Cornerworld (CWRLD) 10-Q 2012 Q3 Quarterly report

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, 2012
£	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, 2012 was 147,547,607.

CORNERWORLD CORPORATION

INDEX

Item Number		Page
	PART I. FINANCIAL INFORMATION
1	Financial Statements (Unaudited):		1
	Condensed Consolidated Balance Sheets as of January 31, 2012 and April 30, 2011		1
	Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended January 31, 2012 and 2011		2
	Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended January 31, 2012		3
	Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended January 31, 2012 and 2011		4
	Notes to Condensed Consolidated Financial Statements		5
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
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	[Removed and Reserved]		22
5	Other Information		22
6	Exhibits		23
	Signatures		23

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CornerWorld Corporation

Condensed Consolidated Balance Sheets

	January 31, 2012			April 30, 2011
	(unaudited)			(audited)
Assets
Current assets:
Cash	$	727,327		$	934,250
Accounts receivable (net of allowance for doubtful accounts of $139,528 and $48,936at January 31, 2012 and April 30, 2011, respectively)		1,414,111			1,777,704
Prepaid expenses and other current assets		106,460			112,972
Total current assets		2,247,898			2,824,926
Property and equipment, net		172,707			478,536
Goodwill		2,136,836			2,136,836
Patent		6,361,127			7,529,498
Intangibles, net		—			111,104
Other assets		28,407			28,132
TOTAL ASSETS	$	10,946,975		$	13,109,032
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	2,117,240		$	2,962,995
Accrued expenses		590,303			600,726
Notes payable, current portion, net of unamortized discount of $335,462 and $316,516 at January 31, 2012 and April 30, 2011, respectively		690,854			543,484
Notes payable related parties, current portion, net of unamortized discount of $241,125 and  $402,824 at January 31, 2012 and April 30, 2011, respectively		887,310			1,444,145
Deferred revenue		516,498			460,415
Total current liabilities		4,802,205			6,011,765
Long-term liabilities:
Notes payable, net of current portion, net of unamortized discount of $615,832 and  $880,916 at January 31, 2012 and April 30, 2011, respectively		5,750,462			5,059,084
Notes payable related parties, net of current portion, net of unamortized discount of $20,664and  $280,149 at January 31, 2012 and April 30, 2011, respectively		1,930,679			2,134,254
Other liabilities		726,835			642,899
Total liabilities		13,210,181			13,848,002
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; 147,547,607 and 146,972,901 shares issued and outstanding, at January 31, 2012 and April 30, 2011		147,547			146,972
Additional paid-in capital		10,118,548			10,006,785
Retained earnings (accumulated deficit)		(12,529,301	)		(10,892,727	)
Total stockholders’ deficit		(2,263,206	)		(738,970	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	10,946,975		$	13,109,032

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Condensed Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended January 31,						For the Nine Months Ended January 31,
	2012			2011			2012			2011
Sales, net	$	2,292,764		$	2,939,351		$	8,148,495		$	8,767,247
Costs of goods sold		596,348			953,628			2,176,769			2,896,790
Gross profit		1,696,416			1,985,723			5,971,726			5,870,457
Expenses:
Selling, general and administrative expenses		1,320,049			1,759,891			4,275,249			4,888,723
Depreciation and amortization		489,163			569,546			1,584,919			1,701,729
Total Operating expenses		1,809,212			2,329,437			5,860,168			6,590,452
Operating income (loss)		(112,796	)		(343,714	)		111,558			(719,995	)
Other income (expense), net:
Interest expense		(552,877	)		(236,889	)		(1,829,959	)		(744,329	)
Other income (expense), net		22,167			41,859			81,827			523,447
Total other expense, net		(530,710	)		(195,030	)		(1,748,132	)		(220,882	)
Loss before income taxes		(643,506	)		(538,744	)		(1,636,574	)		(940,877	)
Income taxes		—			—			—			—
Net loss	$	(643,506	)	$	(538,744	)	$	(1,636,574	)	$	(940,877	)
Basic and diluted loss per share	$	0.00		$	(0.01	)	$	(0.01	)	$	(0.01	)
Basic and diluted weighted average number shares outstanding		147,487,606			95,518,317			147,222,794			95,518,317

See Notes to Condensed Consolidated Financial Statements.

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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, 2011		146,972,901	$	146,972	$	10,006,785		$	(10,892,727	)	$	(738,970	)
Stock-based compensation expense		—		—		112,338			—			112,338
Cash-less exercise of stock options and warrants		574,706		575		(575	)		—			—
Net loss		—		—		—			(1,636,574	)		(1,636,574	)
Balance, January 31, 2012		147,547,607	$	147,547	$	10,118,548		$	(12,529,301	)	$	(2,263,206	)

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Nine Months ended January 31,
	2012			2011
Cash Flows from Operating Activities
Net loss	$	(1,636,574	)	$	(940,877	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		1,584,919			1,701,729
Amortization of discount on debt		667,322			—
Provision for doubtful accounts		193,548			53,794
Stock-based compensation		112,338			112,124
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable		170,045			243,096
Prepaid expenses and other current assets		6,512			59,106
Other assets		(275	)		6,086
Accounts payable		(845,755	)		(239,711	)
Accrued expenses		52,077			243,572
Deferred revenue		56,083			335,610
Other liabilities		83,936			(77,394	)
Net cash provided by operating activities		444,176			1,497,135
Cash Flows from Investing Activities
Proceeds from sale of fixed assets		17,400			—
Purchases of property and equipment		(17,015	)		(91,221	)
Net cash used in investing activities		385			(91,221	)
Cash Flows from Financing Activities
Fees paid for debt issuance		(62,500	)		—
Principal payments on related party notes payable		(195,489	)		(980,000	)
Payments on related party line of credit		—			(215,000	)
Principal payments on debt		(393,495	)		—
Net cash used in financing activities		(651,484	)		(1,195,000	)
Net increase (decrease) in cash		(206,923	)		210,914
Cash at beginning of period		934,250			590,163
Cash at end of period	$	727,327		$	801,077
Cash paid for:
Interest	$	1,047,938		$	746,084
Income taxes	$	—		$	—

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Notes to Condensed Consolidated Financial Statements

January 31, 2012

(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, 2012 and for the three and nine month periods ended January 31, 2012 and 2011 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, 2012 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 Company’s consolidated financial statements as of and for the year ended April 30, 2011, as filed with the SEC on Form 10-K, and the unaudited interim condensed consolidated financial statements as of and for the periods ended July 31, 2011 and October 31, 2011, as filed with the SEC on Form 10-Q.

Organization

The Company was incorporated in the State of Nevada, on November 9, 2004 as Olympic Weddings International, Inc. Effective May 1, 2007, we changed our name to CornerWorld Corporation.

The Company entered into a Share Exchange Agreement and Plan of Merger (the “Agreement”) with Enversa Companies LLC, a Texas limited liability company (“Enversa”), Leadstream LLC, a Texas limited liability company (“Leadstream”), and the holders of the membership interests of Leadstream on August 27, 2008. Pursuant to the Agreement, on August 27, 2008, Leadstream merged with and into Enversa (the “Merger”), of which CornerWorld is the sole member. Enversa was the surviving company in the merger and, as such, acquired all right, title and interest in and to all real estate and other property of Leadstream and became responsible for all liabilities and obligations of Leadstream and 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.   Finally, Enversa’s Gulf Media Solutions, LLC (“Gulf”) and FrontPageLeases.com, LLC (“FPL”) subsidiaries, provide search engine optimization services (“SEO”), domain leasing and website management services on a recurring monthly basis to over 300 customers.

On February 23, 2009, the Company completed its acquisition (the “Woodland Acquisition”) of all of the issued and outstanding equity interests of each of Woodland Wireless Solutions, Ltd. (“Woodland Wireless”), West Michigan Co-Location Services, L.L.C. (“WMCLS”) and T2 TV, L.L.C. (“T2 TV”), and forty voting member units of S Squared, LLC, doing business in the state of Michigan as “Ranger Wireless LLC” (“Ranger”), through its newly-formed wholly-owned subsidiary, Woodland Holdings Corp. (“Woodland Holdings”), pursuant to the terms of a Stock Purchase Agreement, dated February 23, 2009 (the “Effective Date”), by and among Woodland Holdings, the Company, Ned B. Timmer (“Timmer”) and HCC Foundation (“HCC Foundation”). Immediately following the Woodland Acquisition, the forty voting member units of Ranger that were purchased by Woodland Holdings were contributed to Woodland Wireless and all other issued and outstanding voting member units of Ranger remained held by Woodland Wireless.

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CornerWorld Corporation

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

As a result of the Woodland Acquisition, Ranger became a wholly-owned subsidiary of Woodland Wireless. In addition, pursuant to a Unit Purchase Agreement (the “Unit Purchase Agreement”) entered into on the Effective Date among Woodland Holdings, Phone Services and More, L.L.C., doing business as Visitatel (“PSM”), T2 Communications, L.L.C. (“T2 Communications”) and Timmer, Woodland Holdings agreed to purchase all of the outstanding voting member units of each of PSM and T2 Communications, for an aggregate purchase price of $300,000. Final consummation of the transactions contemplated by the Unit Purchase Agreement took place on March 30, 2011. Prior to March 30, 2011, the Company accounted for PSM and T2 Communications as Variable Interest Entities (“VIE’s”) and consolidated them for accounting purposes.

Subsequent to the closing of the Unit Purchase Agreement, the Company slightly adjusted the manner in which it managed the assets acquired in the Woodland Acquisition; these assets comprise 100% of the Company’s Communication Services Segment. As a result of the closing of the Unit Purchase Agreement, Woodland Wireless, Ranger and WMCLS are collectively referred to herein as the “Ranger Wireless Group”. T2 Communications, T2TV and PSM are collectively referred to herein as the “T2 Group”.

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 provider’s 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.

As a provider of Internet Protocol Television (IPTV), Internet and VoIP services, T2 Communications delivers leading-edge technology to residential and business customers in Michigan. Offerings include: phone lines, Internet connections, 275 all-digital television stations, colocation, long distance and toll-free services. T2 Communications is a Competitive Local Exchange Carrier (CLEC) that manages its own Fiber to the Premise (FTTP) network with a 10 gigabit backbone and up to 1 gigabit per second connections to end users.

PSM holds an FCC 214 License as a wholesale long distance service provider to the carrier community and large commercial users of transport minutes. Serving service providers, WMCLS offers telecommunications equipment storage and leasing.

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

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 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 U.S. 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.

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CornerWorld Corporation

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

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. At Gulf and FPL, revenue is recognized monthly as SEO services are provided or in the form of revenues from domain leases. Revenues from the sale of domains are recognized immediately.

For Woodland Wireless, the majority of revenue is derived from month-to-month, bundled service contracts for the phone, television 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.

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, 2012.

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.

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CornerWorld Corporation

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

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, 2012			April 30, 2011			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		(5,543,665	)		(4,264,190	)
	$	6,361,127		$	7,640,602

Amortization expense related to identifiable intangible assets totaled $389,457 and $472,791 for the three month periods ended January 31, 2012 and 2011, respectively, and $1,279,475 and $1,418,373 for the nine month periods ended January 31, 2012 and 2011, respectively.

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CornerWorld Corporation

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

4. Debt

	As of
	January 31, 2012			April 30, 2011
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, 2012 the total rate was 15%. These notes are collateralized by all assets of the Company.	$	4,625,000		$	5,000,000
Note payable to IU Holdings, LP; the note matures May 31, 2014.  At January 31, 2012, the interest rate was 10%. This note is collateralized by all assets of the Company other than 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, 2012, the interest rate was 10%. These notes are collateralized by all assets of the Company other than the Ranger patent. See also note 8, Related Party Transactions.		527,915			610,166
Notes payable to Internet University, Inc. and the other selling members of Enversa; the notes mature March 31, 2016.  At January 31, 2012 the interest rate was 10%. These notes are collateralized by all assets of the Company other than the Ranger patent. See also note 8, Related Party Transactions.		1,364,199			1,364,199
Note payable to Internet University, Inc.; the note matures March 31, 2013.  At January 31, 2012, the interest rate was 10%. This note is collateralized by all assets of the Company other than the Ranger patent. See also note 8, Related Party Transactions.		300,000			375,000
Note payable to Timmer; the note matures April 30, 2016.  At January 31, 2012, the interest rate was 10%. This note is collateralized by all assets of Woodland Holdings, Corp., including the Ranger patent.		1,800,000			1,800,000
Note payable to Scott Beck; the note matures September 30, 2014.  At January 31, 2012, 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			377,196
Note payable to Kelly Larabee Morlan; the note matures January 31, 2013.  At January 31, 2012, the interest rate was 10%. This note is not collateralized.		16,316			34,811
Total debt		10,472,388			11,061,372
Less current portion of long-term debt		(2,154,751	)		(2,706,973	)
Non-current portion of long-term debt	$	8,317,637		$	8,354,399

On March 29, 2011, the Company also entered into a warrant purchase agreement with the Senior Lender.  Pursuant to the warrant purchase agreement, the Company issued the Senior Lender a common stock purchase warrant (the “Warrant”), 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 Warrant has a 5 year term and contains certain put and call provisions.  The Warrant is not exercisable prior to March 30, 2014.  Using the Black-Scholes model, the original value of the Warrant issued to the Senior Lender was less than the net present value of the minimum $1,000,000 cash value of the warrants. Therefore, the net present value of $1,000,000, totaling $726,835 was recorded as a loan discount, which is being amortized to earnings as additional interest expense over the remaining term of the loan.  The Warrant is revalued at each reporting date, and adjusted to earnings. In addition, other loan fees of $717,569 were incurred from the issuance of 75,104,584 shares of the Company’s stock, $512,750 was paid or accrued, and $52,467 was incurred from the grant of additional warrants during March 2011. These fees are being amortized to earnings as additional interest over the remaining term of the loans. The unamortized balance of these deferred costs was $1,213,083 and $1,880,406 at January 31, 2012 and April 30, 2011, respectively, and is reflected as a loan discount to the outstanding balance of $10,472,388 and $11,061,372 at January 31, 2012 and April 30, 2011, respectively.

The notes payable to the Senior Lender include certain restrictive covenants with respect to the Company’s earnings, leverage and accounts payable. As of January 31, 2012, the Company believes it was in compliance with all restrictive covenants.

The notes are collateralized by 100% of the assets of the Company and its companies and the notes themselves are all cross-defaulted.

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CornerWorld Corporation

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

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.

Employment Agreements

On July 28, 2011, the Company entered into an employment agreement with Mr. Scott Beck, its Chairman and CEO. Pursuant to his employment agreement, Mr. Beck is paid an annual base salary of $400,000, an annual performance based cash bonus subject to the discretion of the board of directors, an annual warrant to purchase 1% of the then outstanding common shares of the Company, a bonus fee of 2.00% of all equity and debt raised during the time of his contract, a 3.50% fee for the transaction value of all acquisitions as defined in his employment agreement, warrants equal to 3.25% of the equity issued pursuant to any debt and equity raised during the time of his employment agreement, a warrant equal to 3.25% of the transaction value of any equity issued in association with all acquisitions and the greater of 5% of fair market value or $5.0 million buyout fee in the case of a change in control; in addition, Mr. Beck’s employment agreement provides for an annual increase of Mr. Beck’s base salary by 5% every year during the term of the agreement. Mr. Beck’s employment agreement also provides that, if he is terminated without cause prior to the end of the employment agreement, he will be paid the full amount of his base salary for any days remaining in the full ten year term, the Company will purchase all equity instruments held by Mr. Beck and, finally, the Company will pay Mr. Beck $5.0 million within six months of his termination. Finally, Mr. Beck will receive 10% of amounts payable to the Company as a result of any patent infringement litigation. Mr. Beck’s employment agreement continues through July 27, 2021.

On September 13, 2011, the Company entered into an employment agreement with Mr. Marc Pickren, its President. Pursuant to his employment agreement, Mr. Pickren is paid an annual base salary of $220,000 and commissions based on new clients acquired by Mr. Pickren. Mr. Pickren was paid a one-time signing bonus of $55,000 related to entering into this agreement. In addition, in accordance with his employment agreement, on September 21, 2011, Mr. Pickren was issued 250,000 options to purchase the Company’s common stock at a price of $0.30 per share; the option contains vesting provisions consistent with other options issued to employees and expires at the end of 5 years. Mr. Pickren’s employment agreement continues through September 15, 2013.

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 (the “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 option granted to an employee pursuant to the Incentive Stock Plan 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. Twenty of shares vest annually beginning on the first anniversary of the grant. The options expire 10 years from the grant date.

The Company issued 1,030,000 stock options at a weighted average exercise price of $0.30 per share pursuant to this plan during the nine months ended January 31, 2012.

Stock Compensation Plan

On August 17, 2007, the Company’s board of directors adopted and implemented the Company’s 2007 Stock Compensation Plan (the “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.

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CornerWorld Corporation

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

The Company issued no stock options pursuant to the Compensation Plan during the nine months ended January 31, 2012.

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

	January 31, 2012
	Shares Reserved for Grant		Awards Available for Grant
Incentive Stock Plan		4,000,000		1,995,000
Stock Compensation Plan		4,000,000		3,075,000
		8,000,000		5,070,000

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 No. 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
	2012	2011		2012		2011
Expected term (in years)	—	5.0		5.0		5.0
Expected volatility	—	99.1	%	99.1	%	99.1	%
Risk-free interest rate	—	2.3	%	1.0	%	2.3	%
Dividend yield	—	0.0	%	0.0	%	0.0	%

A summary of activity under the Company’s stock plans and changes during the period ended January 31, 2012 is presented below:

				Weighted-Average
	Shares			Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at May 1, 2011		2,520,000		$	0.35		3.36	$	0
Issued		1,030,000		$	0.30		5.00	$	0
Cancelled/forfeited		(560,179	)		0.20
Exercised		(59,821	)		0.20
Outstanding at January 31, 2012		2,930,000		$	0.35		3.23	$	42,400
Options vested and expected to vest*		2,860,000		$	0.35		2.99	$	21,000
Options exercisable at end of period		1,275,000		$	0.41		2.02	$	21,000

* 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, 2012 and 2011, the Company recognized $37,446 and $37,497 of stock-based compensation expense, respectively, and for the nine month periods ended January 31, 2012 and 2011, the Company recognized $112,338 and $112,124 of stock-based compensation expense, respectively. As of January 31, 2012 there was $345,297 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 3.23 weighted average years.

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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, 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
Three Months Ended January 31, 2011
Revenue	$	1,494,089	$	1,445,262	$	—		$	2,939,351
Income (loss) from continuing operations before tax		(54,036)		51,339		(536,047	)		(538,744	)
Net (loss) income		(54,036)		51,339		(536,047	)		(538,744	)
Total assets		1,222,720		11,292,608		646,437			13,161,765
Intangibles		194,438		7,918,955		—			8,113,393
Goodwill		—		1,581,850		554,986			2,136,836
Depreciation and amortization		84,087		475,547		9,912			569,546

	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

	Marketing Services			Communications Services		Corporate Overhead			Consolidated
Nine Months Ended January 31, 2011
Revenue	$	3,952,474		$	4,814,773	$	—		$	8,767,247
Income (loss) from continuing operations before tax		(149,410	)		600,451		(1,391,918	)		(940,877	)
Net (loss) income		(149,410	)		600,451		(1,391,918	)		(940,877	)
Total assets		1,222,720			11,292,608		646,437			13,161,765
Intangibles		194,438			7,918,955		—			8,113,393
Goodwill		—			1,581,850		554,986			2,136,836
Depreciation and amortization		252,453			1,423,391		25,885			1,701,729

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

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CornerWorld Corporation

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

8. Related Party Transactions

The Company’s subsidiary Enversa receives administrative support, including human resources and payroll services, from Internet University, Inc. (“Internet University”), which was one of the three former members of Leadstream (Enversa’s predecessor by merger).  Internet University is the beneficial owner of approximately 13.9% of the Company’s common stock.  A member of our board of directors, Marc Blumberg, is a shareholder of Internet University and serves as its president.  Enversa’s expenses for administrative support totaled less than $20,000 for the nine month period ended January 31, 2012.

As part of the August 27, 2008 Enversa acquisition, the Company borrowed $1,500,000 from Internet University, Mr. Blumberg and Mr. Pickren (collectively, the “Enversa Sellers”).    Mr. Pickren is the President of the Company.  On March 30, 2011, the Company entered into amendments to its promissory notes with the Enversa Sellers (collectively the “Tier 4 Junior Notes”) which revised the repayment schedules of the Tier 4 Junior Notes such that principal payments would be payable annually beginning on August 31, 2012 until such time as the Tier 4 Junior Notes mature on March 31, 2016. Interest payments are payable monthly at a revised rate of 10% per annum but can be accrued at the Company’s election. The Company recorded interest of $127,983 and $33,097 on the Tier 4 Junior Notes during the nine month periods ended January 31, 2012 and 2011, respectively.  The balance of the facility totaled $1,364,199 at January 31, 2012.

As part of the February 23, 2009 Woodland Acquisition, the Company borrowed $1,900,000 from IU Investments LLC pursuant to a promissory note (the “IUI Note”). IU Investments LLC is an entity owned by the parents of the Company’s Chief Executive Officer. The Company has amended the IUI Note several times and expects it to be paid in full on March 31, 2016. Interest payments are payable monthly at a rate of 10% per annum but can be accrued at the Company’s election.   The Company recorded interest of $41,875 and $53,637 on this facility during the nine month periods ended January 31, 2012 and 2011, respectively.   The balance of IUI Note totaled $527,915 at January 31, 2012.

On March 30, 2011, the Company borrowed $1,500,000 from IU Holdings, LP (“IUH”) pursuant to a subordinated promissory note (the “Tier 2 Junior Note”). IUH is a partnership whose limited partners include the parents 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.  Principal under the Tier 2 Junior Note is payable in quarterly installments of $187,500  commencing on August 31, 2012 until such time as the Tier 2 Junior Note matures on May 31, 2014.  Interest on the outstanding principal amount under the Tier 2 Junior Note is payable monthly in arrears at a rate of 10% per annum but can be accrued at the Company’s election.  As additional consideration to induce IUH to provide financing pursuant to Tier 2 Junior Note, the Company issued the Tier 2 Junior Lender, 48,414,132 shares of common stock to IUH.  The Company paid approximately $123,534 in interest to IUH, during the nine month period ended January 31, 2012.  The balance of this Tier 5 Junior Note totaled $1,500,000 at January 31, 2012.

On March 30, 2011, the Company entered into a subordinated $400,000 promissory note (the “Tier 5 Junior Note”) with Internet University.  Principal under the Tier 5 Junior Note is payable in monthly installments of $25,000  commencing on April 30, 2011 until such point as the Tier 5 Junior Note matures on March 31, 2013.  Interest on the outstanding principal amount under the Tier 5 Junior Note is payable monthly in arrears at a rate of 10% per annum but can be accrued at the Company’s election.  As additional consideration to induce the Tier 5 Junior Lender to enter into this Promissory Note, the Company issued the Tier 5 Junior Lender, 12,910,435 shares of common stock.  The Company recorded interest of $29,630 on Tier 5 Junior Note during the nine month period ended January 31, 2012.  The balance of this note totaled $300,000 at January 31, 2012.

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.  Principal under the Tier 7 Junior Note is payable in monthly installments of $12,746  commencing on April 30, 2011 until such time as the Tier 7 Junior Note matures on September 30, 2014.  Interest on the outstanding principal amount under the Tier 7 Junior Note is payable monthly in arrears at a rate of 10% per annum but can be accrued at the Company’s election.  As additional consideration to induce Mr. Beck to provide financing pursuant to the Tier 7 Junior Note, the Company issued 12,585,802 shares of common stock to Mr. Beck.  The Tier 7 Junior Note consists primarily of prior accounts payable.  The Company recorded interest of $26,273 on the Tier 7 Junior Note during the nine month period ended January 31, 2012.  The balance of the Tier 7 Junior Note totaled $338,958 at January 31, 2012.

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CornerWorld Corporation

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

On March 30, 2011, the Company entered into an unsecured $37,976 promissory note (the “Tier 8 Junior Note”) with Kelly Larabee Morlan the Company’s Secretary.  Principal under the Tier 8 Junior Note is payable in monthly installments of $3,165  commencing on April 30, 2011 until such time as the Tier 8 Junior Note matures on January 31, 2013. Interest on the outstanding principal amount under the Tier 8 Junior Note is payable monthly in arrears at a rate of 10% per annum but can be accrued at the Company’s election.  As additional consideration to induce Ms. Morlan to provide financing pursuant to the Tier 8 Junior Note, the Company issued 1,194,215 shares of common stock to Ms. Morlan.  The Tier 8 Junior Note is unsecured.  The Company recorded interest of $1,997 on this facility during the three month period ended January 31, 2012.  The balance of this note totaled $16,316 at January 31, 2012.

The Company is a party to a lease agreement with 13101 Preston Road, LP pursuant to which it leases office space for its corporate headquarters. The limited partners 13101 Preston Road, LP are trusts created by the father of the Company’s Chief Executive Officer, who may be a beneficiary of one of the trusts. ,.  The lease has a 5-year term, which commenced on February 1, 2011, and provides for minimum annual rentals of $148,464 in year one, $153,660 in year two, $159,038 in year three, $164,605 in year four and $170,366 in year five.  During the nine- month period ended January 31, 2012, the Company paid $151,208 in rent as a result of this lease.

9. Subsequent Events

On February 2, 2012, the Company entered into Amendment No. 3 (“IUH Amendment No. 3”) to the IUH Note.  IUH Amendment No. 3 revised the repayment schedule of the IUH Note such that principal payments were deferred by six months.  They will resume on August 31, 2012 and continue through May 31, 2014, after which point the IUH Note will be paid in its entirety.  In addition, IUH Amendment No. 3 provided that interest payments could either be cash settled at the end of each month or accrued and paid at a date of the Company’s choosing; interest would accrue on any interest payment the Company chose to defer. All other terms remained unchanged.  

On February 2, 2012, the Company entered into Amendment No. 5 (“IUI Amendment No. 5”) to the IUI Note.  IUI Amendment No. 5 revised the repayment schedule of the IUI Note such that principal payments were deferred by six months.  They will resume with a $191,919 balloon payment on August 31, 2012 and continue through March 31, 2016, after which the IUI Note will be paid in its entirety.  In addition, IUI Amendment No. 5 provided that interest payments could either be cash settled at the end of each month or accrued and paid at a date of the Company’s choosing; interest would accrue on any interest payment the Company chose to defer. All other terms remained unchanged.   

On February 2, 2012, the Company entered into Amendment No. 4 (“Enversa Amendment No. 4”) to the Tier 4 Junior Notes.  Enversa Amendment No. 4 provided that principal payments on the Tier 4 Junior Notes would be deferred by 6 months, after which they would continue to be made annually in March until their maturities on March 31, 2016.  In addition, Enversa Amendment No. 4 provided that interest payments on the Tier Four Junior Notes could be either cash settled at the end of each month or accrued and paid at a date of the Company’s choosing; interest would accrue on any interest payment the Company chose to defer.  All other terms remained unchanged.  

On February 2, 2012, the Company entered into Amendment No. 2 (“IU Amendment No. 2”) to the Tier 5 Junior Note.  IU Amendment No. 2 revised the repayment schedule of the Tier 5 Junior Note such that principal payments were deferred by two months.  They will resume on April 30, 2012 and continue through March 31, 2013, after which the Tier 5 Junior Note will be paid in its entirety.  In addition, IU Amendment No. 2 provided that interest payments could either be cash settled at the end of each month or accrued and paid at a date of the Company’s choosing; interest would accrue on any interest payment the Company chose to defer. All other terms remained unchanged.    

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CornerWorld Corporation

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

On February 2, 2012, the Company entered into Amendment No. 2 (“Beck Amendment No. 2”) to the Tier 7 Junior Note.  Beck Amendment No. revised the repayment schedule of the Tier 7 Junior Note such that principal payments were deferred by six months.  They will resume on August 31, 2012 and continue through September 30, 2014, after which point the Tier 7 Junior Note will be paid in its entirety.  In addition, Beck Amendment No. 2 provided that interest payments could either be cash settled at the end of each month or accrued and paid at a date of the Company’s choosing; interest would accrue on any interest payment the Company chose to defer.  

On February 2, 2012, the Company entered into Amendment No. 2 (“Larabee Amendment No. 2”) to  the Tier 8 Junior Note.  Larabee Amendment No. 2 revised the repayment schedule of the Tier 8 Junior Note such that principal payments were deferred by six months.  They will resume on August 31, 2012 and continue through January 31, 2013, after which point the Tier 8 Junior Note will be paid in its entirety.  In addition, Larabee Amendment No. 2 provided that interest payments could either be cash settled at the end of each month or accrued and paid at a date of the Company’s choosing; interest would accrue on any interest payment the Company chose to defer. All other terms remained unchanged.  

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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 services 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 14 million calls per year from wireless customers and seamlessly connecting them to their service provider.

Nine months ended January 31, 2012 Highlights:

· We paid down approximately $588,984 in principal on our outstanding debt.

· After removal of non-cash amortization of loan discounts (interest expense) totaling $667,322, non-recurring expenses associated with our pursuit of a potential merger which was never completed totaling $228,390 and depreciation & amortization and stock-based compensation expense totaling $1,584,919 and $112,338, respectively, the Company’s pro-forma profit for the nine months ended January 31, 2012 would have totaled approximately $956,395. See the table that follows for more details. The Company expects to generate positive operating cash flows for the fiscal year ending April 30, 2012.

We define “Adjusted Net Income¹” as net loss after removal of non-cash charges including amortization of loan discounts (interest 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 Generally Accepted Accounting Principles (“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 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 GAAP Net Income and Adjusted Net Income:

	For the nine month period ended January 31, 2012			Per share data
Net loss	$	(1,636,574	)	$	(0.01	)
Non-cash, non-recurring charges:
Amortization of loan discounts (interest)		667,322			0.00
Non-recurring fees associated with aborted acquisition		228,390			0.00
Stock-based compensation		112,338			0.00
Depreciation and amortization		1,584,919			0.01
Total non-cash, non-recurring charges		2,592,969			0.01
Pro-forma net income	$	956,395		$	0.01
Weighted average common shares outstanding:
Basic and diluted		147,222,794			147, 222,794

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.

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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.

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.

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.

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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 valuation model.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model also requires the input of highly subjective assumptions including:

(a)	The expected volatility of our common stock price, which we determine based on the historical volatility of comparable publicly traded 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, 2012, none of which are expected to have a material impact on the Company’s consolidated financial position, operations, or cash flows.

Results of Operations

Comparison of the three months ended January 31, 2012 to the three months ended January 31, 2011

Marketing services

Our marketing services segment consists of our Enversa division.

Revenues and Gross profit:

Our marketing segment had revenues totaling $934,868 for the three month period ended January 31, 2012 as compared to $1,494,089 for the three month period ended January 31, 2011. This decrease is due to the loss of a significant enterprise client which was offset, to some degree, by the addition of revenues from search engine optimization and site leases at our FPL division.

As a result of selling the higher margin FPL products, gross profit at our marketing services segment decreased for the three months ended January 31, 2012 to $536,304 from $787,159 for the three month period ended January 31, 2011. Gross profit as a percentage of revenue increased from 52.7% to 57.4% due to the sale of higher margin products at our FPL division.

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Selling, General and Administrative Expenses:

Selling, general and administrative (“SG&A”) expenses totaled $621,527 for the three months ended January 31, 2012 as compared to $755,964 for the corresponding period in the prior year. The decrease of $134,437 is primarily due to decreases in headcount, rent and utilities made as a result of the loss of the significant enterprise client.

Net Loss:

Net loss totaled $86,768 for the three months ended January 31, 2012 as compared to net loss of $54,036 for the corresponding period in the prior year. The increase is primarily due to our aforementioned loss of the significant enterprise client.

Communications services

Our communications services segment consists of all the businesses acquired in the Woodland Acquisition.

Revenues and Gross profit:

Our communications services segment had revenues totaling $1,357,896 for the three month period ended January 31, 2012 as compared to $1,445,262 for the three month period ended January 31, 2011. This decrease is primarily due to the fact that, as our customers built out their networks, the Company experienced a reduction in roaming revenues.

Gross profit decreased for the three months ended January 31, 2012 to $1,160,112 from $1,198,564 for the three month period ended January 31, 2011 due to the decreased roaming revenues associated with our dial-611 business. Gross profit as a percentage of revenue increased substantially to 85.4% from 82.9% due to the implementation of new agreements with lower rates from the carriers who provide our network infrastructure.

Selling, General and Administrative Expenses:

SG&A expenses totaled $112,065 for the three months ended January 31, 2012 as compared to $498,655 for the corresponding period in the prior year. The decrease of $386,590 is primarily due to the absence of non-recurring legal expenses totaling $164,857 incurred during the three month period ended January 31, 2011 along with cost savings resulting from staff reductions, relocation of offices to cheaper space and other cost cutting measures.

Net Income:

Net income totaled $241,557 for the three months ended January 31, 2012 as compared to a net income of $51,339 for the corresponding period in the prior year. The increase of $190,218 is primarily due to the absence of non-recurring legal fees totaling $164,857 as well as the impact of the aforementioned cost reductions both in cost of sales and SG&A.

Corporate

Selling, General and Administrative Expenses:

SG&A costs totaled $586,457 for the three month period ended January 31, 2012 versus $505,272 for the corresponding period in the prior year. The increase of $81,185 is primarily due to the fact that we hired additional accounting and IT personnel to develop the infrastructure necessary to support our FPL division.  Expenses for this segment also include all costs associated with corporate overhead, including accounting, legal, corporate governance and other related costs involved in being a publicly traded company.

Comparison of the nine months ended January 31, 2012 to the nine months ended January 31, 2011

Marketing services

Revenues and Gross profit:

Our marketing services segment had revenues totaling $3,639,368 for the nine month period ended January 31, 2012 as compared to $3,952,474 for the nine month period ended January 31, 2011. This decrease is due to the loss of revenues from a significant enterprise account which was offset, to some degree, by revenues associated with search engine optimization and site leases at our FPL division.

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For the same reasons, gross profit at our marketing services segment increased for the nine months ended January 31, 2012 to $2,120,696 from $1,967,859 for the nine month period ended January 31, 2011. Gross profit as a percentage of revenue increased from 58.3% to 49.8% due to an increase in sales of FPL’s higher margin products.

Selling, General and Administrative Expenses:

SG&A expenses totaled $2,011,911 for the nine months ended January 31, 2012 as compared to $1,859,192 for the corresponding period in the prior year. The increase of $152,719 is primarily due to the increase in personnel associated with our FPL division which resulted in corresponding increases in headcount, rent and utilities.

Net Loss

Net loss totaled $9,759 for the nine months ended January 31, 2012 as compared to net loss of $149,410 for the corresponding period in the prior year. The increase is primarily due to the margin increases realized at our FPL division as well as the fact that our customer list became fully amortized during the six month period ended October 31, 2011 and there was no earnings drag from customer list amortization during the final three months of the nine month period ended January 31, 2012.

Communications services

Revenues, Cost of Sales and Gross profit:

Our communications services segment had revenues totaling $4,509,127 for the nine month period ended January 31, 2012 as compared to $4,814,773 for the nine month period ended January 31, 2011. This decrease is primarily due to the fact that, as our customers built out their networks, the Company experienced a reduction in roaming revenues.  

For similar reasons, gross profit decreased for the nine months ended January 31, 2012 to $3,851,030 from $3,902,598 for the corresponding period in the prior year. Gross profit as a percentage of revenue improved to 85.4% during the six months ended January 31, 2012 versus 81.1% during the corresponding period in the prior year primarily due to the implementation of new agreements with lower rates from the carriers who provide our network infrastructure.

Selling, General and Administrative Expenses:

SG&A expenses totaled $364,877 for the nine months ended January 31, 2012 as compared to $1,708,367 for the corresponding period in the prior year. The substantial decrease of $1,343,490 is primarily due to the absence of non-recurring legal expenses which totaled $591,423 incurred during the nine month period ended January 31, 2011.  We settled a lawsuit in March 2011 and, accordingly, are no longer incurring similar fees.  Absent legal expenses, the SG&A decrease is attributable primarily to staffing reductions, the relocation of an office and other cost saving measures enacted at our communications services segment during the year over year period.

Net Income

Net income totaled $1,039,976 for the nine months ended January 31, 2012 as compared to net income of $600,451 for the corresponding period in the prior year. The increase of $439,525 is primarily due to the absence of non-recurring legal expenses which totaled $591,423 during the nine month period ended January 31, 2012.

Corporate

Selling, General and Administrative Expenses:

SG&A expenses totaled $1,898,461 for the nine month period ended January 31, 2012 versus $1,321,164 for the corresponding period in the prior year. The increase of $577,297 is primarily due to the fact that we incurred approximately $230,000 in costs related to our pursuit of a potential merger which was never completed.  We also incurred additional fees at Corporate primarily due to the fact that we hired additional accounting and IT personnel to build out the infrastructure necessary to support our FPL division.  Expenses for this segment also include all costs associated with corporate overhead, including accounting, legal, corporate governance and other related costs involved in being a publicly traded company.

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Liquidity and Capital Resources

As of January 31, 2012, we had a working capital deficit of approximately $2.6 million and cash of $727,327. Our working capital deficit is primarily related to certain large accounts payable associated with our 2009 Woodland Acquisition as well as the short-term nature of selected tranches of the debt we issued in March 2011 when we recapitalized the Company. Our working capital deficit has decreased substantially from our January 31, 2011 period end deficit which totaled approximately $5.1 million. This improvement is due to the fact that, as a result of the March 2011 recapitalization, we extended the maturities of substantially all of our debt. We believe the cash flows from our existing operations will be adequate to manage our debt commitments and we have good relationships with the vendors associated with the large accounts payable who we continue to pay with excess cash flow. Management expects that its current cash and operational cash flow will be sufficient to meet our liquidity needs for the next year.

Our investing activity for the nine month period ended January 31, 2012, consisted primarily of $17,015 of capital expenditures, primarily associated with the relocation of several of our facilities, including our home office.  Management believes the reduced rents in the new locations will more than offset the capital expenditures.

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.

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 and/or debt 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 January 31, 2012. 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 have effectively remediated 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.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. [Removed and Reserved]

Item 5. Other information

None.

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Item 6. Exhibits

The following exhibits are filed as part of this report:

Exhibit Numbers	Description	Method of Filing
3.1	Articles of Incorporation of CornerWorld Corporation, formerly known as Olympic Weddings International, Inc., dated November 9, 2004 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2, filed September 27, 2005)
3.2	Certificate of Correction of CornerWorld Corporation, formerly known as Olympic Weddings International, Inc., dated November 24, 2004 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q, filed December 15, 2010)
3.3	Certificate of Change of CornerWorld Corporation, formerly known as Olympic Weddings International, Inc., dated October 18, 2006 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed October 25, 2006)
3.4	Certificate of Amendment to Articles of Incorporation For Nevada Profit Corporations of CornerWorld Corporation, formerly known as Olympic Weddings International, Inc., dated May 4, 2007 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q, filed December 15, 2010)
3.5	Bylaws of CornerWorld Corporation, formerly known as Olympic Weddings International, Inc., dated November 9, 2004 (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2, filed September 27, 2005)
10.1	Employment Agreement by and between CornerWorld Corporation and Marc Pickren dated September 13, 2011	w
10.2	Amendment, dated as of December 15, 2011, to Scott Beck employment agreement.	w(1)
10.3	Stock option, dated as of September 21, 2011, for Marc Pickren to purchase 250,000 shares of Common Stock	w(1)
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.
w	Management plan, compensatory arrangement or employment agreement.

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 16, 2012	/s/ V. Chase McCrea III
	V. Chase McCrea III
	Chief Financial Officer

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