Our communications services segment consists of our Woodland division.
Our communications services segment had Revenues totaling $47,803 for the three month period ended June 30, 2014 as compared to $35,480 for the three month period ended June 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.
Our communications services segment had Depreciation expenses totaling $2,678 for the three month period ended June 30, 2014 versus $4,599 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 totaled $47,951 for the three month period ended June 30, 2014 as compared to a Loss from Continuing Operations Before Taxes totaling $78,181 for the corresponding period in the prior year. The improvement of $30,230 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.
Net Loss totaled $47,951 for the three months ended June 30, 2014 as compared to Net Income of $267,259 for the corresponding period in the prior year. The decrease of $315,210 is due to income earned by our discontinued operations during the prior year.
Corporate had Depreciation expenses totaling $1 for the three month period ended June 30, 2014 versus $8,517 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 totaled $299,999 for the three month period ended June 30, 2014 as compared to a Loss from Continuing Operations Before Taxes of $1,116,760 for the corresponding period in the prior year. The improvement of $816,761 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 three month period ended June 30, 2013, we impaired all of our Goodwill recording a charge of $554,986.
Net Loss totaled $299,999 for the three months ended June 30, 2014 as compared to $1,156,174 for the corresponding period in the prior year. The Net Loss improvement of $856,175 is due to the elimination of interest expenses at Corporate associated with our discontinued operations as well as the aforementioned reductions in SG&A expenses and the prior year’s Goodwill impairment charge of 554,986.
Results of Operations
Comparison of the six months ended June 30, 2014 to the six months ended June 30, 2013
Consolidated CornerWorld Corporation
Revenues:
We had revenues totaling $482,540 for the six month period ended June 30, 2014 as compared to $612,923 for the six month period ended June 30, 2013. The decrease of $130,383, or 21.3%, 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 $11,454 for the six month period ended June 30, 2014 as compared to $31,403 for the six month period ended June 30, 2013. The decrease of $19,949 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 $615,661 for the six month period ended June 30, 2014 as compared to a loss of $1,738,594 for the corresponding period in the prior year. The improvement of $1,122,933 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 six month period ended June 30, 2013, we impaired all of our Goodwill recording a charge of $554,986.
Net Loss:
Net Loss totaled $615,661 for the six month period ended June 30, 2014 as compared to a Net Loss of $1,204,881 for the corresponding period in the prior year. The Net Loss improvement of $589,220 is due to the aforementioned reductions in SG&A expenses and the prior year’s Goodwill impairment charge of $554,986 in addition to the fact that Net Loss results included earnings from discontinued operations totaling $533,713.
Marketing services
Our marketing services segment consists of our Enversa division.
Revenues:
Our marketing services segment had revenues totaling $363,866 for the six month period ended June 30, 2014 as compared to $536,699 for the six month period ended June 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 six month period ended June 30, 2014 as compared to $2,775 for the six month period ended June 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):
Loss from Continuing Operations Before Taxes and Net Loss totaled $24,037 for the six month period ended June 30, 2014 as compared to Income from Continuing Operations Before Taxes and Net Income of $83,551 for the corresponding period in the prior year. The decrease is due to the aforementioned reduction in revenue.
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Communications services
Our communications services segment consists of our Woodland division.
Revenues:
Our communications services segment had revenues totaling $118,674 for the six month period ended June 30, 2014 as compared to $76,224 for the six month period ended June 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 $5,355 for the six month period ended June 30, 2014 versus $9,198 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 $57,084 for the six month period ended June 30, 2014 as compared to a Loss from Continuing Operations Before Taxes totaling $196,527 for the corresponding period in the prior year. The improvement of $139,443 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.
Net Income (Loss):
Net Loss totaled $57,084 for the six month period ended June 30, 2014 as compared to Net Income of $455,752 for the corresponding period in the prior year. The decrease of $512,836 is due to income earned by our discontinued operations during the prior year.
Corporate
Depreciation:
Corporate had Depreciation expenses totaling $6,099 for the six month period ended June 30, 2014 versus $19,430 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 $534,540 for the six month period ended June 30, 2014 as compared to a loss of $1,625,618 for the corresponding period in the prior year. The improvement of $1,091,078 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 six month period ended June 30, 2013, we impaired all of our Goodwill recording a charge of $554,986.
Net Loss:
Net Loss totaled $534,540 for the six month period ended June 30, 2014 as compared to a Net Loss of $1,744,184 for the corresponding period in the prior year. The Net Loss improvement of $1,091,078 is due to the aforementioned reductions in SG&A expenses and the prior year’s Goodwill impairment charge of $554,986 in addition to the fact that Net Loss results included losses from discontinued operations totaling $118,566.
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Liquidity and Capital Resources
As of June 30, 2014, we had negative working capital totaling $226,675 which included cash of $434,667. 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. 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 May 31, 2014. Despite the missed payments, Mr. Beck has not called default on the CEO Note. 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 investing activity totaling $2,597 for the six month period ended June 30, 2014 which consisted entirely of the acquisition of fixed assets pursuant to a capital lease while our entire financing activities consisted of $2,571 in payments on that same capital lease.
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, Marc Pickren, whose main responsibility was the growth of the marketing division and the Company. Mr. Pickren has not been replaced and the Company and Enversa have eliminated the position of President. 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 June 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
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 were due on May 31 and June 30, 2014. The Company did not make the regularly scheduled payments, which constituted an event of default under the Senior Note. The Company’s CEO has amended the note payable whereby he agreed to defer such late payments.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other information
None.
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Item 6. Exhibits
The following exhibits are filed as part of this report:
| | | | |
Exhibit
Numbers | | Description | | Method of
Filing |
| | | | |
10.1 | | Amendment No. 5 to Promissory Note dated as of March 30, 2011 between CornerWorld Corporation and Scott Beck | | (1) |
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 |
| |
August 14, 2014 | /s/ V. Chase McCrea III |
| V. Chase McCrea III |
| Chief Financial Officer |
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