UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION~~

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
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended January 31, 2013
	For the Quarterly Period Ended July 31, 2013
	£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from __________ to __________
	For the transition period from_________ to _______

Commission File Number: ~~000~~333-~~54419~~128614

CORNERWORLD CORPORATION

(Exact name of registrant as specified in its charter)


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

13101 Preston Road, Suite ~~100~~510 Dallas, Texas 75240 (Address of principal executive offices)

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 ____

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

~~Yes~~The ~~___ No X~~ number of shares outstanding of the registrant’s common stock, $0.001 par value per share, as of September 12, 2013 was 156,813,704.

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	~~Page~~
	PART I. FINANCIAL INFORMATION	~~PART I. FINANCIAL INFORMATION~~
1	Financial Statements (Unaudited):	~~Financial Statements (Unaudited):~~		1
		Condensed Consolidated Balance Sheets as of January 31, 2013 and April 30, 2012 (Audited)		1
	Condensed Consolidated Balance Sheets as of July 31, 2013and April 30, 2013	1
		Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended January 31, 2013 and 2012		2
	Condensed Consolidated Statements of Operations for the Three Months Ended July 31, 2013 and 2012	2
		Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended January 31, 2013		3
	Condensed Consolidated Statement of changes in stockholders’ deficit for the Three Months Ended July 31, 2013	3
		Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended January 31, 2013 and 2012		4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended July 31, 2013 and 2012	4
	Notes to Condensed Consolidated Financial Statements	~~Notes to Condensed Consolidated Financial Statements~~5		5
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~13		14
3	Quantitative and Qualitative Disclosures about Market Risk	~~Quantitative and Qualitative Disclosure about Market Risk~~18		21
4	Controls and Procedures	~~Controls and Procedures~~18		21
	PART II. OTHER INFORMATION	~~PART II. OTHER INFORMATION~~
1	Legal Proceedings	~~Legal Proceedings~~19		22
1A	Risk Factors	~~Risk Factors~~19		22
2	Unregistered Sales of Equity Securities and Use of Proceeds	~~Unregistered Sales of Equity Securities and Use of Proceeds~~19		22
3	Defaults Upon Senior Securities	~~Defaults Upon Senior Securities~~19		22
4	Mine Safety Disclosures	~~Mine Safety Disclosures~~19		22
5	Other Information	~~Other Information~~19		22
6	Exhibits	~~Exhibits~~19		22
	Signatures	~~Signatures~~19		23

- 1 -

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CornerWorld Corporation

Condensed Consolidated Balance Sheets

	January 31, 2013			April 30, 2012
	July 31, 2013			April 30, 2013
	(unaudited)			(audited)
Assets
Current assets:
Cash	$	1,~~379~~340,~~303~~888		$	~~890~~1,~~415~~150,880
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
Accounts receivable, net of allowance for doubtful accounts of $41,138 and $61,349 at July 31, 2013 and April 30, 2013, respectively		780,960			634,594
Prepaid expenses and other current assets		~~117~~87,~~608~~513			~~132~~91,~~036~~935
Total current assets		2,~~131~~209,~~933~~361			21,~~092~~877,~~744~~409
Property and equipment, net		9246,~~015~~838			~~154~~64,~~673~~900
Goodwill		21,~~136~~581,~~836~~850			21,~~136~~581,~~836~~850
Patent		4,~~803~~024,~~299~~385			54,~~971~~413,~~670~~842
Other assets		28,~~038~~032			28,~~729~~032
TOTAL ASSETS	$	97,~~192~~890,~~121~~466		$	107,~~384~~966,~~652~~033
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	1,~~347~~291,~~573~~450		$	1,~~894~~300,~~043~~310
Accrued expenses		~~735~~879,~~357~~087			~~708~~867,~~874~~350
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, current portion, net of unamortized discount of $300,766 and $313,500 at July 31, 2013 and April 30, 2013, respectively		3,427,007			3,139,273
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
Notes payable related parties, current portion, net of unamortized discount of $2,007 and $7,045 at July 31, 2013 and April 30, 2013, respectively		1,072,953			893,161
Lease payable, current portion		10,704			10,704
Deferred revenue		~~483~~239,~~101~~247			~~385~~327,~~146~~545
Total current liabilities		4,451,230			5,822,304
Warrants		906,621			873,861
Total current liabilities		7,827,069			7,412,204
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, net of current portion, net of unamortized discount of $146,620 and $216,769 at July 31, 2013 and April 30, 2013, respectively		1,281,921			1,486,773
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
Notes payable related parties		1,301,913			1,476,667
Lease payable, non-current portion		11,633			18,988
Lease payable, net of current portion		6,623			9,139
Other liabilities		842,278			754,091
Total liabilities		10,417,526			10,384,783
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
Common stock, $0.001 par value, 250,000,000 shares authorized; 157,313,704 shares issued and outstanding, at July 31, 2013 and April 30, 2013		157,313			157,313
Additional paid-in capital		11,~~744~~791,~~398~~080			1011,~~164~~783,~~724~~945
Retained earnings (accumulated deficit)		(13,380,928	)		(12,997,774	)
Accumulated deficit		(14,475,453	)		(14,360,008	)
Total stockholders’ deficit		(12,~~479~~527,~~217~~060	)		(2,~~685~~418,~~503~~750	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	97,~~192~~890,~~121~~466		$	107,~~384~~966,~~652~~033

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,
	For the Three Months Ended July 31,
	2013			2012			~~2013~~			~~2012~~
Sales, net	$	1,~~680~~532,~~494~~236		$	2,~~292~~175,~~764~~067		$	~~5,723,892~~		$	~~8,148,495~~
Costs of goods sold		~~277~~261,~~482~~933			~~596~~424,~~348~~976			~~1,053,960~~			~~2,176,769~~
Gross profit		1,~~403~~270,~~012~~303			1,~~696~~750,~~416~~091			~~4,669,932~~			~~5,971,726~~
Expenses:
Selling, general and administrative expenses		~~705~~632,~~663~~241			1981,~~320,049~~942			~~2,399,432~~			~~4,275,249~~
Depreciation and amortization		~~409~~407,~~358~~025			~~489~~410,~~163~~752			~~1,231,154~~			~~1,584,919~~
Total Operating expenses		1,~~115~~039,~~021~~266			1,~~809~~392,~~212~~694			~~3,630,586~~			~~5,860,168~~
Operating income (loss)		287,991			(112,796	)		1,039,346			111,558
Operating income		231,037			357,397
Other income (expense), net:
Interest expense		(~~411~~346,~~399~~480	)		(~~552~~511,~~877~~996	)		~~(1,422,400~~	)		~~(1,829,959~~	)
Other income (expense), net		—(2	)		~~22,167~~(100	)		~~(100~~	)		~~81,827~~
Total other expense, net		(411,399	)		(530,710	)		(1,422,500	)		(1,748,132	)
Total other income (expense), net		(346,482	)		(512,096	)
Loss before income taxes		(123,408	)		(643,506	)		(383,154	)		(1,636,574	)
Income (loss) before income taxes		(115,445	)		(154,699	)
Income taxes		—			—			—			—
Net loss	$	(~~123~~115,~~408~~445	)	$	(~~643~~154,~~506~~699	)	$	~~(383,154~~	)	$	~~(1,636,574~~	)
Basic and diluted loss per share	$	0.00		$	0.00		$	0.00		$	(0.01	)
Basic and diluted earnings (loss) per share	$	(0.00	)	$	(0.00	)
Basic and diluted weighted average number shares outstanding		157,313,704			147,~~487~~547,~~606~~607			~~150,802,973~~			~~147,222,794~~

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		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Deficit
Balance, April 30, 2012		147,547,607	$	147,547	$	10,164,724	$	(12,997,774	)	$	(2,685,503	)
Balance, April 30, 2013		157,313,704	$	157,313	$	11,783,945	$	(14,360,008	)	$	(2,418,750	)
Stock-based compensation expense		—		—		~~124~~7,~~524~~135		—			~~124~~7,~~524~~135
Conversion of debt to common stock		9,766,097		9,766		1,455,150		—			1,464,916
Net income		—		—		—		(115,445	)		(115,445	)
Net loss		—		—		—		(383,154	)		(383,154	)
Balance, July 31, 2013		157,313,704	$	157,313	$	11,791,080	$	(14,475,453	)	$	(2,527,060	)
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.

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CornerWorld Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Nine Months ended January 31,
	For the Three Months Ended July 31,
	2013			2012
Cash Flows from Operating Activities
Net loss	$	(383,154	)	$	(1,636,574	)
Net income (loss)	$	(115,445	)	$	(154,699	)
Adjustments to reconcile net loss to net cash provided by operating activities
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		1407,~~231,154~~025			1410,~~584,919~~752
Amortization of discount on debt		402,581			667,322
Amortization of loan discount		87,920			147,352
Provision for doubtful accounts		~~152~~29,~~291~~633			~~193~~76,~~548~~908
Stock-based compensation		~~124~~7,~~524~~135			~~112~~41,~~338~~509
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable		~~282~~(175,~~980~~999	)		~~170~~(227,~~045~~579	)
Prepaid expenses and other current assets		144,~~428~~422			626,~~512~~270
Other assets		~~691~~—			~~(275~~698	)
Accounts payable		(~~536~~8,~~469~~860	)		(~~845~~311,~~755~~462	)
Accrued expenses		~~126~~11,~~200~~737			5263,~~077~~431
Deferred revenue		97(88,~~955~~298	)		56(82,~~083~~561	)
Other liabilities		8832,~~187~~760			8328,~~936~~279
Net cash provided by operating activities		1192,~~601,368~~030			~~444~~18,~~176~~898
Cash Flows from Investing Activities
Proceeds from sale of fixed assets		—			17,400
Fixed assets acquired pursuant to capital lease		(1,860	)		—
Purchases of property and equipment		(798	)		(17,015	)
Net cash used in investing activities		(1,860	)		—
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 lease		(162	)		(2,431
Payments on capital leases		(6,682	)		—
Principal payments on related party notes payable		—			(65,000	)
Principal payments on related party notes payable		(220,000	)		(195,489	)
Principal payments on debt		—			(485,000	)
Principal payments on debt		(885,000	)		(393,495	)
Net cash used in financing activities		(162	)		(552,431	)
Net cash used in financing activities		(1,111,682	)		(651,484	)
Net increase (decrease) in cash		190,008			(533,533	)
Net increase (decrease) in cash		488,888			(206,923	)
Cash at beginning of period		1,150,880			890,415
Cash at beginning of period		890,415			934,250
Cash at end of period	$	1,340,888		$	356,882
Cash at end of period	$	1,379,303		$	727,327
Cash paid for:
Interest	$	~~673,246~~—		$	1224,~~047,938~~207
Income taxes	$	—		$	—

See Notes to Condensed Consolidated Financial Statements.

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CornerWorld Corporation

Notes to Condensed Consolidated Financial Statements

~~January~~July 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~~July 31, 2013 and for the three ~~and~~months ~~nine month periods~~ ended ~~January~~July 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~~period ended ~~January~~July 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~~2013, 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. Effective May 1, 2007, we changed our name to CornerWorld Corporation.

The Company provides certain marketing services through its operating subsidiary Enversa Companies LLC, a Texas limited liability company (“Enversa”). CornerWorld is the sole member of Enversa. Enversa is a technology-oriented direct response marketing company. 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~~that its Goodwill, patent ~~and~~or ~~identifiable~~fixed ~~intangible~~ assets ~~associated with its recent acquisitions~~ are impaired. No impairment charges have been recorded as of ~~January~~July 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)
	July 31, 2013			April 30, 2013			Estimated Useful Life (Years)
Patent	$	10,904,792		$	10,904,792			7
Customer list		1,000,000			1,000,000			3
Accumulated amortization		(6,880,407	)		(6,490,950	)
		11,904,792			11,904,792
	$	4,024,385		$	4,413,842
Accumulated amortization		(7,101,493	)		(5,933,122	)
	$	4,803,299		$	5,971,670

Amortization expense related to ~~identifiable~~the ~~intangible~~Company’s ~~assets~~patent totaled $389,457 for the three month periods ended ~~January~~July 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
	July 31, 2013			April 30, 2013
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
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 note’s floor utilizes a minimum LIBOR of 3%. At July 31, 2013 the total rate was 15%. These notes are collateralized by all assets of the Company.	$	3,700,000		$	3,700,000
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 IU Holdings, LP; the note matures February 28, 2015. At July 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
Note payable to IU Investments, LLC, due March 31, 2016. At July 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 February 28, 2013. At July 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.		10,000			10,000
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 July 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			1,440,000
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 July 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 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 July 31, 2013, the interest rate was 10%. This note is not collateralized.		16,316			16,316
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		7,533,189			7,533,189
Total debt		7,878,189			10,347,388
Less current portion of long-term debt		(4,802,733	)		(4,352,979	)
Less current portion of long-term debt		(2,220,784	)		(3,325,525	)
Non-current portion of long-term debt	$	2,730,456		$	3,180,210
Non-current portion of long-term debt	$	5,657,405		$	7,021,863

~~Notes~~On ~~Payable~~March 29, 2011, the Company also entered into a warrant purchase agreement with the Senior Lender. Pursuant to the 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, have a 5 year term and contain certain put and call provisions. The Warrant is not exercisable prior to March 30, 2014 when it can be put to the Company for $1,000,000. Using the Black-Scholes model, the 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 $906,621 and $873,861 at July 31 and April 30, 2013, respectively, 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 were incurred from the issuance of debt 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 $449,393 and $537,313 at July 31 and April 30, 2013, respectively, and is reflected as a loan discount to the outstanding balance of $7,533,189 at July 31 and April 30, 2013.

OnThe ~~March~~notes ~~29,~~payable ~~2011,~~to the ~~Company~~Senior ~~entered~~Lenders ~~into~~include acertain ~~credit~~restrictive ~~agreement~~covenants with ~~the~~respect ~~Senior~~to ~~Lender~~the Company’s earnings, ~~pursuant~~leverage toand ~~which~~accounts ~~it issued $5~~payable.0 ~~million~~Failure ofto ~~notes~~comply ~~payables~~with ~~and~~these ~~warrants~~covenants tocould ~~purchase~~result in the ~~Company’s~~acceleration ~~common~~of ~~stock. These~~all ~~notes~~or ~~payable~~part of ~~amortize~~the atnotes apayable ~~rate~~to ofthe ~~$275,000~~Senior ~~per quarter and~~Lender, asdepending ofon ~~January~~the ~~31,~~particular ~~2013~~covenant, ~~$,3,975,000~~creating ~~remains~~a ~~outstanding~~“Paydown Event. ~~The~~” As ~~notes~~of ~~payable~~April to30, 2013, the ~~Senior~~Company ~~Lender~~was ~~are~~not ~~secured~~in bycompliance with a ~~lien~~covenant onwhereby ~~all of~~ the Company’s ~~assets. The~~marketing ~~notes~~segment ~~include~~did ~~certain~~not ~~restrictive~~maintain a ~~covenants~~minimum ~~which~~level ~~require~~of earnings before interest, ~~among~~taxes, ~~other~~depreciation ~~things~~and amortization (“Adjusted EBITDA”), ~~that~~as defined in the ~~Company~~credit ~~maintain~~agreement ~~compliance~~ with ~~specified~~the ~~minimum~~Senior ~~earnings~~Lender. Accordingly, athe ~~leverage~~Company ~~ratio~~was ~~and~~subject ~~limit~~to ~~accounts~~a ~~payable~~Paydown ~~over~~Event. 90As ~~days~~of ~~old~~July to31, 2013, the ~~cash~~Company onhad not paid the ~~balance~~Senior ~~sheet. In~~Lender; ~~addition~~however, the ~~notes~~Senior ~~contain~~Lender ~~customary~~had ~~covenants~~not ~~that~~foreclosed ~~restrict~~on ~~the~~their ~~ability~~collateral ofor otherwise enforced the ~~Company~~remedies available to, ~~subject~~them. If tothe ~~certain~~Senior ~~exceptions,~~Lender ~~incur~~ultimately ~~unsecured~~does orforeclose ~~secured~~upon ~~debt~~the ~~and~~collateral ~~make~~securing ~~investments~~the notes, ~~among~~which is ~~other~~essentially ~~things. The~~all ~~notes~~the ~~also~~assets ~~contain~~of ~~customary~~the ~~events~~Company’s ofbusiness, ~~default~~it ~~for~~would ~~notes~~result ofin ~~this~~a ~~type~~material adverse effect on the Company.

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~~In ~~for~~ the ~~period~~second ~~ended~~half ~~April~~of ~~30,~~July 2013, the Company ~~will~~and ~~also~~its beSenior ~~required~~Lender toreached ~~comply~~an ~~with~~agreement anin ~~additional~~principle “whereby the Paydown Event” ~~covenant,~~and ~~pursuant~~all torequirements ~~which~~with respect to the Company’s marketing ~~segment~~division ~~must~~would ~~maintain~~be aremoved ~~minimum~~via ~~level~~an ofamendment to ~~earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), as defined in~~ the credit agreement with the Senior Lender. The Company ~~believes~~and ~~that should~~ its ~~marketing~~Senior ~~division~~Lender ~~continue~~are tocurrently ~~perform~~in ~~consistent~~the ~~with~~process ~~recent~~of ~~operating results,~~ memorializing the ~~Company~~modifications ~~will~~to ~~not have sufficient Adjusted EBITDA be in compliance with this covenant. Accordingly,~~ the Company’s ~~forecasts~~credit itagreement ~~will~~with ~~have a Paydown Event as of April 30, 2013, resulting in a requirement under~~ the ~~current~~Senior ~~terms~~Lender ofbut the ~~notes~~modifications tomust ~~paydown~~also ~~approximately~~be anapproved ~~additional~~by the ~~$1.3~~Company’s ~~million~~multiple onjunior ~~June 30, 2013~~lenders. The Company ishas ~~currently~~initiated indiscussions ~~negotiations~~ with ~~our~~its ~~Senior~~various ~~Lender~~junior tolenders ~~either~~but ~~obtain~~has anot yet ~~waiver~~reached ora tosettlement ~~amend~~and ~~the provisions related to this Paydown Event; however,~~ there can be no assurance that the Company will be ~~successful~~able ~~with respect~~ to ~~these~~successfully ~~negotiations. The~~negotiate ~~failure to obtain such~~ a ~~waiver~~settlement orthat will ~~amendment~~be ~~would~~satisfactory ~~entitle the Senior Lender~~ to ~~declare~~both ~~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~~Lenders toand ~~exercise its remedies under~~ the ~~notes,~~various ~~including~~junior ~~foreclosing upon the collateral securing the notes~~lenders. ~~Any~~If ~~failure to obtain a waiver or amendment of this Paydown Event could inhibit~~ the Company’s ~~ability~~is tounsuccessful ~~continue~~in ascompleting anegotiations with ~~going~~its ~~concern~~junior ~~and~~lenders, it 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~~previous ~~above~~table. 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. 2025% of shares vest on the six month anniversary of the date of grant, the Initial Vesting Date, while the remaining options vest annually in 25% increments beginning on the first anniversary of the ~~grant~~Initial Vesting Date. The options expire 105 years from the grant date.

The Company issued ~~30,000~~no stock options pursuant to this plan during the ~~nine~~three ~~month~~months ~~period~~ ended ~~January~~July 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~~three ~~month~~months ~~period~~ ended ~~January~~July 31, 2013.

- 9 -

CornerWorld Corporation

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

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

	January 31, 2013
	July 31, 2013
		Shares Reserved for Grant	Awards Available for Grant
Incentive Stock Plan		4,000,000	2,~~290~~680,000
Stock Compensation Plan		4,000,000	3,~~075~~825,000
		8,000,000	56,~~365~~505,000

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
	For the three month periods ended July 31,
	~~2013~~	2013	~~2012~~	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~~	%

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


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

Outstanding at May 1, 2013		2,245,000		$	0.38		1.49	$	—
Issued		—			—		—		—
Cancelled/forfeited		(750,000	)		0.60
Exercised		—			—
Outstanding at July 31, 2013		1,495,000		$	0.26		1.80	$	—
Options vested and expected to vest		1,495,000		$	0.26		1.80	$	—
Options exercisable at end of period		1,167,500		$	0.26		1.48	$	—

As of July 31, 2013 and 2012, the Company recognized $7,135 and $41,509 of stock-based compensation expense, respectively. As of July 31, 2013 there was $41,425 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 1.80 weighted average years.

- 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 July 31, 2013	Marketing Services		Communications Services		Corporate			Consolidated
Three Months Ended January 31, 2013
Revenue	$	268,274	$	1,263,962	$	—		$	1,532,236
Revenue	$	387,643	$	1,292,851	$	—		$	1,680,494
Income (loss) from continuing operations before tax		91,746		288,295		(495,486	)		(115,445	)
Income (loss) from continuing operations before tax		185,390		257,682		(566,480	)		(123,408	)
Net (loss) income		91,746		288,295		(495,486	)		(115,445	)
Net (loss) income		185,390		257,682		(566,480	)		(123,408	)
Total assets		103,557		7,760,590		26,319			7,890,466
Total assets		287,081		8,231,313		673,727			9,192,121
Intangibles		—		4,024,385		—			4,024,385
Intangibles		—		4,803,299		—			4,803,299
Goodwill		—		1,581,850		—			1,581,850
Goodwill		—		1,581,850		554,986			2,136,836
Depreciation and amortization		2,808		396,751		7,466			407,025
Depreciation and amortization		1,545		396,752		11,061			409,358

	Marketing Services			Communications Services		Corporate Overhead			Consolidated
Three Months Ended July 31, 2012	Marketing Services			Communications Services		Corporate			Consolidated
Three Months Ended January 31, 2012
Revenue	$	665,794		$	1,509,273	$	—		$	2,175,067
Revenue	$	934,868		$	1,357,896	$	—		$	2,292,764
Income (loss) from continuing operations before tax		163,135			483,740		(801,574	)		(154,699	)
Income (loss) from continuing operations before tax		(86,768	)		241,557		(798,295	)		(643,506	)
Net (loss) income		163,135			483,740		(801,574	)		(154,699	)
Net (loss) income		(86,768	)		241,557		(798,295	)		(643,506	)
Total assets		397,371			8,453,534		713,164			9,564,069
Total assets		721,202			9,481,444		744,329			10,946,975
Intangibles		—			5,582,213		—			5,582,213
Intangibles		—			6,361,127		—			6,361,127
Goodwill		—			1,581,850		554,986			2,136,836
Depreciation and amortization		1,~~545~~546			~~475~~396,~~250~~751		12,~~368~~455			~~489~~410,~~163~~752

	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.

-8. 12Related -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 $34,863 on these facilities during the three month periods ended July 31, 2012. On October 31, 2012, the Company settled the Tier 4 Junior Notes in their entirety via the conversion to shares of the Company’s common stock. The outstanding principal balances on the notes themselves, as well as any outstanding accrued interest, were converted at the rate of $0.15/share. Accordingly, the Tier 4 Junior Notes had no outstanding balances at July 31, 2013.

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 parents 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 $14,070 and $13,491 on this facility during the three month periods ended July 31, 2013 and 2012, respectively. The balance of this note totaled $527,915 at July 31, 2013.

- 11 -

CornerWorld Corporation

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

8On March 30, 2011, the Company entered into a subordinated $1.5 ~~Related~~million ~~Party~~promissory ~~Transactions~~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 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. The Company recorded approximately $43,533 and $37,808 in interest on this facility, during the three month periods ended July 31, 2013 and 2012, respectively. The balance of this note totaled $1,500,000 at July 31, 2013.

On ~~August~~March 2730, ~~2008~~2011, the Company entered into a subordinated $400,000 promissory ~~notes~~note (~~collectively~~ the “Tier 45 Junior ~~Notes~~Note”) ~~totaling $1,500,000~~ with Internet University~~, Inc~~., Interest ~~Marc~~on ~~Blumberg~~the ~~and~~outstanding ~~Marc~~principal ~~Pickren.~~amount ~~Mr.~~under ~~Blumberg~~the isTier a5 ~~member~~Junior ofNote is payable at the Company’s ~~Board~~discretion at a rate of ~~Director~~10% asper ~~well~~annum. As asadditional ~~the~~consideration ~~president~~to ofinduce Internet University, ~~Inc.~~to ~~and~~enter ~~Mr.~~into ~~Pickren~~the isTier ~~the~~5 ~~President~~Junior ofNote, the Company. issued to Internet University, 12,910,435 shares of CornerWorld Corporation Common stock. The Company recorded interest of $691,~~726~~159 and $~~127~~7,~~983~~142 on this facility during the ~~nine~~three month periods ended ~~January~~July 31, 2013 and 2012, respectively. The ~~On October 31, 2012, the Company converted the~~ balance of ~~these~~this ~~notes~~note ~~totaling~~totaled $110,~~364,199~~000 ~~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 aJuly 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 $131,~~455,150.~~ ~~The conversion price was determined based on negotiation between the Company and the holders of the Tier 4 Junior Notes~~2013.

On ~~February~~March 2330, ~~2009~~2011, the Company entered into a subordinated $389,942 promissory note (the “Tier 37 Junior Note”) ~~totaling $1,900,000~~ with IUScott ~~Investments~~N. Beck, ~~LLC~~the ~~(“IUI”).~~Company’s ~~IUI~~Chief isExecutive anOfficer. Interest ~~entity~~on ~~owned~~the byoutstanding ~~the~~principal ~~family~~amount ofunder the ~~Company’s~~Tier ~~Chief~~7 ~~Executive~~Junior ~~Officer. Interest~~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 $409,~~473~~837 and $418,~~875~~544 on this facility during the ~~nine~~three month periods ended ~~January~~July 31, 2013 and 2012, respectively. The balance of this note totaled $~~527~~338,~~915~~958 at ~~January~~July 31, 2013.

OnThe ~~March 30, 2011, the~~ Company ~~entered~~is ~~into~~party to a ~~subordinated~~lease ~~$1.5~~agreement ~~million promissory note (the “Tier 2 Junior Note”)~~ with IU13101 ~~Holdings~~Preston Road, LP ~~(“IUH”)~~. ~~Interest~~pursuant onto ~~the~~which ~~outstanding~~it ~~principal~~leases ~~amount~~office ~~under~~space ~~the~~for ~~Tier~~its 2corporate ~~Junior Note is payable at the Company’s discretion at a rate of 10% per annum~~headquarters. AsThe ~~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~~of ~~the~~13101 ~~family~~Preston ofRoad, ~~the~~LP ~~Company’s~~are ~~Chief~~trusts ~~Executive~~created ~~Officer. Steve~~by ~~Toback,~~ the ~~uncle~~father 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~~paid ~~approximately~~ $~~113~~7,~~425~~500 and $~~123~~38,~~534~~472 in ~~interest~~rent ~~on this facility,~~ during the ~~nine~~three month periods ended ~~January~~July 31, 2013 and 2012, respectively. ~~The balance of this note totaled $1,500,000 at January 31, 2013.~~

OnIn ~~March 30~~addition, ~~2011,~~ the Company ~~entered~~provides ~~into a subordinated $400~~accounting,~~000~~ ~~promissory~~human ~~note~~resources ~~(the~~and ~~“Tier~~certain 5IT ~~Junior~~services ~~Note”)~~to ~~with~~an ~~Internet~~entity ~~University. Interest~~controlled onby the ~~outstanding~~family ~~principal~~of ~~amount under~~ the ~~Tier 5 Junior Note is payable at the~~ Company’s ~~discretion~~Chief atExecutive aOfficer ~~rate~~for ~~of 10% per annum. As additional consideration to induce Internet University to enter into the Tier~~ $5 ~~Junior Note~~,000 ~~the~~per ~~Company issued to Internet University, 12,910,435 shares of CornerWorld Corporation Common stock~~month. The Company ~~recorded~~received ~~interest of~~ $1615,~~412~~000 ~~and~~from ~~$29,630 on~~ this ~~facility~~entity during the ~~six~~three month periods ended ~~January~~July 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.

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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 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 1114 million calls per year from wireless customers and seamlessly connecting them to their service provider.

~~Nine~~Three Months ended ~~January~~July 31, 2013 Highlights:

· We ~~paid~~reached ~~down~~an ~~$1,105,000~~agreement in ~~principal~~principle onwith our ~~outstanding~~Senior ~~debt.~~Lender ·whereby Wethe ~~converted~~Paydown ~~$1,364,199~~Event inand ~~principal~~all onrequirements ~~our~~with ~~outstanding~~respect ~~debt~~to asthe ~~well~~Company’s asmarketing ~~$100,716~~division ofwould ~~accrued~~be ~~interest~~removed tovia ~~equity~~an ~~via~~amendment to the ~~issuance~~credit ofagreement ~~common~~and ~~shares~~the atCompany’s default to the ~~rate~~Senior ofLender ~~$0.15/share.~~would ·be ~~After~~waived. ~~removal~~However, ofthe ~~non-cash~~agreement ~~amortization~~is ofpredicated ~~loan~~on ~~discounts~~agreeing ~~(interest~~to ~~expense)~~settlements ~~totaling~~with ~~$402,581,~~the ~~bad~~Company’s ~~debt~~various ~~expense~~junior ~~totaling~~lenders ~~$152,291,~~which ~~depreciation~~has &not ~~amortization~~yet ~~and~~occurred. ~~stock-based~~The ~~compensation~~Company ~~expense~~is ~~totaling~~currently ~~$1,231,154~~in ~~and~~discussions ~~$124,524~~with ~~respectively,~~its ~~the~~junior ~~Company’s~~lenders ~~pro-forma~~but ~~profit~~has ~~for~~not ~~the~~arrived ~~nine~~at ~~months~~an ~~ended~~agreement ~~January~~with ~~31,~~them. ~~2013~~· ~~would~~The ~~have~~Company’s ~~totaled~~revenues ~~approximately~~in ~~$1,527,396.~~both ~~See~~operating ~~the~~segments ~~table~~have ~~that~~been ~~follows~~adversely ~~for~~impacted ~~more~~by ~~details~~industry forces. The ~~Company~~marketing ~~expects~~services division continues to ~~continue~~be ~~generating~~adversely ~~positive~~affected ~~operating~~by ~~cash~~the ~~flows~~deterioration ~~for~~in the ~~fiscal~~for-profit ~~year~~educational ~~ending~~lead ~~April~~generation ~~30,~~space ~~2013.~~while ·simultaneously Asexperiencing ~~noted~~significant ongoing challenges and customer churn in our ~~annual~~search ~~report~~engine onoptimization ~~Form~~and ~~10-K~~website ~~for~~leasing businesses. In addition, the ~~year~~Company’s ~~ended~~communication ~~April~~services ~~30,~~division ~~2012,~~has ~~during~~experienced a drop in revenues due to the ~~quarter~~continued ~~ended~~buildout ~~October~~of ~~31,~~its ~~2011,~~customer’s wenetworks. ~~lost~~The aCompany ~~significant~~cannot ~~enterprise~~be ~~client~~certain inhow ~~our~~much ~~marketing~~further ~~services~~its ~~division.~~telecommunications Weservice ~~billed~~revenues oncould ~~average~~deteriorate inas ~~excess~~a result of ~~$110,000/month~~this tocontinued ~~this~~buildout. ~~client~~· ~~which,~~After atremoval ~~the~~of ~~time~~non-cash amortization of ~~their~~loan ~~departure~~discounts (interest expense) totaling $87,920, ~~represented~~bad ~~approximately~~debt ~~27%~~expense oftotaling ~~our~~$29,633, ~~marketing~~depreciation ~~services~~& ~~division’s~~amortization ~~revenue.~~and ~~This~~stock-based ~~loss~~compensation ~~was~~expense ~~due~~totaling to$407,025 and $7,135, respectively, the ~~client~~Company’s ~~discontinuing~~pro-forma profit for the ~~outsourcing~~three ofmonths ~~its~~ended ~~lead~~July ~~generation~~31, ~~campaigns~~2013 ~~resulting~~would ~~from~~have ~~significant~~totaled ~~decreases~~approximately in$416,268. ~~federal~~See ~~funding~~the oftable that follows for~~-profit~~ ~~educational~~more ~~institutions~~details.

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
	For the three month period ended July 31, 2013			Per share data
Net loss	$	(~~383~~115,~~154~~445	)	$	(0.00	)
Non-cash charges:
Amortization of loan discounts (interest)		~~402~~87,~~581~~920			0.00
Bad debt expense		~~152~~29,~~291~~633			0.00
Stock-based compensation		~~124~~7,~~524~~135			0.00
Depreciation and amortization		1407,~~231,154~~025			0.0100
Total non-cash charges		1531,~~910,550~~713			0.0100
Pro-forma net income	$	1416,~~527,396~~268		$	0.0100
Weighted average common shares outstanding:
Basic and diluted		~~150~~157,~~802~~313,~~973~~704			~~150~~157,~~802~~313,~~973~~704

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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

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Revenue Recognition

It is the Company’s policy that revenue from product sales or services will be recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

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

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Results of Operations

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

Consolidated CornerWorld Corporation

Revenues and Gross profit:

We had revenues totaling $1,~~680~~532,~~494~~236 for the three month period ended ~~January~~July 31, 2013 as compared to $2,~~292~~175,~~764~~ 067 for the three month period ended ~~January~~July 31, 2012. The decrease of $~~612~~642,~~270~~831, or 2629.76%, 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~~15 ~~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~~Similarly, ~~General~~gross ~~and~~profit ~~Administrative~~decreased ~~Expenses:~~8.8% for the three months ended July 31, 2013 to $1,270,303 from $1,750,091 for the three month period ended July 31, 2012 which was consistent with the revenue decrease.

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~~407,~~358~~025 for the three month period ended ~~January~~July 31, 2013 as compared to $~~489~~410,~~163~~752 for the three month period ended ~~January~~July 31, 2012. The decrease of $793,~~805~~727 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~~115,~~408~~445 for the three months ended ~~January~~July 31, 2013 as compared to a net loss of $~~643~~154,~~506~~699 for the corresponding period in the prior year. The improvement of $~~520~~39,~~098~~254 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~~268,~~673~~274 for the three month period ended ~~January~~July 31, 2013 as compared to $~~934~~666,~~868~~794 for the three month period ended ~~January~~July 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 $12,~~545~~808 for the three month period ended ~~January~~July 31, 2013 as compared to $1,~~545~~546 for the three month period ended ~~January~~July 31, 2012. ~~There~~The ~~were~~increase nowas ~~changes~~ due to the ~~fact~~acquisition ~~that~~of ~~our~~a ~~marketing~~new ~~services segment does not require substantial continuing fixed asset investment~~computer.

Income from Continuing Operations Before Taxes and Net Income:

Income from continuing operations before taxes and net income totaled $~~185~~91,~~390~~746 for the three months ended ~~January~~July 31, 2013 as compared to ~~a loss~~ $86163,~~768~~135 for the corresponding period in the prior year. The ~~increase~~decrease is ~~primarily~~ due to ~~reallocation~~the ofdeterioration ~~certain~~in ~~functions~~the tofor-profit ~~corporate~~educational lead generation space and significant ~~cost~~ongoing ~~savings~~challenges ~~measures~~and ~~corresponding~~customer tochurn ~~the~~in ~~decreases~~our insearch ~~revenues~~engine optimization and website leasing businesses.

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Communications services

Our communications services segment consists of our Woodland division.

Revenues:

Our communications services segment had revenues totaling $1,~~292~~263,~~851for~~962 for the three month period ended ~~January~~ July 31, 2013 as compared to $1,~~357~~508,~~896~~273 for the three month period ended ~~January~~July 31, 2012. This decrease is ~~primarily~~ due to ~~the~~a reduction of roaming traffic at our largest customer and decreases in roaming 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~~751 for the three month ~~period~~periods ended ~~January~~July 31, 2013 asand ~~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~~312,~~682~~361 for the three months ended ~~January~~July 31, 2013 as compared to a net income of $~~241~~483,~~557~~740 for the corresponding period in the prior year. The ~~increase~~decrease of $16171,~~125~~319 is primarily due to the ~~aforementioned~~reduction ~~decreases~~of inroaming ~~depreciation~~traffic ~~expenses~~ and ~~decreases~~call involumes ~~interest~~resulting ~~expenses~~from asthe ~~a result of our~~ continued ~~paydown~~buildout of ~~debt. These~~nationwide ~~expense~~mobile ~~decreases~~carrier ~~were offset, to some extent, by decreases in revenues and gross profit as well as slight increases in selling, general and administrative expenses~~networks.

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Corporate

Depreciation and Amortization:

Our corporate segment had depreciation expenses totaling $117,~~061~~466 for the three month period ended ~~January~~July 31, 2013 as compared to $12,~~368~~455 for the three month period ended ~~January~~July 31, 2012. The ~~slight~~ decrease of $14,~~307~~989 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~~495,~~480~~486 for the three months ended ~~January~~July 31, 2013 as compared to a net loss of $~~798~~801,~~295~~571 for the corresponding period in the prior year. The ~~decrease~~improvement of $~~231~~303,~~815~~088 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~~141,~~412~~404 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.

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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.

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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~~July 31, 2013, we ~~have~~had a working capital deficit of approximately $25.36 million and cash of $1,~~379~~340,~~303~~888. Our working capital deficit is primarily related to certain large accounts payable associated with our 2009 ~~acquisition of~~ Woodland ~~Holdings~~Acquisition 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.

AsThe ~~previously noted, the~~ notes payable to ~~our~~Emerald Crest Capital (the “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~~ Effective April 30, 2013, the ~~date~~Company ofwas ~~this~~required ~~filing~~to comply with an additional “Paydown Event” covenant, pursuant to which the Company’s ~~has~~marketing ~~been~~segment inwas ~~compliance~~required ~~with~~to ~~all~~maintain ~~such~~a ~~covenants~~minimum level of earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), as ofdefined ~~January~~in 31the credit agreement with the Company’s Senior Lender. Prior to April 30, 2013, the Company ~~believes~~received written notice from its Senior Lender that it iswould inbe ~~compliance~~calling ~~with~~an ~~all~~event ~~other~~of ~~restrictive~~default ~~covenants~~on ~~with~~April ~~respect~~30, to2013. As a result of the ~~notes~~Senior ~~payable~~Lender’s notice, the Company believed that, pursuant to the Credit Agreement with the Senior Lender, the Company was precluded from paying any principal or interest to any junior creditors.

~~Effective~~As ~~for~~of ~~the period ended~~ April 30, 2013, the Company ~~will~~did ~~also~~not behave ~~required~~sufficient 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~~”),~~ asto ~~defined~~be in ~~the~~compliance ~~credit agreement~~ with the ~~Senior~~minimum EBITDA ~~Lender. The~~covenant ~~Company~~for ~~believes~~the ~~that should its~~ marketing division ~~continue~~and ~~to perform consistent with recent operating results,~~ the Company ~~will~~did not have sufficient ~~Adjusted~~cash ~~EBITDA~~reserves to becompletely inmake ~~compliance with this covenant. Accordingly,~~ the ~~Company forecasts it will have a~~ anticipated Paydown Event asto ~~of April 30, 2013, resulting in a requirement under~~ the ~~current~~Senior ~~terms of the notes to paydown approximately an additional $1~~Lenders.~~3 million on June 30~~ Accordingly, ~~2013.~~the ~~The~~ Company isstopped ~~currently~~paying inall ~~negotiations~~Junior ~~with~~Creditors ~~our~~and ~~Senior~~received ~~Lender to either obtain~~ a ~~waiver~~notice orof default tofrom ~~amend~~two ~~the~~junior ~~provisions~~creditors, ~~related~~Ned toTimmer ~~this~~and ~~Paydown~~IU ~~Event;~~Holdings, ~~however~~LP, ~~there~~shortly ~~can be no assurance that the Company will be successful with respect to these negotiations~~thereafter. The ~~failure~~Company tohas ~~obtain~~paid ~~such~~neither aprincipal nor ~~waiver~~interest ~~or amendment would entitle the Senior Lender~~ to ~~declare~~any ansecured ~~Event~~creditor ofsince ~~Default~~April ~~under the Notes~~1, ~~which~~ ~~could~~2013 ~~lead~~and tois ancurrently ~~acceleration~~in ofdefault ~~all~~to ~~other~~its ~~amounts payable under the Notes. This would entitle the~~ Senior Lender toand ~~exercise~~all its ~~remedies~~junior ~~under the notes, including foreclosing upon the collateral securing the notes~~lenders. The ~~Any~~Senior ~~failure~~Lender tohas ~~obtain~~not ayet ~~waiver~~exercised orany ~~amendment~~remedies ofwith ~~this~~respect ~~Paydown Event could inhibit the Company’s ability~~ to ~~continue~~their ~~as a going concern and would result in a material adverse effect on the Company~~collateral.

WeIn ~~are~~the ~~currently~~second ~~investigating~~half ~~other~~of ~~financial~~July ~~alternatives~~2013, ~~including~~the ~~additional~~Company ~~equity~~ and~~/or~~ ~~debt~~its ~~financing,~~Senior ~~including,~~Lender ~~but~~reached ~~not~~an ~~limited~~agreement ~~to,~~in ~~refinancing~~principle ~~all~~whereby the ofPaydown ~~our~~Event ~~notes~~and ~~payable~~all requirements with ~~our~~respect ~~Senior~~to ~~Lender.~~the InCompany’s ~~order~~marketing ~~to obtain capital~~division, weincluding ~~may~~the ~~need~~Paydown toEvent, ~~sell~~would be ~~additional~~removed ~~shares~~via ofan ~~our~~amendment ~~common~~to ~~stock~~the orcredit ~~borrow~~agreement ~~funds~~with ~~from~~the ~~private~~Senior ~~lenders~~Lender. In ~~However~~addition, ~~there~~the ~~can~~Senior beLender noagreed ~~assurance~~in ~~that~~principle to ~~any~~waive ~~additional~~the ~~financing~~default ~~will~~related ~~become~~to ~~available~~the toPaydown usEvent, modify the Company’s interest rate and ifadjust ~~available~~the Company’s amortization schedule, ~~that~~among ~~such~~other ~~financing~~things. The ~~will~~Company beand onits ~~terms~~Senior ~~acceptable~~Lender toare ~~us. Based~~currently onin ~~our~~the ~~current~~process ~~cash~~of ~~balances,~~memorializing wethe ~~expect~~modifications to wethe ~~will~~Company’s ~~need~~credit ~~approximately~~agreement ~~$1.3~~with ~~million~~the inSenior ~~additional~~Lender ~~cash~~but, byas ~~June~~a 30condition precedent, ~~2013~~the ~~should~~Company’s wemultiple bejunior lenders ~~unsuccessful~~must inalso ~~negotiating~~agree ato ~~waiver~~settlements ofas ~~the~~well ~~Paydown~~which ~~Event~~has ~~with~~not ~~our~~yet ~~Senior~~taken ~~Lender~~place. Assuming we are successful in completing the proposed amendment with the Senior Lender, negotiating asettlements ~~waiver~~with our junior lenders and our operations remain consistent with their historical levels, all of which are subject to significant uncertainty, we anticipate we will have adequate cash to support our existing operations over the next twelve months. However, there can be no assurance that we will consummate the proposed amendment with the Senior Lender or the junior lenders or that our operations will remain consistent. Should we be unsuccessful in executing the proposed amendments, the Senior Lender could move to seize the underlying collateral which would have a material adverse effect on the Company.

WeOur ~~had substantially no~~ investing activity for the ~~nine~~three ~~month~~months ~~period~~ ended ~~January~~July 31, 2013, consisted primarily of $1,860 of capital expenditures, primarily associated with the leasing of a certain piece of equipment pursuant to a capital lease.

-Our 20financing -activities for the three months ended July 31, 2013 included interest of $162 related to the financing of the equipment pursuant to the aforementioned capital lease. The Company made no payments of principal or interest to the Senior Lenders or any junior lender during the three months ended July 31, 2013.

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We have no other bank financing or other external sources of liquidity. We source all of our liquidity through our operations and this was our second consecutive year where the Company’s operations generated positive operating cash flow. We expect that trend to continue assuming the debt modifications noted above.

As previously noted, the Company’s revenues in both operating segments have been adversely impacted by industry forces. The marketing services division continues to be adversely affected by the deterioration in the for-profit educational lead generation space while simultaneously experiencing significant ongoing challenges and customer churn in our search engine optimization and website leasing businesses. In addition, the Company’s communication services division has experienced an approximately 26% drop in revenues from its largest customer due to continued buildout of the customer’s network. The Company cannot be certain how much further its telecommunications service revenues could deteriorate as a result of this continued buildout.

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~~July 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 hired a chief financial officer and 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.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other information

None.

Item 6. Exhibits

The following exhibits are filed as part of this report:


Exhibit Numbers	Description	Method of Filing

31.1	Rule 13a-14(a) Certification by our chief executive officer	(1)
31.2	Rule 13a-14(a) Certification by our chief financial officer	(1)
32.1	Section 1350 Certification by our chief executive officer	(2)
32.2	Section 1350 Certification by our chief financial officer	(2)
101	Interactive Data Files of Financial Statements and Notes.	(3)

__________


(1)	Filed herewith.
(2)	Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act.
(3)	Furnished (and not filed) herewith pursuant to Regulation S-T under the Exchange Act.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CORNERWORLD CORPORATION
	Registrant
March 25, 2013	/s/ V. Chase McCrea III
September 18, 2013	/s/ V. Chase McCrea III
	V. Chase McCrea III
	Chief Financial Officer

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