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will be recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”).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.
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:
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.
There were various accounting standards and interpretations issued during the three months ended March 31, 2015, none of which are expected to have a material impact on the Company’s consolidated financial position, operations, or cash flows.
Results of Operations
Comparison of the three months ended March 31, 2015 to the three months ended March 31, 2014
Consolidated CornerWorld Corporation
Revenues:
We had revenues totaling $266,464 for the three month period ended March 31, 2015 as compared to $254,829 for the three month period ended March 31, 2014. The increase of $11,635, or 19.7%, is primarily due to revenue increases in our marketing services segment resulting from the increased sale of programmatic marketing services to our two largest customers.
Depreciation and Amortization:
Depreciation and Amortization expenses totaled $907 for the three month period ended March 31, 2015 as compared to $8,775 for the three month period ended March 31, 2014. The decrease of $7,868 is due to the fact that all of our fixed assets have become fully depreciated.
Income (Loss) from Continuing Operations Before Taxes:
Income from Continuing Operations Before Taxes totaled $88,700 for the three month period ended March 31, 2015 as compared to a loss of $224,356 for the corresponding period in the prior year. The improvement of $313,060 is primarily due to reductions in selling, general and administrative (“SG&A”) expenses which included across the board reductions in marketing, technology and accounting personnel along with rent, telephone and other SG&A related reductions.
Net Income (Loss):
Net Income totaled $104,477 for the three months ended March 31, 2015 as compared to a net loss of $233,193 for the corresponding period in the prior year. The improvement of $337,674 is primarily due to income from discontinued operations of $15,777 as compared to a loss from discontinued operations of $8,837 in the prior year combined with the aforementioned revenue increases at Enversa and other previously discussed SG&A reductions.
Marketing services
Our marketing services segment consists of our Enversa division.
Revenues:
Our marketing services segment had revenues totaling $235,843 for the three month period ended March 31, 2015 as compared to $208,528 for the three month period ended March 31, 2014. This increase is due to increased sales of programmatic marketing services to our two largest customers which was offset, to some degree, by continued customer churn in our search engine optimization and website leasing businesses.
Income from Continuing Operations Before Taxes and Net Income:
Income from Continuing Operations Before Taxes and Net Income totaled $88,783 for the three months ended March 31, 2015 as compared to $10,481 for the corresponding period in the prior year. The increase is due to the aforementioned increases in revenue combined with headcount and other SG&A reductions in our Enversa division.
Communications services
Our communications services segment consists of our Woodland division.
Revenues:
Our communications services segment had revenues totaling $30,621 for the three month period ended March 31, 2015 as compared to $46,301 for the three month period ended March 31, 2014. The decrease in revenue is due to a decrease in carrier access billing at our CLEC resulting from decrease in telecommunications traffic at our CLEC’s largest customer.
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Depreciation and Amortization:
Our communications services segment had depreciation and amortization expenses totaling $907 for the three month period ended March 31, 2015 versus $2,677 for the corresponding period in the prior year. The decrease is due to all of our telecom assets becoming fully depreciated.
Income (Loss) from Continuing Operations Before Taxes:
Income from Continuing Operations Before Taxes totaled $79,543 for the three month period ended March 31, 2015 as compared to a loss totaling $295 for the corresponding period in the prior year. The improvement of $79,838 is primarily due to the reversal of bad debt expense resulting from collections of a long overdue account.
Net Income (Loss):
Net income totaled $95,320 for the three months ended March 31, 2015 as compared to net loss of $9,132 for the corresponding period in the prior year. The increase of $104,452 is due to the aforementioned collection of a long overdue customer account combined with the fact that our telecommunications services segment earned income from discontinued operations of $15,777 during the quarter ended March 31, 2015 as compared to a loss from discontinued operations of $8,837earned in the corresponding period in the prior year.
Corporate
Depreciation and Amortization:
Corporate had depreciation and amortization expenses totaling $0 for the three month period ended March 31, 2015 versus $6,098 for the corresponding period in 2014. The decrease is due to all of our corporate fixed assets becoming fully depreciated.
Loss from Continuing Operations Before Taxes and Net Loss:
Loss from Continuing Operations Before Taxes and Net Loss totaled $79,626 for the three month period ended March 31, 2015 as compared to a loss of $234,542 for the corresponding period in the prior year. The improvement of $154,916 is primarily due to significant reductions in headcount at Corporate, which included the outsourcing of all technology personnel, as well as the reduction of telecommunications infrastructure and other SG&A expenses.
Liquidity and Capital Resources
As of March 31, 2015, we had negative working capital totaling $564,278 which included cash of $38,764. Our revenue generating operations consist of our two telecommunications CLEC’s and our marketing company, Enversa. We anticipate that our CLECs will generate positive future cash flow as a result of their ability to generate carrier access revenues. We divested all end user customers during the quarter ended March 31, 2015 focusing all our telecommunications efforts entirely on our carrier to carrier business. With respect to the Marketing Services division, Enversa’s revenues have generally stabilized and our efforts in the programmatic marketing space have begun to increase cash revenue and cash flow. There can be no assurance that Enversa will continue to increase revenues and the Company is not currently generating positive operational cash flow.
The Company’s only secured debt is the note payable to the Company’s CEO, Scott Beck (the “CEO Note”). On December 31, 2014, the Company did not make its regularly scheduled payment totaling $12,746 to Scott N. Beck, the Company’s Chief Executive Officer, which constituted an event of default under the Company’s lone senior secured note. Mr. Beck did not call default but there can be no assurance that, as the Company’s senior secured lender, he will not do so. It is anticipated that the Company will amend the note with Mr. Beck at some future point but there can be no assurance that we will be successful in amending the terms of Mr. Beck’s senior secured note. Should we be unsuccessful in executing an amendment or an extension, Mr. Beck, as the senior secured lender, could move to seize the underlying collateral which would have a material adverse effect on the Company’s ability to continue as a going concern.
We had no investing activity for the three months ended March 31, 2015 while our entire financing activities consisted of the final $892 payment on our lone capital lease.
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We have no other bank financing or other external sources of liquidity. There can be no assurance that, going forward, our operations will generate positive operating cash flow. 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 March 31, 2015. 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.
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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 |
| |
May 13, 2015 | /s/ V. Chase McCrea III |
| V. Chase McCrea III |
| Chief Financial Officer |
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