Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2015 | Nov. 12, 2015 | |
Document And Entity Information | ||
Entity Registrant Name | Cornerworld Corp | |
Entity Central Index Key | 1,338,242 | |
Document Type | 10-Q | |
Trading Symbol | CWRL | |
Document Period End Date | Sep. 30, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity a Well-known Seasoned Issuer | No | |
Entity a Voluntary Filer | No | |
Entity's Reporting Status Current | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 4,655,338 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,015 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Sep. 30, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash | $ 38,542 | $ 70,746 |
Accounts receivable, net | 20,839 | 37,313 |
Prepaid expenses and other current assets | $ 3,516 | 65,132 |
Assets of discontinued operations | 4,788 | |
Total current assets | $ 62,897 | 177,979 |
Property and equipment, net | 2,677 | |
Other assets | $ 4 | 7 |
TOTAL ASSETS | 62,901 | 180,663 |
Current liabilities: | ||
Accounts payable | 138,037 | 217,726 |
Accrued expenses | 309,834 | 311,977 |
Notes payable related parties | $ 280,412 | 152,952 |
Lease payable, current portion | 2,662 | |
Deferred revenue | $ 300 | 75,687 |
Other current liabilities | 9,266 | |
Liabilities of discontinued operations | 29,534 | |
Total current liabilities | $ 728,583 | 799,804 |
Long-term liabilities: | ||
Notes payable related parties, net of current portion | 58,546 | 186,006 |
Total liabilities | $ 787,129 | $ 985,810 |
Commitments and Contingencies | ||
Stockholders' deficit: | ||
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 shares issued and outstanding, at September 30, 2015 and December 31, 2014, respectively | $ 162,937 | $ 162,937 |
Additional paid-in capital | 11,810,978 | 11,806,865 |
Accumulated deficit | (12,698,143) | (12,774,949) |
Total stockholders' deficit | (724,228) | (805,147) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ 62,901 | $ 180,663 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Sep. 30, 2015 | Dec. 31, 2014 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value per share (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 250,000,000 | 250,000,000 |
Common stock, shares issued | 162,937,110 | 162,937,110 |
Common stock, shares outstanding | 162,937,110 | 162,937,110 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Income Statement [Abstract] | ||||
Sales, net | $ 62,432 | $ 190,975 | $ 443,451 | $ 623,900 |
Costs of goods sold | 3,594 | 82,420 | 151,007 | 312,461 |
Gross profit | 58,838 | 108,555 | 292,444 | 311,439 |
Expenses: | ||||
Selling, general and administrative expenses | $ 49,623 | 349,347 | 209,240 | 1,121,964 |
Depreciation | 2,677 | 907 | 14,131 | |
Total Operating expenses | $ 49,623 | 352,024 | 210,147 | 1,136,095 |
Operating income (loss) | 9,215 | (243,469) | 82,297 | (824,656) |
Other income (expense), net: | ||||
Interest expense | $ (7,148) | $ (6,802) | (20,889) | (20,108) |
Other income (expense), net | (379) | (3,313) | ||
Total other expense, net | $ (7,148) | $ (6,802) | (21,268) | (23,421) |
Income (loss) from continuing operations before income taxes | $ 2,067 | $ (250,271) | $ 61,029 | $ (848,077) |
Income taxes | ||||
Income (loss) from continuing operations | $ 2,067 | $ (250,271) | $ 61,029 | $ (848,077) |
Income from discontinued operations, net of tax | $ (5,322) | $ 15,777 | $ (23,177) | |
Gain from discontinued operations, net of tax | ||||
Net income (loss) | $ 2,067 | $ (255,593) | $ 76,806 | $ (871,254) |
Basic earnings (loss) per share from continuing operations (in dollars per share) | $ 0 | $ 0 | $ 0 | $ (0.01) |
Basic earnings per share from discontinued operations (in dollars per share) | 0 | 0 | 0 | 0 |
Basic earnings (loss) per share (in dollars per share) | 0 | 0 | 0 | (0.01) |
Diluted earnings (loss) per share from continuing operations (in dollars per share) | 0 | 0 | 0 | (0.01) |
Diluted earnings per share from discontinued operations (in dollars per share) | 0 | 0 | 0 | 0 |
Diluted earnings (loss) per share (in dollars per share) | $ 0 | $ 0 | $ 0 | $ (0.01) |
Basic weighted average number shares outstanding (in shares) | 162,937,110 | 162,937,110 | 162,937,110 | 161,524,016 |
Diluted weighted average number shares outstanding (in shares) | 162,937,110 | 162,937,110 | 162,937,110 | 161,524,016 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Stockholders' Deficit (unaudited) - 9 months ended Sep. 30, 2015 - USD ($) | Common Shares [Member] | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Beginning at Dec. 31, 2014 | $ 162,937 | $ 11,806,865 | $ (12,774,949) | $ (805,147) |
Balance at Beginning (in shares) at Dec. 31, 2014 | 162,937,110 | 162,937,110 | ||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Stock-based compensation expense | $ 4,113 | $ 4,113 | ||
Net income | $ 76,806 | 76,806 | ||
Balance at End at Sep. 30, 2015 | $ 162,937 | $ 11,810,978 | $ (12,698,143) | $ (724,228) |
Balance at End (in shares) at Sep. 30, 2015 | 162,937,110 | 162,937,110 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
Cash Flows from Operating Activities | ||
Net income (loss) | $ 76,806 | $ (871,254) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||
Depreciation | 907 | 14,131 |
Provision for doubtful accounts | 23,424 | 52,132 |
Stock-based compensation | 4,113 | 8,765 |
Changes in operating assets and liabilities, net of acquisitions and divestitures: | ||
Accounts receivable | (6,950) | (35,904) |
Prepaid expenses and other current assets | 61,616 | 87,840 |
Other assets | 3 | (3) |
Accounts payable | (79,689) | 60,561 |
Accrued expenses | (2,143) | (30,853) |
Deferred revenue | (75,387) | $ (11,695) |
Other liabilities | (9,266) | |
Changes in assets and liabilities of discontinued operations | (24,746) | $ 42,873 |
Net cash used in operating activities | (31,312) | (683,407) |
Cash Flows from Financing Activities | ||
Payments on capital leases | (892) | (7,785) |
Net cash used in financing activities | (892) | (7,785) |
Net decrease in cash | (32,204) | (691,192) |
Cash at beginning of period | 70,746 | 857,954 |
Cash at end of period | $ 38,542 | $ 166,762 |
Cash paid for: | ||
Interest | ||
Income taxes |
Basis of Presentation
Basis of Presentation | 9 Months Ended |
Sep. 30, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 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, 2015 and for the three month and nine month periods ended September 30, 2015 and 2014 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, 2015 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 year ended December 31, 2014, 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. Enversa provides domain hosting, domain leasing, programmatic re-targeting 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 Corporation (Woodland). Woodland provides telephony and internet 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). T2 is a Competitive Local Exchange Carrier (CLEC) that generates revenues via the sale of long-distance minutes to its customers. T2 also generates commissions from its carrier partners related to the provision of long-distance minutes to its customers. PSM, also a CLEC, is a wholesale long distance service provider to the carrier community and large commercial users of minutes. PSM generates revenues via earning commissions from serving as a broker for services provided by T2. T2s and PSMs CLEC licenses permit them to operate in the lucrative telecommunications industry but their respective business models do not require any significant investments in property plant and equipment due to the fact that they are able to outsource all switching and technology needs to third parties. On March 31, 2015, the Company sold T2s Michigan-based customers as well as all of T2s Michigan network operations and contracts to an unrelated third party. See also Note 3, Discontinued Operations, for more information. The Companys year-end is December 31 st Common Stock Reverse Split On November 6, 2015, after the report date of this quarterly report on Form 10-Q, the Company effected a one-for-thirty-five reverse stock split to shareholders of record as of November 6, 2015. Share and per share information has not been retroactively adjusted to reflect the reverse stock split due to the fact that the reverse stock split took place after the close of the reporting period. Spinoff On August 13, 2015, the Companys Board of Directors formally approved a plan whereby the Company will split Woodland Holdings, its telecommunications services segment, in its entirety, into a separate reporting entity. On October 14, 2015, the US Securities and Exchange Commission (the SEC) formally informed the Company that the Woodlands registration statement had become effective, clearing the way for the spin-off. Accordingly, the Companys Board of Directors has determined that shareholders of record as of October 31, 2015 (the Record Date) will receive shares in Woodland Holdings in their pro-rata ownership percentage of CornerWorld. For every share owned by the Companys shareholders as of the Record Date, those same shareholders will be issued 1 share of the Woodland Holdings common stock. The Company is in the process of taking the necessary actions whereby Woodland Holdings shares will be free-trading on the OTCXB exchange. As previously disclosed, on November 5, 2014, the Company announced that it had signed a non-binding letter of intent (the LOI) to merge its interests with another entity. The LOI expired of its own accord on June 30, 2015 and it has not been renewed and, at this time, the Company has broken off all merger discussions with the other entity. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies This summary of significant accounting policies is presented to assist in understanding the Companys condensed consolidated financial statements. The condensed consolidated financial statements and notes are representations of the Companys 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. Receivables Accounts receivable include uncollateralized customer obligations due under normal trade terms requiring payment within 30-60 days from invoice date. Payments of accounts receivable are allocated to the specific invoices identified on the customers remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance for doubtful accounts that reflects managements best estimate of the amounts that will not be collected based on historical collection trends. The allowance for doubtful accounts was $39,241 and $80,790 as of September 30, 2015 and December 31, 2014, respectively. 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 Companys cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable approximate their estimated fair values due to their short-term maturities. Unless otherwise noted, it is managements 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 leads are classified under current liabilities as deferred revenue. For T2 and PSM, revenue is recognized as long-distance minutes are incurred or as commissions accrue. 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 the ASC. The Companys 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 and no impairment charges have been recorded as of September 30, 2015. 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 Companys 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 Companys stock price as well as a number of subjective assumptions. These variables include, but are not limited to, the Companys 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 Companys 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 Companys 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 Companys options. Although the fair value of the Companys 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. Concentration of credit risk Credit is extended based on an evaluation of the customers financial condition, and the Company does not require collateral. Write-offs of accounts receivable have historically been nominal. Approximately 18.4% and 45.6% of total revenue was derived from the Companys largest customer during the three month periods ended September 30, 2015 and 2014, respectively, while approximately 41.7% and 48.0% of total revenue was derived from the Companys largest customer during the nine month periods ended September 30, 2015 and 2014, respectively. Reclassifications Certain prior year accounts have been reclassified to conform to the current years presentation. |
Discontinued Operations
Discontinued Operations | 9 Months Ended |
Sep. 30, 2015 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued Operations | 3. Discontinued Operations On March 31, 2015, the Company signed an agreement whereby it completed the sale of T2s Michigan based operations on for $15,000 in cash; the Company retained T2 itself as well as T2s Texas CLEC license among other Texas based T2 operations. There was no gain recognized on the disposal as the Company had incurred losses on T2s Michigan operations since its original acquisition on February 23, 2009. The decision to sell T2s Michigan operations eliminated the Companys presence in Michigan altogether and enables the Company to focus solely on its more profitable lines of business, located in Texas. T2s Michigan operations, previously reported within the Communications Services segment, have been reclassified as discontinued operations in our unaudited Condensed Consolidated Financial Statements for the operations up to the date of sale for the three and nine month periods ended September 30, 2015 and 2014. In addition, all accounts receivable, accounts payable and accrued liabilities, as a result of the divestiture, have been reclassified as discontinued operations. The following is a summary of the operating results of our discontinued operations: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2015 2014 2015 2014 Sales, net $ $ 32,174 $ 39,185 $ 81,789 Income (loss) from discontinued operations before income taxes (5,322 ) 15,777 (23,177 ) Income taxes Net income (loss) from discontinued operations $ $ (5,322 ) $ 15,777 $ (23,177 ) |
Debt
Debt | 9 Months Ended |
Sep. 30, 2015 | |
Debt Disclosure [Abstract] | |
Debt | 4. Debt As of September 30, 2015 December 31, 2014 Long-term Debt Note payable to CEO (the Senior Note); the Senior Note matures July 31, 2016. At September 30, 2015, the interest rate was 6.25%. This note is collateralized by all assets of the Company. See also Note 8, Related Party Transactions. 338,958 338,958 Total debt 338,958 338,958 Less current portion of long-term debt (280,412 ) (152,952 ) Non-current portion of long-term debt $ 58,546 $ 186,006 The Senior Note contains no restrictive covenants or events of default other than non-payment. On December 31, 2014, the Company did not make its regularly scheduled payment totaling $12,746 which constituted an event of default. Mr. Beck did not call default but there can be no assurance that, as the Companys senior secured lender, he will not do so. It is anticipated that the Company will amend the Senior Note at some future point but there can be no assurance that we will be successful in amending the terms of the Senior 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 Companys ability to continue as a going concern. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 5. Commitments and Contingencies Litigation The Company is occasionally involved in other litigation matters relating to claims arising from the ordinary course of business. The Companys 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. |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | 6. Stock-Based Compensation Incentive Stock Plan On August 17, 2007, the Companys board of directors adopted and implemented the Companys 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 Companys 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 issued no options pursuant to this plan during the three and nine month periods ended September 30, 2015. Stock Compensation Plan On August 17, 2007, the Companys board of directors adopted and implemented the Companys 2007 Stock Compensation Plan. The total number of shares of the Companys 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 Companys 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 Companys discretion at the time of grant. The Company issued no stock options pursuant to this plan during the three and nine month periods ended September 30, 2015. A summary of the shares reserved for grant and awards available for grant under each Stock Plan is as follows: September 30, 2015 Shares Reserved for Grant Awards Available for Grant Incentive Stock Plan 4,000,000 3,795,000 Stock Compensation Plan 4,000,000 2,375,000 8,000,000 6,170,000 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 Companys 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 Companys stock price. The expected term of options granted subsequent to the adoption ASC 718 is derived using the simplified method as defined in the SECs 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 2015 2014 2015 2014 Expected term (in years) 5.0 5.0 Expected volatility % 125 % % 125 % Risk-free interest rate % 1.6 % % 1.5 % Dividend yield % 0.00 % % 0.00 % A summary of activity under the Stock Plans and changes during the three month period ended September 30, 2015 is presented below: Weighted-Average Shares Exercise Price Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding at December 31, 2014 3,550,000 $ 0.13 3.94 $ Issued Cancelled/forfeited (1,720,000 ) 0.13 Outstanding at September 30, 2015 1,830,000 $ 0.12 3.08 $ Options expected to vest 1,830,000 $ 0.12 3.08 $ Options exercisable at end of period 667,500 $ 0.15 2.21 $ For the nine month periods ended September 30, 2015 and 2014, the Company recognized $4,113 and $8,765 of stock-based compensation expense, respectively. As of September 30, 2015 there was $8,967 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 3.08 weighted average years. |
Business Segments
Business Segments | 9 Months Ended |
Sep. 30, 2015 | |
Segment Reporting [Abstract] | |
Business Segments | 7. 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 Services Communications Services Corporate Overhead Consolidated Three Months Ended September 30, 2015 Revenue $ 36,133 $ 26,299 $ $ 62,432 Income (loss) from continuing operations before tax 27,115 26,769 (51,817 ) 2,067 Net income (loss) 27,115 26,769 (51,817 ) 2,067 Total assets 3,363 57,188 2,350 62,901 Depreciation Marketing Services Communications Services Corporate Overhead Consolidated Three Months Ended September 30, 2014 Revenue $ 163,361 $ 27,614 $ $ 190,975 Income (loss) from continuing operations before tax 30,621 (2,828 ) (278,064 ) (250,271 ) 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 Services Communications Services Corporate Overhead Consolidated Nine Months Ended September 30, 2015 Revenue $ 374,240 $ 69,211 $ $ 443,451 Income (loss) from continuing operations before tax 139,880 125,470 (204,321 ) 61,029 Net income (loss) 139,880 141,247 (204,321 ) 76,806 Total assets 3,363 57,188 2,350 62,901 Depreciation 907 907 Marketing Services Communications Services Corporate Overhead Consolidated Nine Months Ended September 30, 2014 Revenue $ 527,227 $ 96,673 $ $ 623,900 Income (loss) from continuing operations before tax 6,584 (42,057 ) (812,604 ) (848,077 ) 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 There were no intersegment sales. All of the Companys business activities are conducted within the United States geographic boundaries. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2015 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | 8. 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 Companys Chief Executive Officer. Interest on the outstanding principal amount under the Senior Note is payable at the Companys discretion at a rate of 6.25% per annum and monthly principal payments totaling $12,746 were due beginning December 31, 2014. On December 31, 2014, the Company did not make its regularly scheduled payment totaling $12,746 to Mr. Beck which constituted an event of default under the Senior Note. Mr. Beck did not call default but there can be no assurance that, as the Companys Senior Lender, he will not do so. It is anticipated that the Company will amend the Senior Note at some future point but there can be no assurance that we will be successful in amending the terms of the Senior Note. Should we be unsuccessful in executing an amendment or an extension, Mr. Beck, as the senior lender, could move to seize the underlying collateral which would have a material adverse effect on the Companys ability to continue as a going concern. The Company recorded interest of $7,148 and $6,716 on this facility during the three month periods ended September 30, 2015 and 2014, respectively, and the Company recorded interest of $20,889 and $19,627 during the nine month periods ended September 30, 2015 and 2014, respectively. The balance of this note totaled $338,958 at September 30, 2015. 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 Companys Chief Executive Officer. The Company paid $7,500 in rent during each of the three month periods ended September 30, 2015 and 2014 and paid $22,500 in rent during each of the nine month periods ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the Company recorded a liability of $5,000 for unpaid rent on its office space. In addition, the Company provides accounting, human resources and certain IT services to an entity controlled by the family of the Companys 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, 2015 and 2014 and $45,000 from this entity during each of the nine month periods ended September 30, 2015 and 2014. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2015 | |
Subsequent Events [Abstract] | |
Subsequent Events | 9. Subsequent Events On November 6, 2015, the Company effectuated a one-for-thirty-five reverse stock split to shareholders of record as of November 6, 2015. |
Summary of Significant Accoun16
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Policies [Abstract] | |
Receivables | Receivables Accounts receivable include uncollateralized customer obligations due under normal trade terms requiring payment within 30-60 days from invoice date. Payments of accounts receivable are allocated to the specific invoices identified on the customers remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance for doubtful accounts that reflects managements best estimate of the amounts that will not be collected based on historical collection trends. The allowance for doubtful accounts was $39,241 and $80,790 as of September 30, 2015 and December 31, 2014, respectively. |
Use of Estimates | 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 | 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 Companys cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable approximate their estimated fair values due to their short-term maturities. Unless otherwise noted, it is managements opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements. |
Revenue Recognition | 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 leads are classified under current liabilities as deferred revenue. For T2 and PSM, revenue is recognized as long-distance minutes are incurred or as commissions accrue. |
Income Taxes | 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 | Long-Lived Assets The Company accounts for its long-lived assets in accordance with the ASC. The Companys 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 and no impairment charges have been recorded as of September 30, 2015. |
Stock-Based Compensation | 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 Companys 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 Companys stock price as well as a number of subjective assumptions. These variables include, but are not limited to, the Companys 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 Companys 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 Companys 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 Companys options. Although the fair value of the Companys 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. |
Concentration of credit risk | Concentration of credit risk Credit is extended based on an evaluation of the customers financial condition, and the Company does not require collateral. Write-offs of accounts receivable have historically been nominal. Approximately 18.4% and 45.6% of total revenue was derived from the Companys largest customer during the three month periods ended September 30, 2015 and 2014, respectively, while approximately 41.7% and 48.0% of total revenue was derived from the Companys largest customer during the nine month periods ended September 30, 2015 and 2014, respectively. |
Reclassifications | Reclassifications Certain prior year accounts have been reclassified to conform to the current years presentation. |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of the operating results of our discontinued operations | The following is a summary of the operating results of our discontinued operations: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2015 2014 2015 2014 Sales, net $ $ 32,174 $ 39,185 $ 81,789 Income (loss) from discontinued operations before income taxes (5,322 ) 15,777 (23,177 ) Income taxes Net income (loss) from discontinued operations $ $ (5,322 ) $ 15,777 $ (23,177 ) |
Debt (Tables)
Debt (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Debt Disclosure [Abstract] | |
Schedule of long-term debt | As of September 30, 2015 December 31, 2014 Long-term Debt Note payable to CEO (the Senior Note); the Senior Note matures July 31, 2016. At September 30, 2015, the interest rate was 6.25%. This note is collateralized by all assets of the Company. See also Note 8, Related Party Transactions. 338,958 338,958 Total debt 338,958 338,958 Less current portion of long-term debt (280,412 ) (152,952 ) Non-current portion of long-term debt $ 58,546 $ 186,006 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of shares reserved for grant and awards available for grant | A summary of the shares reserved for grant and awards available for grant under each Stock Plan is as follows: September 30, 2015 Shares Reserved for Grant Awards Available for Grant Incentive Stock Plan 4,000,000 3,795,000 Stock Compensation Plan 4,000,000 2,375,000 8,000,000 6,170,000 |
Schedule of weighted-average assumptions | 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 2015 2014 2015 2014 Expected term (in years) 5.0 5.0 Expected volatility % 125 % % 125 % Risk-free interest rate % 1.6 % % 1.5 % Dividend yield % 0.00 % % 0.00 % |
Schedule of stock plan activity | A summary of activity under the Stock Plans and changes during the three month period ended September 30, 2015 is presented below: Weighted-Average Shares Exercise Price Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding at December 31, 2014 3,550,000 $ 0.13 3.94 $ Issued Cancelled/forfeited (1,720,000 ) 0.13 Outstanding at September 30, 2015 1,830,000 $ 0.12 3.08 $ Options expected to vest 1,830,000 $ 0.12 3.08 $ Options exercisable at end of period 667,500 $ 0.15 2.21 $ |
Business Segments (Tables)
Business Segments (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Segment Reporting [Abstract] | |
Schedule of financial data by reporting segment | The following table summarizes selected financial information for each operating segment: Marketing Services Communications Services Corporate Overhead Consolidated Three Months Ended September 30, 2015 Revenue $ 36,133 $ 26,299 $ $ 62,432 Income (loss) from continuing operations before tax 27,115 26,769 (51,817 ) 2,067 Net income (loss) 27,115 26,769 (51,817 ) 2,067 Total assets 3,363 57,188 2,350 62,901 Depreciation Marketing Services Communications Services Corporate Overhead Consolidated Three Months Ended September 30, 2014 Revenue $ 163,361 $ 27,614 $ $ 190,975 Income (loss) from continuing operations before tax 30,621 (2,828 ) (278,064 ) (250,271 ) 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 Services Communications Services Corporate Overhead Consolidated Nine Months Ended September 30, 2015 Revenue $ 374,240 $ 69,211 $ $ 443,451 Income (loss) from continuing operations before tax 139,880 125,470 (204,321 ) 61,029 Net income (loss) 139,880 141,247 (204,321 ) 76,806 Total assets 3,363 57,188 2,350 62,901 Depreciation 907 907 Marketing Services Communications Services Corporate Overhead Consolidated Nine Months Ended September 30, 2014 Revenue $ 527,227 $ 96,673 $ $ 623,900 Income (loss) from continuing operations before tax 6,584 (42,057 ) (812,604 ) (848,077 ) 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 |
Summary of Significant Accoun21
Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Allowance for doubtful accounts | $ 39,241 | $ 39,241 | $ 80,790 | ||
Net realizable value | $ 0 | $ 0 | |||
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | |||||
Percentage of total revenue | 18.40% | 45.60% | 41.70% | 48.00% |
Discontinued Operations (Detail
Discontinued Operations (Details Narrative) | 9 Months Ended |
Sep. 30, 2015USD ($) | |
T2's Michigan operations [Member] | |
Proceeds from sale of business | $ 15,000 |
Discontinued Operations (Deta23
Discontinued Operations (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Net income (loss) from discontinued operations | $ (5,322) | $ 15,777 | $ (23,177) | |
T2's Michigan operations [Member] | ||||
Sales, net | 32,174 | 39,185 | 81,789 | |
Income (loss) from discontinued operations before income taxes | $ (5,322) | $ 15,777 | $ (23,177) | |
Income taxes | ||||
Net income (loss) from discontinued operations | $ (5,322) | $ 15,777 | $ (23,177) |
Debt (Details Narrative)
Debt (Details Narrative) | Dec. 31, 2014USD ($) |
Notes payable [Member] | Scott N. Beck [Member] | |
Debt instrument, default payment | $ 12,746 |
Debt (Details)
Debt (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2015 | Dec. 31, 2014 | |
Total debt | $ 338,958 | $ 338,958 |
Less current portion of long-term debt | (280,412) | (152,952) |
Non-current portion of long-term debt | 58,546 | 186,006 |
Notes payable [Member] | Scott N. Beck [Member] | ||
Total debt | $ 338,958 | $ 338,958 |
Debt instrument, maturity date | Jul. 31, 2016 | |
Debt instrument, interest rate | 6.25% |
Stock-Based Compensation (Detai
Stock-Based Compensation (Detail Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
Stock-based compensation expense | $ 4,113 | $ 8,765 |
Unrecognized compensation cost, net of forfeitures | $ 8,967 | |
Unrecognized compensation cost, weighted-average recognition period | 3 years 29 days | |
2007 Incentive Stock Plan [Member] | ||
Number of shares authorized | 4,000,000 | |
Options expiration period | 5 years | |
2007 Incentive Stock Plan [Member] | Maximum [Member] | ||
Vesting period | 5 years | |
2007 Incentive Stock Plan [Member] | Minimum [Member] | ||
Percentage of shares that vest annually | 20.00% | |
2007 Stock Compensation Plan [Member] | ||
Number of shares authorized | 4,000,000 | |
2007 Stock Compensation Plan [Member] | Maximum [Member] | ||
Vesting period | 5 years | |
Award term | 10 years | |
2007 Stock Compensation Plan [Member] | Minimum [Member] | ||
Award term | 5 years |
Stock-Based Compensation (Det27
Stock-Based Compensation (Details) | Sep. 30, 2015shares |
Shares Reserved for Grant | 8,000,000 |
Awards Available for Grant | 6,170,000 |
2007 Incentive Stock Plan [Member] | |
Shares Reserved for Grant | 4,000,000 |
Awards Available for Grant | 3,795,000 |
2007 Stock Compensation Plan [Member] | |
Shares Reserved for Grant | 4,000,000 |
Awards Available for Grant | 2,375,000 |
Stock-Based Compensation (Det28
Stock-Based Compensation (Details 1) - 2007 Stock Compensation Plan [Member] | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Expected term (in years) | 5 years | 5 years | ||
Expected volatility | 125.00% | 125.00% | ||
Risk-free interest rate | 1.60% | 1.50% | ||
Dividend yield | 0.00% | 0.00% |
Stock-Based Compensation (Det29
Stock-Based Compensation (Details 2) - 2007 Stock Compensation Plan [Member] - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2015 | Dec. 31, 2014 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
Outstanding, beginning | 3,550,000 | |
Issued | ||
Cancelled/forfeited | (1,720,000) | |
Outstanding, ending | 1,830,000 | 3,550,000 |
Options expected to vest | 1,830,000 | |
Options exercisable at end of period | 667,500 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | ||
Outstanding, beginning | $ 0.13 | |
Issued | ||
Cancelled/forfeited | $ 0.13 | |
Outstanding, ending | 0.12 | $ 0.13 |
Options expected to vest | 0.12 | |
Options exercisable at end of period | $ 0.15 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Roll Forward] | ||
Outstanding, beginning | 3 years 9 months 18 days | 3 years 11 months 8 days |
Outstanding, ending | 3 years 9 months 18 days | 3 years 11 months 8 days |
Options expected to vest | 3 years 9 months 18 days | |
Options exercisable at end of period | 2 years 2 months 15 days | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Aggregate Intrinsic Value [Roll Forward] | ||
Outstanding, beginning | ||
Issued | ||
Outstanding, ending | ||
Options expected to vest | ||
Options exercisable at end of period |
Business Segments (Details Narr
Business Segments (Details Narrative) | 9 Months Ended |
Sep. 30, 2015Number | |
Segment Reporting [Abstract] | |
Number of operating segments | 2 |
Business Segments (Details)
Business Segments (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Revenue | $ 62,432 | $ 190,975 | $ 443,451 | $ 623,900 | |
Income (loss) from continuing operations before tax | 2,067 | (250,271) | 61,029 | (848,077) | |
Net income (loss) | 2,067 | (255,593) | 76,806 | (871,254) | |
Total assets | $ 62,901 | 332,054 | 62,901 | 332,054 | $ 180,663 |
Depreciation | 2,677 | 907 | 14,131 | ||
Marketing Services [Member] | |||||
Revenue | $ 36,133 | 163,361 | 374,240 | 527,227 | |
Income (loss) from continuing operations before tax | 27,115 | 30,621 | 139,880 | 6,584 | |
Net income (loss) | 27,115 | 30,621 | 139,880 | 6,584 | |
Total assets | $ 3,363 | $ 103,964 | $ 3,363 | $ 103,964 | |
Depreciation | |||||
Communications Services [Member] | |||||
Revenue | $ 26,299 | $ 27,614 | $ 69,211 | $ 96,673 | |
Income (loss) from continuing operations before tax | 26,769 | (2,828) | 125,470 | (42,057) | |
Net income (loss) | 26,769 | (8,150) | 141,247 | (65,234) | |
Total assets | $ 57,188 | 158,619 | 57,188 | 158,619 | |
Depreciation | $ 2,677 | $ 907 | $ 8,032 | ||
Corporate Overhead [Member] | |||||
Revenue | |||||
Income (loss) from continuing operations before tax | $ (51,817) | $ (278,064) | $ (204,321) | $ (812,604) | |
Net income (loss) | (51,817) | (278,064) | (204,321) | (812,604) | |
Total assets | $ 2,350 | $ 69,471 | $ 2,350 | 69,471 | |
Depreciation | $ 6,099 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | Mar. 30, 2011 | |
Scott N. Beck [Member] | Notes payable [Member] | ||||||
Debt instrument, face amount | $ 389,942 | |||||
Debt instrument, interest rate | 6.25% | 6.25% | ||||
Periodic installments amount | $ 12,746 | |||||
Debt instrument, frequency of principal payment | Monthly | |||||
Debt instrument, due date | Dec. 31, 2014 | |||||
Debt instrument, default payment | $ 12,746 | |||||
Interest expense | $ 7,148 | $ 6,716 | $ 20,889 | $ 19,627 | ||
Notes payable, related parties | 338,958 | 338,958 | ||||
13101 Preston Road, LP [Member] | ||||||
Rental expense | 7,500 | 7,500 | 22,500 | 22,500 | ||
Unpaid rent | 5,000 | 5,000 | ||||
Entity Controlled by CEO's Family [Member] | ||||||
Revenue from related parties | $ 15,000 | $ 15,000 | $ 45,000 | $ 45,000 |