Our communications services segment consists of our Woodland division.
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.
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 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 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 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 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 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.
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.
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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
Numbers | | Description | | Method of
Filing |
| | | | |
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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