Our communications services segment consists of our Woodland division.
Our communications services segment had revenues totaling $25,468 for the three month period ended October 31, 2013 as compared to $45,802 for the three month period ended October 31, 2012. This decrease is due to increased churn in our CLEC as the Company ceased investing resources in that division.
Our communications services segment had depreciation and amortization expenses totaling $4,090 for the three month period ended October 31, 2013 versus $4,600 for the corresponding period in 2012. The decrease is due to some of our telecom assets becoming fully depreciated.
Net Income totaled $2,650,088 for the three months ended October 31, 2013 as compared to $390,844 for the corresponding period in the prior year. The improvement of $2,259,244 is primarily due to the gain recognized on the divestiture of our Ranger asset.
We had revenues totaling $515,503 for the six month period ended October 31, 2013 as compared to $1,181,531 for the corresponding period in the prior year. The decrease of $666,028, or 56.4%, 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.
Depreciation and amortization expenses totaled $26,833 for the six month period ended October 31, 2013 as compared to $37,493 for the six month period ended October 31, 2012. The decrease of $10,660 is due to the fact that several of our larger telecommunications fixed assets have become fully depreciated.
Loss from Continuing Operations Before Taxes totaled $886,968 for the six months ended October 31, 2013 as compared to $989,556 for the corresponding period in the prior year. The improvement of $102,588 is primarily due to reductions in SG&A.
Net Income totaled $2,440,143 for the six months ended October 31, 2013 as compared to a net loss of $259,746 for the corresponding period in the prior year. The improvement of $2,699,889 is primarily due to the gain recognized on the divestiture of our Ranger asset.
Our marketing services segment had revenues totaling $458,876 for the six month period ended October 31, 2013 as compared to $1,092,339 for the six month period ended October 31, 2012. This decrease of 58.0% 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 and Amortization:
Our marketing services segment had depreciation expenses totaling $3,211 for the six month period ended October 31, 2013 as compared to $3,092 for the three month period ended October 31, 2012. The increase was not material.
Income (loss) from Continuing Operations Before Taxes and Net Income:
Loss from continuing operations before taxes totaled $46,962 for the six months ended October 31, 2013 as compared to net income of $349,509 for the corresponding period in the prior year. The decrease is due to the aforementioned reduction in revenue as well as the fact that we had previously classified most of our marketing personnel in corporate.
Communications services
Revenues:
Our communications services segment had revenues totaling $56,627 for the six month period ended October 31, 2013 as compared to $89,192 for the six month period ended October 31, 2012. This decrease is due to experienced increased churn in our CLEC as the Company ceased investing resources in that division.
Depreciation and Amortization:
Our communications services segment had depreciation and amortization expenses totaling $8,689 for the six month period ended October 31, 2013 versus $9,199 for the corresponding period in 2012. The decrease is due to our telecom assets becoming fully depreciated.
Net Income:
Net Income totaled $2,985,493 for the six months ended October 31, 2013 as compared to $874,584 for the corresponding period in the prior year. The improvement of $2,110,909 is primarily due to the gain recognized on the divestiture of our Ranger asset.
Liquidity and Capital Resources
As of October 31, 2013, we had positive working capital for the first time in the Company’s history totaling $246,946 which including cash of $587,057. Our working capital includes one large account payable associated with our 2009 Woodland Acquisition. We consider our relationship with that single vendor to be positive.
As previously noted, on September 30, 2013, the Company sold Ranger to an unrelated third party for $7.5 million plus an $800,000 contingent receivable; the contingency was met in November and the Company received $800,000 on November 6, 2013 just subsequent to the balance sheet date of this report. As a result of the sale of Ranger, the Company was able to retire the notes payable, the accrued interest on the notes payable and any accrued penalties to Emerald Crest Capital (the “Senior Lender”), IU Holdings, LP (“IUH”), IU Investments, LLC (“IUI”) and Ned Timmer (“Timmer”) (IUH, IUI and Timmer collectively the “Paid-in-Full Junior Lenders”). In addition, the Company was able to pay off the warrant which the Senior Lender could put to the Company for $1.0 million on March 30, 2014. As a result of the sale of Ranger and the respective payoff of the Senior Lender and the Paid-in-Full Junior Lenders, the only remaining secured debt is the note payable to the Company’s CEO, Scott Beck (the “CEO Note”). On November 4, 2013, Mr. Beck amended the CEO Note such that no principal or interest payments are due on the CEO Note until May 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.
Our investing activity for the six months ended October 31, 2013, consisted of $4,439 of capital expenditures, primarily associated with the leasing of a certain piece of equipment pursuant to a capital lease.
Our financing activities for the three months ended October 31, 2013 included interest of $303 related to the financing of the equipment pursuant to the aforementioned capital lease. As previously noted, the Company completely paid off the Senior Lender as well as the Paid-in-Full Junior Lenders as a result of the sale of Ranger.
We have no other bank financing or other external sources of liquidity and we source all of our liquidity through our operations. However, now that we have sold our largest asset, there can be no assurance that, going forward, our operations will generate positive operating cash flow. However, as a result of the sale of Ranger, the Company believes it has enough cash left over to sustain operations in excess of one year.
- 17 -
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 cannot be certain how much further its marketing services revenues could deteriorate as a result of these industry-wide changes.
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 October 31, 2013. 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.
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.
- 18 -
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
On December 20, 2013, the Company terminated Schumacher and Associates (“Schumacher”) as its independent registered public accounting firm. During the past two years Schumacher’s reports contained no adverse opinions, disclaimer of opinions nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. The decision to change accountants was approved by the Chairman of the Board of Directors. During the two most recent fiscal years and any through the end of the quarter ended October 31, 2013, there were no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
On December 20, 2013, the Company engaged Montgomery Coscia Greilich, LLP (“MCG”) as their new its independent registered public accounting firm. During the previous two year period, the Company did not consult with MCG with respect to any issues nor was there any prior relationship between the Company and MCG.
- 19 -
Item 6. Exhibits
The following exhibits are filed as part of this report:
| | | | |
Exhibit
Numbers | | Description | | Method of
Filing |
| | | | |
10.1 | | Membership Interests Purchase Agreement by and among Woodland Wireless Solutions, LTD., CornerWorld Corporation and Ranger Wireless Holdings, LLC for 100% of the Issued and Outstanding Membership Interests of S Squared, L.L.C. dated as of September 30, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 4, 2013) | | |
10.2 | | Pro-Forma balance sheet as of July 31, 2013 and pro-forma statement of operations for the three month period ended July 31, 2013 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed October 4, 2013) | | |
10.3 | | Amendment No. 4 to the Employment Agreement dated as of July 28, 2011 between CornerWorld Corporation and Scott Beck (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed October 4, 2013) | | |
10.4 | | Amendment No. 4 to Promissory Note dated as of March 30, 2011 between CornerWorld Corporation and Scott Beck (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed November 6, 2013) | | |
10.5 | | Amendment Number 5 to Employment Agreement dated as of July 28, 2011 between CornerWorld Corporation and Scott Beck (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed November 6, 2013) | | |
10.6 | | Amended and Restated Employment Agreement dated as of July 28, 2011 between CornerWorld Corporation and Scott Beck (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed November 6, 2013) | | |
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. |
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 |
| |
December 23, 2013 | /s/ V. Chase McCrea III |
| V. Chase McCrea III |
| Chief Financial Officer |
- 20 -
