Cornerworld Corp - FORM 10-Q

Attached files

file	filename
EX-32 - SECTION 1350 CERTIFICATION BY CFO - Cornerworld Corp	ex_32-2.htm
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
EXCEL - IDEA: XBRL DOCUMENT - Cornerworld Corp	Financial_Report.xls

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

		For the Quarterly Period Ended January 31, 2013

	£	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: 000-54419

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 100

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 March 14, 2013 was 157,313,704.

CORNERWORLD CORPORATION

INDEX



Item Number		Page

	PART I. FINANCIAL INFORMATION

1	Financial Statements (Unaudited):		1

	Condensed Consolidated Balance Sheets as of January 31, 2013 and April 30, 2012 (Audited)		1

	Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended January 31, 2013 and 2012		2

	Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended January 31, 2013		3

	Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended January 31, 2013 and 2012		4

	Notes to Condensed Consolidated Financial Statements		5

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

3	Quantitative and Qualitative Disclosure about Market Risk		21

4	Controls and Procedures		21

	PART II. OTHER INFORMATION

1	Legal Proceedings		22

1A	Risk Factors		22

2	Unregistered Sales of Equity Securities and Use of Proceeds		22

3	Defaults Upon Senior Securities		22

4	Mine Safety Disclosures		22

5	Other Information		22

6	Exhibits		22

	Signatures		23

- 1 -

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CornerWorld Corporation

Condensed Consolidated Balance Sheets


	January 31, 2013			April 30, 2012
	(unaudited)			(audited)
Assets
Current assets:
Cash	$	1,379,303		$	890,415
Accounts receivable (net of allowance for doubtful accounts of $188,725 and $118,597 at January 31, 2013 and April 30, 2012, respectively)		635,022			1,070,293
Prepaid expenses and other current assets		117,608			132,036
Total current assets		2,131,933			2,092,744

Property and equipment, net		92,015			154,673
Goodwill		2,136,836			2,136,836
Patent		4,803,299			5,971,670
Other assets		28,038			28,729
TOTAL ASSETS	$	9,192,121		$	10,384,652

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	1,347,573		$	1,894,043
Accrued expenses		735,357			708,874
Notes payable, current portion, net of unamortized discount of $325,402 and $340,303 at January 31, 2013 and April 30, 2012, respectively		1,150,914			1,196,013
Notes payable related parties, current portion, net of unamortized discount of $20,887 and $161,685 at January 31, 2013 and April 30, 2012, respectively		723,581			1,627,524
Lease payable, current portion		10,704			10,704
Deferred revenue		483,101			385,146
Total current liabilities		4,451,230			5,822,304
Long-term liabilities:
Notes payable, net of current portion, net of unamortized discount of $291,208 and $530,268 at January 31, 2013 and April 30, 2012, respectively		3,664,568			4,249,731
Notes payable related parties, net of current portion, net of unamortized discount of $0 and $7,045 at January 31, 2013 and April 30, 2012, respectively		1,701,629			2,225,041
Lease payable, non-current portion		11,633			18,988
Other liabilities		842,278			754,091
Total liabilities		10,671,338			13,070,155

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; 157,313,704 and 147,547,607 shares issued and outstanding, at January 31, 2013 and April 30, 2012, respectively		157,313			147,547
Additional paid-in capital		11,744,398			10,164,724
Retained earnings (accumulated deficit)		(13,380,928	)		(12,997,774	)
Total stockholders’ deficit		(1,479,217	)		(2,685,503	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	9,192,121		$	10,384,652

See Notes to Condensed Consolidated Financial Statements.

- 1 -

CornerWorld Corporation

Condensed Consolidated Statements of Operations

(unaudited)


	For the Three Months Ended January 31,						For the Nine Months Ended January 31,
	2013			2012			2013			2012

Sales, net	$	1,680,494		$	2,292,764		$	5,723,892		$	8,148,495

Costs of goods sold		277,482			596,348			1,053,960			2,176,769

Gross profit		1,403,012			1,696,416			4,669,932			5,971,726

Expenses:
Selling, general and administrative expenses		705,663			1,320,049			2,399,432			4,275,249
Depreciation and amortization		409,358			489,163			1,231,154			1,584,919
Total Operating expenses		1,115,021			1,809,212			3,630,586			5,860,168
Operating income (loss)		287,991			(112,796	)		1,039,346			111,558

Other income (expense), net:
Interest expense		(411,399	)		(552,877	)		(1,422,400	)		(1,829,959	)
Other income (expense), net		—			22,167			(100	)		81,827
Total other expense, net		(411,399	)		(530,710	)		(1,422,500	)		(1,748,132	)
Loss before income taxes		(123,408	)		(643,506	)		(383,154	)		(1,636,574	)
Income taxes		—			—			—			—
Net loss	$	(123,408	)	$	(643,506	)	$	(383,154	)	$	(1,636,574	)

Basic and diluted loss per share	$	0.00		$	0.00		$	0.00		$	(0.01	)

Basic and diluted weighted average number shares outstanding		157,313,704			147,487,606			150,802,973			147,222,794

See Notes to Condensed Consolidated Financial Statements.

- 2 -

CornerWorld Corporation

Condensed Consolidated Statements of Stockholders’ Deficit

(unaudited)


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

Balance, April 30, 2012		147,547,607	$	147,547	$	10,164,724	$	(12,997,774	)	$	(2,685,503	)
Stock-based compensation expense		—		—		124,524		—			124,524
Conversion of debt to common stock		9,766,097		9,766		1,455,150		—			1,464,916
Net loss		—		—		—		(383,154	)		(383,154	)
Balance, January 31, 2013		157,313,704	$	157,313	$	11,744,398	$	(13,380,928	)	$	(1,479,217	)

See Notes to Condensed Consolidated Financial Statements.

- 3 -

CornerWorld Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)


	For the Nine Months ended January 31,
	2013			2012

Cash Flows from Operating Activities
Net loss	$	(383,154	)	$	(1,636,574	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		1,231,154			1,584,919
Amortization of discount on debt		402,581			667,322
Provision for doubtful accounts		152,291			193,548
Stock-based compensation		124,524			112,338
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable		282,980			170,045
Prepaid expenses and other current assets		14,428			6,512
Other assets		691			(275	)
Accounts payable		(536,469	)		(845,755	)
Accrued expenses		126,200			52,077
Deferred revenue		97,955			56,083
Other liabilities		88,187			83,936
Net cash provided by operating activities		1,601,368			444,176

Cash Flows from Investing Activities
Proceeds from sale of fixed assets		—			17,400
Purchases of property and equipment		(798	)		(17,015	)
Net cash provided by (used in) investing activities		(798	)		385

Cash Flows from Financing Activities
Fees paid for debt issuance		—			(62,500	)
Payments on capital leases		(6,682	)		—
Principal payments on related party notes payable		(220,000	)		(195,489	)
Principal payments on debt		(885,000	)		(393,495	)
Net cash used in financing activities		(1,111,682	)		(651,484	)
Net increase (decrease) in cash		488,888			(206,923	)
Cash at beginning of period		890,415			934,250
Cash at end of period	$	1,379,303		$	727,327

Cash paid for:
Interest	$	673,246		$	1,047,938
Income taxes	$	—		$	—

See Notes to Condensed Consolidated Financial Statements.

- 4 -

CornerWorld Corporation

Notes to Condensed Consolidated Financial Statements

January 31, 2013

(unaudited)

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 January 31, 2013 and for the three and nine month periods ended January 31, 2013 and 2012 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 January 31, 2013 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 audited consolidated financial statements as of and for the year ended April 30, 2012, as filed with the SEC on Form 10-K on July 30, 2012.

Organization

The Company was incorporated in the State of Nevada, on November 9, 2004.

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. Using its proprietary technology, Enversa identifies qualified leads for advertisers thereby connecting them with potential consumers. Enversa utilizes a pay-for-performance pricing model which is very appealing to clients because it ensures that they are billed solely for campaign performance. Enversa also operates several ad networks and a proprietary request for proposal (RFP) technology that highlights promotional offers from a variety of corporate clients. Enversa also provides search engine optimization services (“SEO”), domain leasing and website management services on a recurring monthly basis to over 300 customers.

The Company provides telecommunications services through its wholly-owned subsidiary, Woodland Holdings Corp. (“Woodland Holdings”). Woodland Holdings is the owner of S Squared, LLC, doing business in the state of Michigan as “Ranger Wireless LLC” (“Ranger”). RANGER® is a shortcode application service provider to the wireless industry. The core service offered is 611 Roaming Service™, a patented application providing seamless means for connecting wireless subscribers to reach their home providers customer service call center while roaming on another provider’s network. Calls are sent to RANGER® for treatment from nearly 40 wireless providers throughout North America. On an annual basis, RANGER® processes approximately 14 million calls with an infrastructure capable of handling millions more. RANGER® also manages an online portal which allows carriers access to their monthly statements and reporting on call volume to and from their company.

Woodland Holdings also provides telephony and internet services through its subsidiaries Phone Services and More, L.L.C., doing business as Visitatel (“PSM”) and T2 Communications, L.L.C. (“T2 Communications”). As a provider of Internet Protocol Television (IPTV), Internet and VoIP services, T2 Communications delivers leading-edge technology to business customers in Michigan. Offerings include: phone lines, Internet connections, long distance and toll-free services. T2 Communications is a Competitive Local Exchange Carrier (CLEC). PSM holds an FCC 214 License as a wholesale long distance service provider to the carrier community and large commercial users of transport minutes.

The Company’s year-end is April 30^th.

- 5 -

CornerWorld Corporation

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and joint ventures as well as all entities deemed to qualify as variable interest entities (“VIE’s”). All significant intercompany transactions and balances have been eliminated in consolidation.

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.

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, intangibles and goodwill 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.

At Ranger, revenue is recognized monthly as telecommunications services, such as minutes and calls, among other things, are provided to customers. For T2 Communication, 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.

- 6 -

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 primary long-lived assets are website development costs, Goodwill, a patent, identifiable intangible assets 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. Management does not believe the Goodwill, patent and identifiable intangible assets associated with its recent acquisitions are impaired. No impairment charges have been recorded as of January 31, 2013.

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 6 Stock Based Compensation, for more details.

Reclassifications

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

3. Intangible Assets

Identifiable intangibles acquired in connection with business acquisitions accounted for under the purchase method are recorded at their respective fair values. The Company is amortizing the identifiable intangibles over their estimated useful lives, ranging from three to seven years. Intangibles consist of the following:


	January 31, 2013			April 30, 2012			Estimated Useful Life (Years)

Patent	$	10,904,792		$	10,904,792			7
Customer list		1,000,000			1,000,000			3
		11,904,792			11,904,792
Accumulated amortization		(7,101,493	)		(5,933,122	)
	$	4,803,299		$	5,971,670

Amortization expense related to identifiable intangible assets totaled $389,457 for the three month periods ended January 31, 2013 and 2012, and $1,168,371 and $1,279,475 for the nine month periods ended January 31, 2013 and 2012, respectively.

- 7 -

CornerWorld Corporation

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

4. Debt


	As of
	January 31, 2013			April 30, 2012
Long-term Debt
Notes payable to Emerald Crest Capital (the “Senior Lender”); the notes mature March 31, 2015. The interest rate was floating at LIBOR plus 12%; the notes’ floor utilizes a minimum LIBOR of 3%. At January 31, 2013 the total rate was 15%. These notes are collateralized by all assets of the Company.	$	3,975,000		$	4,500,000
Note payable IU Holdings, LP; the note matures February 28, 2015. At January 31, 2013, the interest rate was 10%. This note is collateralized by all assets of the Company save for the Ranger patent. See also note 8, Related Party Transactions.		1,500,000			1,500,000
Note payable to IU Investments, LLC, due March 31, 2016. At January 31, 2013, the interest rate was 10%. These notes are collateralized by all assets of the Company save for the Ranger patent. See also note 8, Related Party Transactions.		527,915			527,915
Notes payable to Internet University and the other selling members of Enversa; the notes were converted to equity on October 31, 2012. See also note 8, Related Party Transactions.		—			1,364,199
Note payable to Internet University; the note matures April 30, 2013. At January 31, 2013, the interest rate was 10%. This note is collateralized by all assets of the Company save for the Ranger patent. See also note 8, Related Party Transactions.		80,000			300,000
Note payable to Ned B. Timmer; the note matures April 30, 2016. At January 31, 2013, the interest rate was 10%. This note is collateralized by all assets of Woodland Holdings, Corporation, including the Ranger patent.		1,440,000			1,800,000
Note payable to CEO; the note matures July 31, 2015. At January 31, 2013, the interest rate was 10%. This note is collateralized by all assets of the Company save for the Ranger patent. See also note 8, Related Party Transactions.		338,958			338,958
Note payable to Kelly Larabee Morlan; the note matures December 31, 2013. At January 31, 2013, the interest rate was 10%. This note is not collateralized.		16,316			16,316
Total debt		7,878,189			10,347,388
Less current portion of long-term debt		(2,220,784	)		(3,325,525	)
Non-current portion of long-term debt	$	5,657,405		$	7,021,863

Notes Payable to Senior Lender:

On March 29, 2011, the Company entered into a credit agreement with the Senior Lender, pursuant to which it issued $5.0 million of notes payables and warrants to purchase the Company’s common stock. These notes payable amortize at a rate of $275,000 per quarter and, as of January 31, 2013, $,3,975,000 remains outstanding. The notes payable to the Senior Lender are secured by a lien on all of the Company’s assets. The notes include certain restrictive covenants which require, among other things, that the Company maintain compliance with specified minimum earnings, a leverage ratio and limit accounts payable over 90 days old to the cash on the balance sheet. In addition, the notes contain customary covenants that restrict the ability of the Company to, subject to certain exceptions, incur unsecured or secured debt and make investments, among other things. The notes also contain customary events of default for notes of this type.

In addition, the notes contain certain covenants the failure to comply with which would result in the acceleration of all or part of the notes payable to the Senior Lender, depending on the particular covenant, creating a “Paydown Event.” These covenants generally relate to the earnings of the Company’s marketing segment. Through the date of this filing, the Company has been in compliance with all such covenants and, as of January 31, 2013, the Company believes that it is in compliance with all other restrictive covenants with respect to the notes payable to the Senior Lender.

- 8 -

CornerWorld Corporation

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

Effective for the period ended April 30, 2013, the Company will also be required to comply with an additional “Paydown Event” covenant, pursuant to which the Company’s marketing segment must maintain a minimum level of earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), as defined in the credit agreement with the Senior Lender. The Company believes that should its marketing division continue to perform consistent with recent operating results, the Company will not have sufficient Adjusted EBITDA be in compliance with this covenant. Accordingly, the Company forecasts it will have a Paydown Event as of April 30, 2013, resulting in a requirement under the current terms of the notes to paydown approximately an additional $1.3 million on June 30, 2013. The Company is currently in negotiations with our Senior Lender to either obtain a waiver or to amend the provisions related to this Paydown Event; however, there can be no assurance that the Company will be successful with respect to these negotiations. The failure to obtain such a waiver or amendment would entitle the Senior Lender to declare an Event of Default under the Notes, which could lead to an acceleration of all other amounts payable under the Notes. This would entitle the Senior Lender to exercise its remedies under the notes, including foreclosing upon the collateral securing the notes. Any failure to obtain a waiver or amendment of this Paydown Event could inhibit the Company’s ability to continue as a going concern and would result in a material adverse effect on the Company.

On March 29, 2011, the Company issued common stock purchase warrants to the Senior Lender (the “Warrants”), pursuant to which the Senior Lender may purchase up to 8,762,008 shares of the Company’s common stock for an aggregate price of $100. The Warrants have a 5 year term and contain certain put and call provisions. The Warrants are not exercisable prior to March 30, 2014. Using the Black-Scholes model, the original value of the Warrants issued to the Senior Lender were less than the net present value of the minimum $1,000,000 cash put value of the Warrants. Therefore, the net present value of $1,000,000, totaling $642,899 was recorded as a loan discount, which is being amortized to earnings as additional interest expense over the remaining term of the loan. The Warrants are revalued at each reporting date, and adjusted to earnings. In addition, $1,230,319 of loan fees were incurred which are being amortized to earnings as additional interest over the remaining term of the loans. The unamortized balance of these deferred costs was $637,497 and $1,039,302 at January 31, 2013 and April 30, 2012, respectively, and is reflected as a loan discount to the outstanding balance of $7,878,189 at January 31, 2013.

The Company’s notes payable to the Senior Lender are collateralized by 100% of the assets of the Company and its subsidiaries and are also cross-defaulted to the Company’s various notes payable to its junior lenders.

Notes Payable to Junior Lenders:

The Company’s notes payable to its junior lenders have varying degrees of seniority and are collateralized by varying types of the Company’s assets as detailed in the table above. None of the Company’s subordinated notes payable contain any restrictive covenants or events of default other than non-payment. The Company’s notes payable to its junior lenders are also cross-defaulted to the notes payable to the Senior Lender and each other.

5. Commitments and Contingencies

Litigation

The Company is occasionally involved in litigation matters relating to claims arising from the ordinary course of business. The Company’s 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.

- 9 -

CornerWorld Corporation

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

6. 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 10 years from the grant date.

The Company issued 30,000 stock options pursuant to this plan during the nine month period ended January 31, 2013.

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 nine month period ended January 31, 2013.

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


	January 31, 2013
		Shares Reserved for Grant	Awards Available for Grant

Incentive Stock Plan		4,000,000	2,290,000
Stock Compensation Plan		4,000,000	3,075,000
		8,000,000	5,365,000

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 of 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 January 31				For the nine month periods Ended January 31
	2013		2012		2013		2012

Expected term (in years)	5.0		—		5.0		5.0
Expected volatility	99.1	%	—	%	99.1	%	99.1	%
Risk-free interest rate	1.0.	%	—	%	1.0.	%	1.0	%
Dividend yield	0.0	%	—	%	0.0	%	0.0	%

- 10 -

CornerWorld Corporation

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

A summary of activity under the Stock Plans and changes during the period ended January 31, 2013 is presented below:


				Weighted-Average
	Shares			Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding at May 1, 2012		2,910,000		$	0.35		3.12	$	44,600
Issued		30,000			0.20		4.90		—
Cancelled/forfeited		(305,000	)		0.20		—		—
Exercised		—			—		—		—
Outstanding at January 31, 2013		2,635,000		$	0.36		1.97	$	—
Options vested and expected to vest*		2,520,000		$	0.37		1.95	$	—
Options exercisable at end of period		1,832,500		$	0.40		1.33	$	—


	*	Due to the Company’s limited operating history, no estimate for forfeitures has been made in these financial statements as there has been no turnover of employees to whom options were granted.

For the three month periods ended January 31, 2013 and 2012, the Company recognized $41,508 and $37,446 of stock-based compensation expense, respectively, and for the nine month periods ended January 31, 2013 and 2012, the Company recognized $124,524 and $112,338 of stock-based compensation expense, respectively. As of January 31, 2013 there was $165,117 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 1.97 weighted average years.

- 11 -

CornerWorld Corporation

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

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 January 31, 2013
Revenue	$	387,643	$	1,292,851	$	—		$	1,680,494
Income (loss) from continuing operations before tax		185,390		257,682		(566,480	)		(123,408	)
Net (loss) income		185,390		257,682		(566,480	)		(123,408	)
Total assets		287,081		8,231,313		673,727			9,192,121
Intangibles		—		4,803,299		—			4,803,299
Goodwill		—		1,581,850		554,986			2,136,836
Depreciation and amortization		1,545		396,752		11,061			409,358


	Marketing Services			Communications Services		Corporate Overhead			Consolidated
Three Months Ended January 31, 2012
Revenue	$	934,868		$	1,357,896	$	—		$	2,292,764
Income (loss) from continuing operations before tax		(86,768	)		241,557		(798,295	)		(643,506	)
Net (loss) income		(86,768	)		241,557		(798,295	)		(643,506	)
Total assets		721,202			9,481,444		744,329			10,946,975
Intangibles		—			6,361,127		—			6,361,127
Goodwill		—			1,581,850		554,986			2,136,836
Depreciation and amortization		1,545			475,250		12,368			489,163


	Marketing Services		Communications Services		Corporate Overhead			Consolidated
Nine Months Ended January 31, 2013
Revenue	$	1,479,982	$	4,243,910	$	—		$	5,723,892
Income (loss) from continuing operations before tax		534,899		1,132,266		(2,050,319	)		(383,154	)
Net (loss) income		534,899		1,132,266		(2,050,319	)		(383,154	)
Total assets		287,081		8,231,313		673,727			9,192,121
Intangibles		—		4,803,299		—			4,803,299
Goodwill		—		1,581,850		554,986			2,136,836
Depreciation and amortization		4,637		1,190,254		36,263			1,231,154


	Marketing Services			Communications Services		Corporate Overhead			Consolidated
Nine Months Ended January 31, 2012
Revenue	$	3,639,368		$	4,509,127	$	—		$	8,148,495
Income (loss) from continuing operations before tax		(9,759	)		1,039,976		(2,666,791	)		(1,636,574	)
Net (loss) income		(9,759	)		1,039,976		(2,666,791	)		(1,636,574	)
Total assets		721,202			9,481,444		744,329			10,946,975
Intangibles		—			6,361,127		—			6,361,127
Goodwill		—			1,581,850		554,986			2,136,836
Depreciation and amortization		115,558			1,424,407		44,954			1,584,919

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

- 12 -

CornerWorld Corporation

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

8. Related Party Transactions

On August 27, 2008 the Company entered into promissory notes (collectively the “Tier 4 Junior Notes”) totaling $1,500,000 with Internet University, Inc., Marc Blumberg and Marc Pickren. Mr. Blumberg is a member of the Company’s Board of Director as well as the president of Internet University, Inc. and Mr. Pickren is the President of the Company. The Company recorded interest of $69,726 and $127,983 on this facility during the nine month periods ended January 31, 2013 and 2012, respectively. On October 31, 2012, the Company converted the balance of these notes totaling $1,364,199 as well as all outstanding accrued interest in the amount of $100,716, into 9,766,097 shares of the Company’s common stock at a rate of $0.15 per share. The average trading price of the Company’s common stock for the five days prior to the conversion was $0.04 and the difference was accounted for as paid in capital from a related party in the amount of $1,455,150. The conversion price was determined based on negotiation between the Company and the holders of the Tier 4 Junior Notes.

On February 23, 2009, the Company entered into a promissory note (the “Tier 3 Junior Note”) totaling $1,900,000 with IU Investments, LLC (“IUI”). IUI is an entity owned by the family of the Company’s Chief Executive Officer. Interest is payable at the Company’s discretion at a rate of 10% per annum. The Company recorded interest of $40,473 and $41,875 on this facility during the nine month periods ended January 31, 2013 and 2012, respectively. The balance of this note totaled $527,915 at January 31, 2013.

On March 30, 2011, the Company entered into a subordinated $1.5 million promissory note (the “Tier 2 Junior Note”) with IU Holdings, LP (“IUH”). Interest on the outstanding principal amount under the Tier 2 Junior Note is payable at the Company’s discretion at a rate of 10% per annum. As additional consideration to induce IUH to enter into the Tier 2 Junior Note, the Company issued to IUH, 48,414,132 shares of CornerWorld Corporation Common stock. IUH is a partnership whose limited partners include the family of the Company’s Chief Executive Officer. Steve Toback, the uncle of the Company’s Chief Executive Officer, serves as the manager of IU Holdings, GP, LLC which is the general partner of IUH. The Company recorded approximately $113,425 and $123,534 in interest on this facility, during the nine month periods ended January 31, 2013 and 2012, respectively. The balance of this note totaled $1,500,000 at January 31, 2013.

On March 30, 2011, the Company entered into a subordinated $400,000 promissory note (the “Tier 5 Junior Note”) with Internet University. Interest on the outstanding principal amount under the Tier 5 Junior Note is payable at the Company’s discretion at a rate of 10% per annum. As additional consideration to induce Internet University to enter into the Tier 5 Junior Note, the Company issued to Internet University, 12,910,435 shares of CornerWorld Corporation Common stock. The Company recorded interest of $16,412 and $29,630 on this facility during the six month periods ended January 31, 2013 and 2012, respectively. The balance of this note totaled $80,000 at January 31, 2013.

On March 30, 2011, the Company entered into a subordinated $389,942 promissory note (the “Tier 7 Junior Note”) with Scott N. Beck, the Company’s Chief Executive Officer. Interest on the outstanding principal amount under the Tier 7 Junior Note is payable at the Company’s discretion at a rate of 10% per annum. As additional consideration to induce Mr. Beck to enter into this Promissory Note, the Company issued Mr. Beck 12,585,802 shares of CornerWorld Corporation Common stock. The Tier 7 Junior Note consists primarily of prior accounts payable. The Company recorded interest of $25,630 and $26,273 on this facility during the nine month periods ended January 31, 2013 and 2012, respectively. The balance of this note totaled $338,958 at January 31, 2013.

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 $84,472 and $151,208 in rent during the nine month periods ended January 31, 2013 and 2012, 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 $45,000 from this entity during the nine month period ended January 31, 2013.

9. Subsequent Events

Subsequent to the date of the issuance of these statements, there were no occurrences that had a material impact on the financial statements.

- 13 -

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q

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 technology services company building services for the increased accessibility of content across mobile, television and Internet platforms. Our key asset is a patented 611 Roaming Service™ from RANGER Wireless Solutions®, which generates revenue by processing over 11 million calls per year from wireless customers and seamlessly connecting them to their service provider.

Nine Months ended January 31, 2013 Highlights:


	·	We paid down $1,105,000 in principal on our outstanding debt.

	·	We converted $1,364,199 in principal on our outstanding debt as well as $100,716 of accrued interest to equity via the issuance of common shares at the rate of $0.15/share.

	·	After removal of non-cash amortization of loan discounts (interest expense) totaling $402,581, bad debt expense totaling $152,291, depreciation & amortization and stock-based compensation expense totaling $1,231,154 and $124,524 respectively, the Company’s pro-forma profit for the nine months ended January 31, 2013 would have totaled approximately $1,527,396. See the table that follows for more details. The Company expects to continue generating positive operating cash flows for the fiscal year ending April 30, 2013.

	·	As noted in our annual report on Form 10-K for the year ended April 30, 2012, during the quarter ended October 31, 2011, we lost a significant enterprise client in our marketing services division. We billed on average in excess of $110,000/month to this client which, at the time of their departure, represented approximately 27% of our marketing services division’s revenue. This loss was due to the client discontinuing the outsourcing of its lead generation campaigns resulting from significant decreases in federal funding of for-profit educational institutions.

We define “Adjusted Net Income¹” as net loss after removal of non-cash charges including amortization of loan discounts (interest expense), bad debt expense, depreciation, amortization of intangibles and stock-based compensation. Management believes pro-forma net income provides useful additional information concerning the Company’s potential profitability. However, Adjusted Net Income is not a measure of financial performance under the United States’ Generally Accepted Accounting Principles (“US GAAP”). Accordingly, Adjusted Net Income should not be considered an alternative to net income as an indicator of operating performance. The table that follows provides a reconciliation between US GAAP net income and Adjusted Net Income.

___________________________

¹ This measure presented may not be comparable to similarly titled measures reported by other companies.

Reconciliation between US GAAP Net Income and Adjusted Net Income:


	For the nine month period ended January 31, 2013			Per share data

Net loss	$	(383,154	)	$	(0.00	)

Non-cash charges:
Amortization of loan discounts (interest)		402,581			0.00
Bad debt expense		152,291			0.00
Stock-based compensation		124,524			0.00
Depreciation and amortization		1,231,154			0.01
Total non-cash charges		1,910,550			0.01

Pro-forma net income	$	1,527,396		$	0.01

Weighted average common shares outstanding:
Basic and diluted		150,802,973			150,802,973

- 14 -

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 7 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 condensed consolidated unaudited 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 Condenses 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 amortization 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.

Goodwill

Goodwill represents the excess of acquisition cost over the net assets acquired in a business combination. Management reviews, on an annual basis, the carrying value of goodwill in order to determine whether impairment has occurred. Impairment is based on several factors including the Company’s projection of future undiscounted operating cash flows. If an impairment of the carrying value were to be indicated by this review, the Company would adjust the carrying value of goodwill to its estimated fair value. No impairment was recorded in the nine month period ended January 31, 2013.

Income Taxes

- 15 -

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 6 – 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 nine months ended January 31, 2013, none of which are expected to have a material impact on the Company’s consolidated financial position, operations, or cash flows.

- 16 -

Results of Operations

Comparison of the three months ended January 31, 2013 to the three months ended January 31, 2012

Consolidated CornerWorld Corporation

Revenues and Gross profit:

We had revenues totaling $1,680,494 for the three month period ended January 31, 2013 as compared to $2,292,764 for the three month period ended January 31, 2012. The decrease of $612,270, or 26.7%, is primarily due to revenue decreases in our marketing services segment resulting from the deterioration of the market for lead generation in the for-profit education space. In addition, to a much smaller extent, our communications services segment experienced a smaller decrease due to the fact that, as our customers built out their networks, the Company experienced a reduction in roaming revenues.

Similarly, gross profit decreased 26.8% for the three months ended January 31, 2013 to $1,403,012 from $1,696,416 for the three month period ended January 31, 2012 which was consistent with the revenue decrease.

Selling, General and Administrative Expenses:

Selling, General and Administrative expenses (“SG&A”) expenses totaled $705,663 for the three months ended January 31, 2013 as compared to $1,320,049 for the corresponding period in the prior year. The decrease of $614,386 is primarily due to the cost savings resulting from staff reductions, office closures and other cost cutting measures.

Depreciation and Amortization:

Depreciation and amortization expenses totaled $409,358 for the three month period ended January 31, 2013 as compared to $489,163 for the three month period ended January 31, 2012. The decrease of $79,805 is due to the fact that several of our larger telecommunications fixed assets have become fully depreciated.

Loss from Continuing Operations Before Taxes and Net Loss:

Loss from Continuing Operations Before Taxes and Net loss totaled $123,408 for the three months ended January 31, 2013 as compared to a net loss of $643,506 for the corresponding period in the prior year. The improvement of $520,098 is primarily due to the aforementioned reductions in SG&A and depreciation as well as decreases in interest expenses.

Marketing services

Our marketing services segment consists of our Enversa division.

Revenues:

Our marketing services segment had revenues totaling $387,673 for the three month period ended January 31, 2013 as compared to $934,868 for the three month period ended January 31, 2012. This decrease is due to the deterioration in the for-profit educational lead generation space and significant ongoing challenges and customer churn in our search engine optimization and website leasing businesses.

Depreciation and Amortization:

Our marketing services segment had depreciation expenses totaling $1,545 for the three month period ended January 31, 2013 as compared to $1,545 for the three month period ended January 31, 2012. There were no changes due to the fact that our marketing services segment does not require substantial continuing fixed asset investment.

Income from Continuing Operations Before Taxes and Net Income:

Income from continuing operations before taxes and net income totaled $185,390 for the three months ended January 31, 2013 as compared to a loss $86,768 for the corresponding period in the prior year. The increase is primarily due to reallocation of certain functions to corporate and significant cost savings measures corresponding to the decreases in revenues.

- 17 -

Communications services

Our communications services segment consists of our Woodland division.

Revenues:

Our communications services segment had revenues totaling $1,292,851for the three month period ended January 31, 2013 as compared to $1,357,896 for the three month period ended January 31, 2012. This decrease is primarily due to the reduction of roaming traffic and call volumes resulting from the continued buildout of nationwide mobile carrier networks.

Depreciation and Amortization:

Our communications services segment had depreciation and amortization expenses totaling $396,752 for the three month period ended January 31, 2013 as compared to $475,250 for the three month period ended January 31, 2012. The decrease of $78,498 is due to the fact that several of our larger fixed assets have become fully depreciated.

Income from Continuing Operations Before Taxes and Net Income:

Income from continuing operations before taxes and net income totaled $257,682 for the three months ended January 31, 2013 as compared to a net income of $241,557 for the corresponding period in the prior year. The increase of $16,125 is primarily due to the aforementioned decreases in depreciation expenses and decreases in interest expenses as a result of our continued paydown of debt. These expense decreases were offset, to some extent, by decreases in revenues and gross profit as well as slight increases in selling, general and administrative expenses.

Corporate

Depreciation and Amortization:

Our corporate segment had depreciation expenses totaling $11,061 for the three month period ended January 31, 2013 as compared to $12,368 for the three month period ended January 31, 2012. The slight decrease of $1,307 is due to the fact that several of our larger fixed assets have become fully depreciated.

Loss from Continuing Operations Before Taxes and Net Loss:

Loss from continuing operations and net loss totaled $566,480 for the three months ended January 31, 2013 as compared to a net loss of $798,295 for the corresponding period in the prior year. The decrease of $231,815 is primarily due to decreases in selling, general and administrative expenses resulting from cost savings measures including reductions in headcount and related expenses. In addition, interest expenses decreased $124,412 as a result of our continued paydown of debt.

Comparison of the nine months ended January 31, 2013 to the nine months ended January 31, 2012

Consolidated CornerWorld Corporation

Revenues and Gross profit:

We had revenues totaling $5,723,892 for the nine month period ended January 31, 2013 as compared to $8,148,495 for the nine month period ended January 31, 2012. The decrease of $2,424,603 is primarily due to revenue decreases in our marketing services segment resulting from the deterioration of the market for lead generation in the for-profit education space and the loss of a significant enterprise client in October 2011. In addition, to a much smaller extent, our communications services segment experienced a decrease in revenues due to the fact that, as our customers built out their networks, the Company experienced a reduction in roaming traffic.

Similarly, gross profit decreased for the nine months ended January 31, 2013 to $4,669,932 from $5,971,726 for the nine month period ended January 31, 2012. This decrease was consistent with the revenue decrease.

- 18 -

Selling, General and Administrative Expenses:

SG&A expenses totaled $2,399,432 for the nine months ended January 31, 2013 as compared to $4,275,249 for the corresponding period in the prior year. The decrease of $1,875,817 is primarily due to the cost savings resulting from staff reductions, office closures and other cost cutting measures.

Depreciation and Amortization:

Depreciation and amortization expenses totaled $1,231,154 for the nine month period ended January 31, 2013 as compared to $1,584,919 for the nine month period ended January 31, 2012. The decrease of $353,765 is due to the fact that several of our larger telecommunications fixed assets have become fully depreciated.

Loss from Continuing Operations Before Taxes and Net Loss:

Loss from continuing operations before taxes and net loss totaled $383,154 for the nine months ended January 31, 2013 as compared to a net loss of $1,636,574 for the corresponding period in the prior year. The improvement of $1,253,420 is primarily due to the aforementioned reductions in SG&A and depreciation as well as decreases in interest expenses resulting from the Company’s continued repayment of debt.

Marketing services

Revenues:

Our marketing services segment had revenues totaling $1,479,982 for the nine month period ended January 31, 2013 as compared to $3,639,368 for the six month period ended January 31, 2012. This decrease is due to the loss of a significant enterprise client, deterioration in the for-profit educational lead generation space and significant ongoing challenges and customer churn in our search engine optimization and website leasing businesses.

Depreciation and Amortization:

Our marketing services segment had depreciation expenses totaling $4,637 for the nine month period ended January 31, 2013 as compared to $115,558 for the nine month period ended January 31, 2012. The significant decrease is due to the fact that previously capitalized customer list became fully amortized August 31, 2011.

Income from Continuing Operations Before Taxes and Net Income:

Income from continuing operations before taxes and net income totaled $534,899 for the nine months ended January 31, 2013 as compared to a loss $9,759 for the corresponding period in the prior year. The increase is primarily due to reallocation of certain functions to corporate and significant cost savings measures corresponding to the decreases in revenues.

Communications services

Revenues:

Our communications services segment had revenues totaling $4,243,910 for the nine month period ended January 31, 2013 as compared to $4,509,127 for the nine month period ended January 31, 2012. The decrease of $265,217 was primarily due to the reduction of roaming traffic and call volumes resulting from the continued buildout of nationwide mobile carrier networks

Depreciation and Amortization:

Our communications services segment had depreciation and amortization expenses totaling $1,190,254 for the nine month period ended January 31, 2013 as compared to $1,424,407 for the nine month period ended January 31, 2012. The decrease of $234,153 is primarily due to the fact that several of our larger fixed assets have become fully depreciated.

- 19 -

Income from Continuing Operations Before Taxes and Net Income:

Income from continuing operations before taxes and net income totaled $1,132,266 for the nine months ended January 31, 2013 as compared to a net income of $1,039,978 for the corresponding period in the prior year. The increase of $92,290 is primarily due to the aforementioned decreases in depreciation expenses and decreases in interest expenses as a result of our continued paydown of debt. These expense decreases were offset, to some extent, by decreases in revenues and gross profit as well as slight increases in selling, general and administrative expenses.

Corporate

Loss from Continuing Operations Before Taxes and Net Loss:

Loss from continuing operations and net loss totaled $2,050,319 for the nine months ended January 31, 2013 as compared to a net loss of $2,666,791 for the corresponding period in the prior year. The decrease of $616,472 is primarily due to decreases in selling, general and administrative expenses resulting from cost savings measures including reductions in headcount and related expenses. In addition, interest expenses decreased $333,747 as a result of our continued paydown of debt.

Liquidity and Capital Resources

As of January 31, 2013, we have a working capital deficit of approximately $2.3 million and cash of $1,379,303. Our working capital deficit is primarily related to certain large accounts payable associated with our 2009 acquisition of Woodland Holdings as well as the short-term nature of selected tranches of the debt we issued in March 2011 when we recapitalized the Company. We have good relationships with the vendors associated with the large accounts payable who we continue to pay with excess cash flow. We have no other bank financing or other external sources of liquidity. We source all of our liquidity through our operations. We expect that trend to continue. See Note 4 and Note 8 to the financial statements for a description of the material terms of the outstanding debt of the Company.

As previously noted, the notes payable to our Senior Lender contain certain restrictive covenants, the failure to comply with which would result in the acceleration of all or part of the notes payable to the Senior Lender, depending on the particular covenant, creating a “Paydown Event.” Through the date of this filing, the Company has been in compliance with all such covenants and, as of January 31, 2013, the Company believes that it is in compliance with all other restrictive covenants with respect to the notes payable to the Senior Lender.

Effective for the period ended April 30, 2013, the Company will also be required to comply with an additional “Paydown Event” covenant, pursuant to which the Company’s marketing segment must maintain a minimum level of earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), as defined in the credit agreement with the Senior Lender. The Company believes that should its marketing division continue to perform consistent with recent operating results, the Company will not have sufficient Adjusted EBITDA to be in compliance with this covenant. Accordingly, the Company forecasts it will have a Paydown Event as of April 30, 2013, resulting in a requirement under the current terms of the notes to paydown approximately an additional $1.3 million on June 30, 2013. The Company is currently in negotiations with our Senior Lender to either obtain a waiver or to amend the provisions related to this Paydown Event; however, there can be no assurance that the Company will be successful with respect to these negotiations. The failure to obtain such a waiver or amendment would entitle the Senior Lender to declare an Event of Default under the Notes, which could lead to an acceleration of all other amounts payable under the Notes. This would entitle the Senior Lender to exercise its remedies under the notes, including foreclosing upon the collateral securing the notes. Any failure to obtain a waiver or amendment of this Paydown Event could inhibit the Company’s ability to continue as a going concern and would result in a material adverse effect on the Company.

We are currently investigating other financial alternatives, including additional equity and/or debt financing, including, but not limited to, refinancing all of our notes payable with our Senior Lender. 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. Based on our current cash balances, we expect we will need approximately $1.3 million in additional cash by June 30, 2013 should we be unsuccessful in negotiating a waiver of the Paydown Event with our Senior Lender. Assuming we are successful negotiating a waiver and our operations remain consistent with their historical levels, we anticipate we will have adequate cash to support our existing operations over the next twelve months.

We had substantially no investing activity for the nine month period ended January 31, 2013.

- 20 -

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 January 31, 2013. 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 a lack of the number of personnel in the accounting department. The Company has replaced selected accounting personnel with more seasoned professionals, including additional certified public accountants, to help perform certain accounting and financial functions. In addition, 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.

- 21 -

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.

- 22 -

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

March 25, 2013	/s/ V. Chase McCrea III
	V. Chase McCrea III
	Chief Financial Officer

- 23 -

Attached files

Stock widget

Investing forum

Cornerworld Corp Reports