Cornerworld Corp - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Cornerworld Corp	Financial_Report.xls
EX-32 - SECTION 1350 CERTIFICATION BY CEO - Cornerworld Corp	ex_32-1.htm
EX-31 - RULE 13A-14(A) CERTIFICATION BY CEO - Cornerworld Corp	ex_31-1.htm
EX-31 - RULE 13A-14(A) CERTIFICATION BY CFO - Cornerworld Corp	ex_31-2.htm
EX-32 - SECTION 1350 CERTIFICATION BY CFO - Cornerworld Corp	ex_32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended March 31, 2015

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from_________ to _______

Commission File Number: 333-128614

CORNERWORLD CORPORATION

(Exact name of registrant as specified in its charter)


Nevada		98-0441869
(State of incorporation)		(I.R.S. Employer Identification No.)

13101 Preston Road, Suite 510
Dallas, Texas 75240
(Address of principal executive offices)

(888) 837-3910

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No ____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ____ Accelerated filer ____ Non-accelerated filer ____ Smaller reporting company X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ____ No X

The number of shares outstanding of the registrant’s common stock, $0.001 par value per share, as of May 13, 2015 was 162,937,110.

CORNERWORLD CORPORATION

INDEX


Item Number		Page

	PART I. FINANCIAL INFORMATION

1	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (Audited)	1

	Condensed Consolidated Statements of Operations for the Three Month Periods Ended March 31, 2015 and 2014	2

	Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2015	3

	Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2015 and 2014	4

	Notes to Condensed Consolidated Financial Statements	5

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

3	Quantitative and Qualitative Disclosures about Market Risk	16

4	Controls and Procedures	16

	PART II. OTHER INFORMATION

1	Legal Proceedings	17

1A	Risk Factors	17

2	Unregistered Sales of Equity Securities and Use of Proceeds	17

3	Defaults Upon Senior Securities	17

4	Mine Safety Disclosures	17

5	Other Information	17

6	Exhibits	17

	Signatures	18

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CornerWorld Corporation

Condensed Consolidated Balance Sheets


	March 31, 2015			December 31, 2014
Assets		(Unaudited)
Current assets:
Cash	$	38,764		$	70,746
Accounts receivable, net		66,400			37,313
Prepaid expenses and other current assets		18,341			65,132
Assets of discontinued operations		19,721			4,788
Total current assets		143,226			177,979

Property and equipment, net		—			2,677
Other assets		1			7
TOTAL ASSETS	$	143,227		$	180,663

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	187,605		$	217,726
Accrued expenses		302,729			311,977
Notes payable related parties		203,936			152,952
Lease payable, current portion		—			2,662
Deferred revenue		—			75,687
Other current liabilities		—			9,266
Liabilities of discontinued operations		13,234			29,534
Total current liabilities		707,504			799,804
Long-term liabilities:
Notes payable related parties, net of current portion		135,022			186,006
Total liabilities		842,526			985,810

Commitments and Contingencies		—			—

Stockholders’ equity (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 March 31, 2015 and December 31, 2014, respectively		162,937			162,937
Additional paid-in capital		11,808,236			11,806,865
Accumulated deficit		(12,670,472	)		(12,774,949	)
Total stockholders’ equity (deficit)		(699,299	)		(805,147	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	143,227		$	180,663

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Condensed Consolidated Statements of Operations

(unaudited)


	For the Three Months Ended March 31,
	2015			2014

Sales, net	$	266,464		$	254,829

Costs of goods sold		98,526			132,845

Gross profit		167,938			121,984

Expenses:
Selling, general and administrative expenses		71,172			327,741
Depreciation and amortization		907			8,775
Total operating expenses		72,079			336,516
Operating income (loss)		95,859			(214,532	)

Other income (expense), net:
Interest expense		(6,779	)		(6,511	)
Other income (expense), net		(380	)		(3,313	)
Total other expense, net		(7,159	)		(9,824	)
Income (loss) from continuing operations before income taxes		88,700			(224,356	)
Income taxes		—			—
Income (loss) from continuing operations		88,700			(224,356	)
Income (loss) from discontinued operations, net of tax		15,777			(8,837	)
Gain from discontinued operations, net of tax		—			—
Net income (loss)	$	104,477		$	(233,193	)

Basic and diluted earnings loss per share from continuing operations	$	0.00		$	0.00
Basic and diluted earnings per share from discontinued operations	$	0.00		$	0.00
Basic and diluted earnings (loss) per share	$	0.00		$	0.00

Basic and diluted weighted average number shares outstanding		162,937,110			158,650,726

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(unaudited)


					Additional					Total
	Common Shares				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Deficit

Balance, December 31, 2014		162,937,110	$	162,937	$	11,806,865	$	(12,774,949	)	$	(805,147	)
Stock-based compensation expense		—		—		1,371		—			1,371
Net income		—		—		—		104,477			104,477
Balance, March 31, 2015		162,937,110	$	162,937	$	11,808,236	$	(12,670,472	)	$	(699,299	)

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)


	For the Three Months ended March 31,
	2015			2014

Cash Flows from Operating Activities
Net income (loss)	$	104,477		$	(233,193	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization		907			8,775
Provision for doubtful accounts		18,276			10,874
Stock-based compensation		1,371			3,765
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable		(47,363	)		25,307
Prepaid expenses and other current assets		46,791			60,510
Other assets		6			(2	)
Accounts payable		(30,121	)		(60,588	)
Accrued expenses		(9,248	)		13,849
Deferred revenue		(75,687	)		(35,828	)
Other current liabilities		(9,266	)		—
Changes in assets and liabilities of discontinued operations		(31,233	)		(8,398	)
Net cash used in operating activities		(31,090	)		(214,929	)

Cash Flows from Financing Activities
Payments on capital leases		(892	)		(2,571	)
Net cash used in financing activities		(892	)		(2,571	)
Net decrease in cash		(31,982	)		(217,500	)
Cash at beginning of period		70,746			857,954
Cash at end of period	$	38,764		$	640,454

Cash paid for:
Interest	$	—		$	—
Income taxes	$	—		$	—

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2015

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 March 31, 2015 and for the three month periods ended March 31, 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 month period ended March 31, 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 identifies qualified leads for advertisers thereby connecting them with potential consumers. Enversa utilizes a pay-for-performance pricing model which is appealing to clients because it ensures that they are billed solely for campaign performance. Enversa also provides search engine optimization services (“SEO”), domain leasing 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 Corp. (“Woodland Holdings”) who provides such 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”). As a provider of Internet and VoIP services, T2 delivers leading-edge technology to business customers in Michigan and Texas. Offerings include: phone lines, Internet connections, long distance and toll-free services. T2 Communications is a Competitive Local Exchange Carrier (CLEC). PSM, also a CLEC, holds an FCC 214 License as a wholesale long distance service provider to the carrier community and large commercial users of transport minutes.

On March 31, 2015, the Company sold T2’s Michigan-based customers as well as T2’s network operations and contracts to an unrelated third party. See also Note 3, Discontinued Operations, for more information here.

The Company’s year-end is December 31^st.

Spinoff

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. As discussions surrounding the LOI progressed, the Company determined that the most efficient way to effectuate the merger would be to spin-off all of the Company’s operations into Woodland. Accordingly, on March 17, 2015, Woodland filed a Registration Statement on Form 10 with the SEC. Absent any comments from the SEC, the Registration Statement will become effective on or about May 17, 2015. As of the date of this filing, no additional discussions surrounding the LOI have taken place and the Company has yet to enter into a formal merger agreement with the previously referenced entity.

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CornerWorld Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)

2. Summary of Significant Accounting Policies

This summary of significant accounting policies is presented to assist in understanding the Company’s condensed consolidated financial statements. The condensed consolidated financial statements and notes are representations of the Company’s 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 customer’s 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 management’s best estimate of the amounts that will not be collected based on historical collection trends. The allowance for doubtful accounts was $30,318 and $80,790 as of March 31, 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 Company’s cash and cash equivalents, accounts receivable, accounts receivable-related party, accounts payable, accounts payable-related party, accrued liabilities, and notes payable approximate their estimated fair values due to their short-term maturities. Unless otherwise noted, it is management’s 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 leads 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. Revenue is also recognized monthly as SEO services are provided or in the form of revenues from domain leases. For T2 Communications, the majority of revenue is derived from month-to-month, bundled service contracts for the phone and internet services used by each customer. Revenue is recognized as the services are provided.

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.

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CornerWorld Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with the ASC. The Company’s 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. No impairment charges have been recorded as of March 31, 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 Company’s 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 Company’s stock price as well as a number of subjective assumptions. These variables include, but are not limited to, the Company’s 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 Company’s 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 Company’s 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 Company’s options. Although the fair value of the Company’s 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 5 Stock Based Compensation, for more details.

Concentration of credit risk

Credit is extended based on an evaluation of the customer’s financial condition, and the Company does not require collateral. Write-offs of accounts receivable have historically been nominal. Approximately 43.9% and 49.5% of total revenue was derived from the Company’s largest customer during the three month periods ended March 31, 2015 and 2014, respectively.

Reclassifications

Certain prior year accounts have been reclassified to conform to the current year’s presentation.

3. Discontinued Operations

On March 31, 2015, the Company signed an agreement whereby it completed the sale of T2’s Michigan based operations on for $15,000 in cash plus a working capital adjustment to be determined at a future date; the Company retained T2 itself as well as T2’s Texas CLEC license among other Texas based T2 operations. There was no gain recognized on the disposal as the Company had incurred losses on T2’s Michigan operations since its original acquisition on February 23, 2009. The decision to sell T2’s Michigan operations eliminated the Company’s presence in Michigan altogether and enables the Company to focus solely on its more profitable lines of business, located in Texas. T2’s 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 month periods ended March 31, 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.

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CornerWorld Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)

The following is a summary of the operating results of our discontinued operations:


	For the Three Months Ended March 31,
	2015		2014

Sales, net	$	39,185	$	24,570

Income (loss) from discontinued operations before income taxes		15,777		(8,837	)
Income taxes		—		—
Net income (loss) from discontinued operations	$	15,777	$	(8,837	)

The following is a summary of assets and liabilities held for sale as of March 31, 2015:


	March 31, 2015

Assets:
Current assets	$	19,721
Assets of discontinued operations held for sale		19,721

Liabilities
Accounts payable and accrued expenses		13,234
	$	13,234

4. Debt


	As of
	March 31, 2015			December 31, 2014
Long-term Debt
Note payable to CEO; the note matures July 31, 2016. At March 31, 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		(203,936	)		(152,952	)
Non-current portion of long-term debt	$	135,022		$	186,006

The note payable, due to the Company’s CEO, contains no restrictive covenants or events of default other than non-payment.

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CornerWorld Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)

5. Stock-Based Compensation

Incentive Stock Plan

On August 17, 2007, the Company’s board of directors adopted and implemented the Company’s 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 Company’s 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 month period ended March 31, 2015.

Stock Compensation Plan

On August 17, 2007, the Company’s board of directors adopted and implemented the Company’s 2007 Stock Compensation Plan. The total number of shares of the Company’s 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 Company’s 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 Company’s discretion at the time of grant.

The Company issued no stock options pursuant to this plan during the three month period ended March 31, 2015.

A summary of the shares reserved for grant and awards available for grant under each Stock Plan is as follows:


	March 31, 2015
		Shares Reserved for Grant	Awards Available for Grant

Incentive Stock Plan		4,000,000	3,745,000
Stock Compensation Plan		4,000,000	2,375,000
		8,000,000	6,120,000

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 Company’s 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 Company’s stock price. The expected term of options granted subsequent to the adoption ASC 718 is derived using the simplified method as defined in the SEC’s 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 March 31
	2015		2014

Expected term (in years)	—		5.0
Expected volatility	—	%	125.0	%
Risk-free interest rate	—	%	1.5	%
Dividend yield	—	%	0.0	%

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CornerWorld Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)

A summary of activity under the Stock Plans and changes during the three month period ended March 31, 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	$	20,000
Issued		—			—		—		—
Cancelled/forfeited		(1,670,000	)		0.13
Outstanding at March 31, 2015		1,880,000		$	0.12		3.51	$	—
Options expected to vest		1,880,000		$	0.12		3.51	$	—
Options exercisable at end of period		717,500		$	0.16		2.57	$	—

For the three month periods ended March 31, 2015 and 2014, the Company recognized $1,371 and $3,765 of stock-based compensation expense, respectively. As of March 31, 2015 there was $11,781 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 3.51 weighted average years.

6. 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 March 31, 2015
Revenue	$	235,843	$	30,621	$	—		$	266,464
Income (loss) from continuing operations before tax		88,783		79,543		(79,626	)		88,700
Net (loss) income		88,783		95,320		(79,626	)		104,477
Total assets		38,675		53,504		51,048			143,227
Depreciation and amortization		—		907		—			907


	Marketing Services		Communications Services			Corporate Overhead			Consolidated
Three Months Ended March 31, 2014
Revenue	$	208,528	$	46,301		$	—		$	254,829
Income (loss) from continuing operations before tax		10,481		(295	)		(234,542	)		(224,356	)
Net (loss) income		10,481		(9,132	)		(234,542	)		(233,193	)
Total assets		121,065		133,287			599,988			854,340
Depreciation and amortization		—		2,677			6,098			8,775

There were no intersegment sales. All of the Company’s business activities are conducted within the United States geographic boundaries.

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CornerWorld Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements – (Continued)

7. 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 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 beginning December 31, 2014. 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 and the holder of the Senior Note, 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 Company’s 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 Company’s ability to continue as a going concern. The Company recorded interest of $6,779 and $6,370 on this facility during the three month periods ended March 31, 2015 and 2014, respectively. The balance of this note totaled $338,958 at March 31, 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 Company’s Chief Executive Officer. The Company paid $7,500 and $7,500 in rent during the three month periods ended March 31, 2015 and 2014, respectively.

In addition, the Company provides accounting, human resources and certain IT services to an entity controlled by the family of the Company’s Chief Executive Officer for $5,000 per month. The Company received $15,000 from this entity during each of the three month periods ended March 31, 2015 and 2014.

8. Subsequent Events

Subsequent to the date of the issuance of these statements, the largest client of our marketing services segment advised us that they were going to cease participating in their largest campaign; their other services remain unchanged at this time but there can be no assurances that they will continue to maintain any services going forward; Our largest client represented approximately 43.9% of our revenue for the three months ended March 31, 2015. Aside from the aforementioned, there were no occurrences that had a material impact on the financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

CornerWorld Corporation (hereinafter referred to as “CornerWorld,” the “Company,” “we,” “our,” or “us”) is a marketing and telecommunication services company building services for the increased accessibility of content across mobile, television and Internet platforms.

Three Months ended March 31, 2015 Highlights:


	·	The Company divested its T2 Michigan customers to an unrelated third party. The divestiture of these operations permanently ends the Company’s presence in Michigan and is anticipated to yield significant cost savings.

Service Offerings

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. See also Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements – Business Segments for additional segment information.

Critical Accounting Policies and Estimates

Use of Estimates and Critical Accounting Policies

In preparing our Unaudited Condensed Consolidated Financial Statements, we make estimates, assumptions and judgments that can have a significant effect on our revenues, income (loss) from operations, and net income (loss), as well as on the value of certain assets on our consolidated balance sheet. We believe that there are several accounting policies that are critical to an understanding of our historical and future performance as these policies affect the reported amounts of revenues, expenses and significant estimates and judgments applied by management. While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include allowance for doubtful accounts, impairment of long-lived assets (including goodwill), revenue recognition and stock-based compensation. In addition, please refer to Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further discussion of our accounting policies.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based on an estimate of buckets of customer accounts receivable, stratified by age, that, historically, have proven to be uncollectible; in addition, in certain cases, the allowance estimate is supplemented by specific identification of larger customer accounts and our best estimate of the likelihood of potential loss, taking into account such factors as the financial condition and payment history of major customers. We evaluate the collectibility of our receivables at least quarterly. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The differences could be material and could significantly impact cash flows from operating activities.

Impairment of Long-Lived Assets

The Company’s management assesses the recoverability of its long-lived assets by determining whether the depreciation and of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management.

Income Taxes

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Revenue Recognition

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.

Stock-Based Compensation

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:


	(a)	The expected volatility of our common stock price, which we determine based on comparable companies;

	(b)	Expected dividends (which do not apply, as we do not anticipate issuing dividends);

	(c)	Expected life of the award, which is estimated based on the historical award exercise behavior of our employees; and

	(d)	The risk-free interest rate which we determine based on the yield of a U.S. Treasury bond whose maturity period equals the options expected term.

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.

Recent Accounting Pronouncements

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.

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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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