Corporation
Revenues:
We had revenues totaling $705,689 for the nine month period ended September 30, 2014 as compared to $868,480 for the nine month period ended September 30, 2013. The decrease of $162,791, or 18.7%, is primarily due to revenue decreases in our marketing services segment resulting from the deterioration of the market for lead generation in the for-profit education space. The decreases were offset, to some extent, by increased billings in our communications services segment.
Depreciation:
Depreciation expenses totaled $14,131 for the nine month period ended September 30, 2014 as compared to $45,831 for the nine month period ended September 30, 2013. The decrease of $31,700 is due to the fact that several of our larger telecommunications fixed assets have become fully depreciated.
Loss from Continuing Operations Before Taxes:
Loss from Continuing Operations Before Taxes totaled $871,254 for the nine month period ended September 30, 2014 as compared to a loss of $2,407,668 for the corresponding period in the prior year. The improvement of $1,536,414 is primarily due to $873,744 in reductions in SG&A expenses, which included reductions in rent and personnel, combined with the fact that, during the nine month period ended September 30, 2013, we impaired our remaining Goodwill recording a charge of $554,986.
Net Income (Loss):
Net Loss totaled $871,254 for the nine month period ended September 30, 2014 as compared to a Net Income of $423,152 for the corresponding period in the prior year. The Net Income (Loss) decrease of $1,294,406 is primarily due to the absence of prior year’s aforementioned reductions in SG&A expenses and Goodwill impairment charge of $554,986 which were offset by the fact that prior year Net Income numbers included earnings from discontinued operations totaling $842,277 as well as a gain on the sale of discontinued operations totaling $1,988,543.
Marketing services
Our marketing services segment consists of our Enversa division.
Revenues:
Our marketing services segment had revenues totaling $527,227 for the nine month period ended September 30, 2014 as compared to $763,645 for the nine month period ended September 30, 2013. This decrease is due to the deterioration in the for-profit educational lead generation space and significant ongoing challenges and customer churn in our search engine optimization and website leasing businesses.
Depreciation:
Our marketing services segment had depreciation expenses totaling $0 for the nine month period ended September 30, 2014 as compared to $5,137 for the nine month period ended September 30, 2013. The decrease was due to all of our marketing fixed assets becoming fully depreciated.
Income (Loss) from Continuing Operations Before Taxes and Net Income (Loss):
Income from Continuing Operations Before Taxes and Net Income totaled $6,584 for the nine month period ended September 30, 2014 as compared to Loss from Continuing Operations Before Taxes and Net Loss of $19,167 for the corresponding period in the prior year. The improvement is due to the significant reductions in SG&A, primarily in the form of headcount, which were offset, to some extent, by the aforementioned reductions in revenue.
- 15 -
Communications services
Our communications services segment consists of our Woodland division.
Revenues:
Our communications services segment had revenues totaling $178,462 for the nine month period ended September 30, 2014 as compared to $104,835 for the nine month period ended September 30, 2013. The increase in revenue is due to a new contract signed by one of our CLEC’s that enables it to bill and collect revenues from carrier access billing.
Depreciation:
Our communications services segment had Depreciation expenses totaling $8,032 for the nine month period ended September 30, 2014 versus $13,798 for the corresponding period in the prior year. The decrease is due to more of our telecom assets becoming fully depreciated.
Loss from Continuing Operations Before Taxes:
Loss from Continuing Operations Before Taxes totaled $65,234 for the nine month period ended September 30, 2014 as compared to a Loss from Continuing Operations Before Taxes totaling $522,956 for the corresponding period in the prior year. The improvement of $457,722 is primarily due to reductions in SG&A expenses which included the closure of our Michigan office along with the termination of its associated personnel as well the fact that the prior year’s results included a $225,000 investment banking fee related to the divestiture of our discontinued operations.
Net Income (Loss):
Net Loss totaled $65,234 for the nine months ended September 30, 2014 as compared to Net Income of $2,222,116 for the corresponding period in the prior year. The decrease of $2,287,350 is due to the fact that prior year Net Income numbers included earnings from discontinued operations totaling $1,000,814 as well as a gain on the sale of discontinued operations totaling $1,744,258.
Corporate
Depreciation:
Corporate had Depreciation expenses totaling $6,099 for the nine month period ended September 30, 2014 versus $26,896 for the corresponding period in 2013. The decrease is due to the disposal of selected fixed assets as we downsized our corporate operations.
Loss from Continuing Operations Before Taxes:
Loss from Continuing Operations Before Taxes totaled $812,604 for the nine month period ended September 30, 2014 as compared to a loss of $1,865,545 for the corresponding period in the prior year. The improvement of $1,052,941 is primarily due to reductions in SG&A expenses, which included reductions in rent and personnel, as well as due to the fact that, during the nine month period ended September 30, 2013, we impaired all of our Goodwill recording a charge of $554,986.
Net Loss:
Net Loss totaled $812,604 for the nine months ended September 30, 2014 as compared to $1,779,797 for the corresponding period in the prior year. The Net Loss improvement of $967,193 is due to the elimination of interest expenses at Corporate associated with our discontinued operations which was offset, to some extent, by the aforementioned increases in SG&A expenses related to the buildout of our TinyDial mobile application.
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Liquidity and Capital Resources
As of September 30, 2014, we had negative working capital totaling $502,086 which included cash of $166,762. Our main operations consist of our two CLEC’s and our marketing Company, Enversa. We anticipate that one of our CLECs will generate positive future cash flow as a result of its ability to generate carrier access revenues and we are in the process of reconfiguring our telecom network in an effort to grow revenues from that division. To date, we have experienced trouble collecting the carrier access revenues from our largest carrier customer. There can be no assurance that we will be successful in our attempts to collect these outstanding amounts. Enversa’s revenues have generally stabilized and it provides small cash flow to assist in covering our corporate overhead. The Company is not currently generating positive operational cash flow.
Our only debt is the secured note payable to the Company’s CEO, Scott Beck (the “CEO Note”) which contains a blanket lien across all assets of the Company. No principal or interest payments have been made on the CEO Note despite the fact that it requires monthly amortization payments beginning on December 31, 2014. Mr. Beck also took a significant salary reduction from $250,000 per annum to $18,000 per annum, as a result of an amendment to his employment contract.
We had no investing activity for the nine month period ended September 30, 2014 and our financing activity was limited to payments made on our lone capital lease totaling $7,785.
We have no other bank financing or other external sources of liquidity. Now that we have sold our largest asset, there can be no assurance that, going forward, our operations will generate positive operating cash flow.
As previously noted, the Company’s marketing revenues have been adversely impacted by industry forces. The marketing services division continues to be adversely affected by the deterioration in the for-profit educational lead generation space while simultaneously experiencing significant ongoing challenges and customer churn in our search engine optimization and website leasing businesses. The Company elected to not renew the employment contract of its former president whose main responsibility was the growth of the marketing division and the Company. The Company cannot be certain how much further its marketing services revenues could deteriorate.
We will most likely need to obtain additional capital in order to further expand our operations. We are currently investigating other financial alternatives, including additional equity financing. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. However, there can be no assurance that any additional financing will become available to us, and if available, that such financing will be on terms acceptable to us.
Off-balance sheet arrangements
We have not entered into any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of its principal executive officer and its chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) or 15d-15(e)) as of September 30, 2014. Based on that evaluation, the Company’s chief executive officer and chief financial officer concluded that, as of that date, the Company’s disclosure controls and procedures, were not effective at a reasonable assurance level.
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Management’s Remediation Plan
Management determined that a material weakness existed due to an inability to appropriately segregate duties in the accounting department due to the number of personnel in the accounting department. Management has included additional reviews and controls to mitigate the size of the accounting department and the overlap of responsibilities. Management believes the foregoing efforts will effectively remediate this material weakness but the Company can give no assurance that the additional controls will be effective. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. We cannot assure you that, as circumstances change, any additional material weakness will not be identified.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other information
None.
Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit |
| Description |
| Method of |
|
|
|
|
|
31.1 |
| Rule 13a-14(a) Certification by our chief executive officer |
| (1) |
31.2 |
| Rule 13a-14(a) Certification by our chief financial officer |
| (1) |
32.1 |
| Section 1350 Certification by our chief executive officer |
| (2) |
32.2 |
| Section 1350 Certification by our chief financial officer |
| (2) |
101 |
| Interactive Data Files of Financial Statements and Notes. |
| (3) |
__________
(1) | Filed herewith. |
(2) | Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act. |
(3) | Furnished (and not filed) herewith pursuant to Regulation S-T under the Exchange Act. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CORNERWORLD CORPORATION |
| Registrant |
|
|
November 14, 2014 | /s/ V. Chase McCrea III |
| V. Chase McCrea III |
| Chief Financial Officer |
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