0001264931-13-000223.txt : 20130415 0001264931-13-000223.hdr.sgml : 20130415 20130415153046 ACCESSION NUMBER: 0001264931-13-000223 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20121231 FILED AS OF DATE: 20130415 DATE AS OF CHANGE: 20130415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLDS INC CENTRAL INDEX KEY: 0000001961 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 221848316 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24115 FILM NUMBER: 13761241 BUSINESS ADDRESS: STREET 1: 11 ROYAL ROAD CITY: BROOKLINE STATE: MA ZIP: 02445 BUSINESS PHONE: 617-725-8900 MAIL ADDRESS: STREET 1: 11 ROYAL ROAD CITY: BROOKLINE STATE: MA ZIP: 02445 FORMER COMPANY: FORMER CONFORMED NAME: Worlds.com, Inc. DATE OF NAME CHANGE: 20080521 FORMER COMPANY: FORMER CONFORMED NAME: WORLDS COM INC DATE OF NAME CHANGE: 20000519 FORMER COMPANY: FORMER CONFORMED NAME: WORLDS INC DATE OF NAME CHANGE: 19980213 10-K 1 worldsinc10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

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

For the transition period from to

Commission File Number: 0-24115

WORLDS INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		22-1848316
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

11 Royal Road, Brookline, MA 02445

(Address of Principal Executive Offices)

(617) 725-8900

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name Of Each Exchange

On Which Registered

None

Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No S

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No S

Indicate by check mark whether the registrant (1) has 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 S No o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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. (check one):

¨ Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer S Smaller reporting company

(Do not check if a smaller reporting company)

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked closing price of such common equity, as of June 30, 2012 (closing price was $0.10) was approximately $7,680,034.

As of April 8, 2013, 83,938,071 shares of the Issuer's Common Stock were outstanding.

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Table of Contents

TABLE OF CONTENTS

	Part I	Page #
Item 1	Business	4
Item 1A	Risk Factors	5
Item 1B	Unresolved Staff Comments	N/A
Item 2	Properties	7
Item 3	Legal Proceedings	7
Item 4	Mine Safety Disclosures	N/A

	Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
Item 6	Selected Financial Data	8
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	N/A
Item 8	Financial Statements	22
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	22
Item 9A	Controls and Procedures	22
Item 9B	Other Information	22

	Part III
Item 10	Directors, Executive Officers and Corporate Governance	23
Item 11	Executive Compensation	24
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	25
Item 13	Certain Relationships and Related Transactions, and Director Independence	25
Item 14	Principal Accountant Fees and Services	25-26
Item 15	Exhibits	27

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties and our actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "believe," and similar language, including those set forth in the discussion under "Description of Business," "Risk Factors" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-K. We base our forward-looking statements on information currently available to us, and we believe that the assumption and expectations reflected in such forward-looking statements are reasonable, and we assume no obligation to update them. Statements contained in this Form 10-K that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

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Table of Contents

PART I

ITEM 1. BUSINESS.

General

On May 16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against alleged infringers. The Company also entered into a License Agreement with Worlds Online Inc. to sublicense its patented technologies.

Before the spin-off, Worlds was a leading 3D entertainment portal which leveraged its proprietary technology, which we retained through our patent portfolio, to offer visitors a network of virtual, multi-user environments which we call "worlds". These worlds are visually engaging online environments featuring animation, motion and content where people can come together and, by navigating through the website, shop, interact with others, attend events and be entertained. In support of this portal and the overall business strategy, we design and develop software, content and related technology for the creation of interactive, three-dimensional ("3D") Internet web sites. Using our technology, we created our own Internet sites, as well as sites available through third-party online service providers.

Sites using our technology allow numerous, simultaneous visitors to enter, navigate and share interactive "worlds". Our 3D Internet sites are designed to promote frequent, repeat and prolonged visitation by users by providing them with unique online communities featuring dynamic graphics, highly useful and entertaining information content, and interactive capabilities. We believe that sites are highly attractive to advertisers because they offer access to demographic-specific user bases comprised of people that visit the site frequently and stay for relatively long periods of time.

Recent developments

On March 31, 2011, it was announced that our board had determined it would be in the best interest of our shareholders to transfer all of our online and operational technologies to our subsidiary, Worlds Online Inc. The assets were transfered as of May 16, 2011 and included: Worlds’ technology platform, Worlds Ultimate Chat, Aerosmith World, DMC Worlds, Cinema Virtual, Pearson contracts and related revenue, URLs: Worlds.com, Cybersexworld.com, Hang.com, and Worldsfunds.com, a digital inventory of over 10,000 3D objects, animation sequences, an extensive avatar library, texture maps and virtual world architectures.

In November and December of 2012, the Company completed a private placement of 3,075,000 shares of common stock at a price per share of $0.10 for aggregate proceeds of $307,500. $97,500 of the total was received in January 2013. The sixteen investors also received an aggregate of 1,537,500 warrants as part of the equity investment exercisable at $0.15 per share.

Worlds Inc. has retained all of its related Intellectual Property (IP) consisting of the seven existing patents, 6,219,045; 7,181,690; 7,493,558; 7,945,856; 8,082,501; 8,145,998 and 8,161,385 and all continuance claims currently before the USPTO including any to be filed going forward.

We intend to endeavor to prosecute our issued patents and any future issued patents against all parties that the company and our legal counsel believe to be infringing on said patents.

Enforcement actions are subject to the analysis of all relevant prior art and the costs associated with litigation.

We may also seek to acquire additional patents we believe will enhance our portfolio position in the markets within which our existing patents cover.

There can be no assurance that we will be successful in our ability to prosecute our IP portfolio or that we will be able to acquire additional patents.

As of December 31, 2012, we own an approximately 19.7% equity interest in Worlds Online.

On February 7, 2011 we changed our domicile from New Jersey to Delaware, changed our name to Worlds Inc., increased our authorized common stock to 100 million shares and added 5 million shares.

We used our proprietary technology to produce three-dimensional portals and web sites. We believe that our core technology delivers a considerably faster frame rate for user experiences and, in some cases, a meaningful productivity increase in art production and integration over its previous generation production tools. Our technology permits the development of virtual worlds which have broad applications. These applications include but are not limited to:

o a virtual meeting place (such as a fan club);

o a 3D e-commerce store (where merchandise can be viewed in 3D and purchased online); and

o a virtual classroom (where content can be viewed via video streaming and then discussed in real time).

Our core technology has substantial elements written in Sun Microsystem's programming language, Java, including WorldsBrowser and WorldsShaper, so we expect that it can be made portable across Windows and UNIX Platforms because of Java's platform independence.

Our core technology includes:

WorldsShaper: WorldsShaper is the visual authoring component of our platform. It allows for quick assembly of pieces to create multi-user, shared state, virtual worlds. The WorldsShaper is an advanced compositing 3D building tool that integrates pre-existing or custom content, such as 3D models, textures or images created in Adobe's Photoshop, or midi or wave sound files, with architectural geometry and interactive behaviors and actions written in Java. The architectural building blocks for creating 3D worlds, the flexibility and power of integrating professional modeling and imaging tools, and the extensibility via Java make the WorldsShaper a tool well-suited for rapid creation of 3D environments.

WorldsServer: WorldsServer is the scalable software that we use to control and operate our on-line virtual communities. WorldsServer manages the registration and authentication of users, the locations of users within the 3D environment, the physical structure of the 3D environment, all information regarding objects that are "shared" by the participants and any of the interactions between the users such as text chat. This platform also integrates an HTTP server for the delivery of other content such as audio and video streaming and secure e-commerce applications.

o	WorldsBrowser: WorldsBrowser is used to access the 3D environments. The browser is optimized for speed, delivering relatively fast frame rates per second in highly textured virtual 3D worlds.

WorldsPlayer™: The WorldsPlayer allows users to view and experience our multi-user, interactive technology. Any world created with the WorldsShaper will be viewable and navigable with the WorldsPlayer. The WorldsPlayer has a high frame rate for fast, quality graphics, an easy-to-use graphic user interface, 2D web browser integration, automatic upgrade capability over the internet and a complete communication tool set including text chat, voice-to-voice chat, e-mail and animation.

o	Worlds Gamma Libraries: The Worlds Gamma Libraries are composed of sample worlds, textures, models, avatars, actions, sensors, sounds, motion sequences, and other behaviors.

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Our Strategy

Worlds Inc. will be focused solely on expanding our patent portfolio and to enforce our rights where it believes parties are infringing on its IP portfolio.

We have contracted to Worlds Online Inc. a perpetual world-wide license to our patented technology. Pursuant to the license, Worlds Online has the right to issue unlimited sublicenses to the licensed technology, subject to our reasonable consent. The sublicenses are subject to a revenue share negotiated between the two Companies.

Competition

Since all operations were transferred to Worlds Online and our business is now the expansion of our patented technology, the Company does not have any direct competition as it did in the past. However, inasmuch as we believe that multi-user, interactive 3D is becoming a “hot” area, we expect other companies, many with far more resources than us, to move into this space.

Currently, there are many companies collaborating to establish standardization of 3D usage on the Internet, the adoption of which may require changes to our technology.

Intellectual Property

U.S. Patents: Worlds has been granted U.S patent 6,219,045, 7,181,690, 7,493,558, 7,945,856, 8,082,501, 8,145,998 and 8,161,385 for multi-server technology for 3D applications, which is our core technology. We are now looking into the implications and breadth of the patent in order to maximize its benefits. The description of the initial patent is as follows:

"The present invention provides a highly scalable architecture for a three dimensional, multi-user, interactive virtual world system. In a preferred embodiment a plurality of users interact in the three-dimensional, computer-generated graphical space where each user executes a client process to view a virtual world from the perspective of that user. The virtual world shows Avatars representing the other users who are neighbors of the user viewing the virtual world. In order that the view can be updated to reflect the motion of the remote user's Avatar, motion information is transmitted to a central server process that provides position updates to client processes for neighbors of the user at that client process. The client process also uses an environment database to determine which background objects to render as well as to limit the number of displayable Avatars to a maximum number of Avatars displayable by that client."

Trademark: Worldsplayer - The WorldsPlayer is especially designed to allow users to view and experience the multi-user, interactive Worlds Gamma technology. Any world created with the WorldsShaper will be viewable and navigable with WorldsPlayer. Utilizing the WorldsPlayer, a user assumes a persona (via a digital actor, or Avatars), and can then move, view, chat, play, express one's self via gestures and animations, voice chat, send email, join discussion groups, listen to music, shop at Worlds 3D stores, and watch videos, all in the company of users from around the world, within the 3D environment. The WorldsPlayer boasts high frame rate for fast, high quality graphics, an easy to use graphic user interface, seamless 2D Web browser integration, auto-upgrade capability over the Internet, and a complete communication tool set including chat, voice-to-voice chat, email and animation. The WorldsPlayer offers users the unique and creative experience of customizing their Avatars, while maintaining the ability to animate and activate their Avatars.

In addition to our patents and trademark, we intend to enter into confidentiality agreements with key employees and consultants to protect our IP and general know-how. We spent $0 on software development in 2012 and $9,200 in 2011.

Employees

As of December 31, 2012, we had one employee, our president, Thomas Kidrin, who divided his time between us and Worlds Online.

Corporate History

We were formed as a result of the contemporaneous mergers on December 3, 1997 of Worlds Inc., a Delaware corporation formed on April 26, 1994 with and into Worlds Acquisition Corp., a Delaware corporation formed on April 8, 1997 and of Worlds Acquisition Corp. with and into Academic Computer Systems, Inc., a New Jersey corporation formed on May 20, 1968 (the "Mergers"). Academic Computer Systems changed its name to Worlds Inc. after the Mergers. In December 1999, we changed our name from Worlds Inc. to Worlds.com Inc. in order to better reflect our business as a consumer Internet web site that offers virtual "worlds" in which consumers interact, conduct e-commerce and receive entertainment.

The Company created a wholly-owned subsidiary named Worlds Online Inc. on January 25, 2011. On May 16, 2011, Worlds Inc. transferred to Worlds Online Inc. the majority of its operations and related operational assets, except for its patent portfolio.

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ITEM 1A. RISK FACTORS

Our business is subject to numerous risks, including but not limited to those set forth below. Our operations and performance could also be subject to risks that do not exist as of the date of this report but emerge thereafter as well as risks that we do not currently deem material.

Risks related to our operations

Our auditors have expressed doubt about our ability to continue as a going concern. If we do not generate substantial revenue from our patent litigation and are also unable to obtain capital from other resources, we will significantly curtail our operations or halt them entirely.

Our capital requirements have been and will continue to be significant. Historically, we have been dependent on financings to fund our development and working capital needs. As of December 31, 2012, we had only limited cash or cash equivalents. Accordingly, if we do not develop sources of revenues from our patent portfolio, we would have to severely diminish our operations or halt them entirely. The opinion of our auditors contains an explanatory paragraph regarding our ability to continue as a going concern.

We have experienced relatively large losses during our development and, without significant increases in the market penetration of our services and improvements to our operating margins, we will not achieve profitability.

Since inception,we have incurred significant net losses as set forth in the financial information included elsewhere in this report. We anticipate that we will continue to incur significant losses for at least the short-term. We will not achieve profitable operations until we successfully developed sources of revenues from our patent portfolio or generate revenues from other sources that are sufficient to offset our operating costs. We may never be able to accomplish these objectives.

It will be difficult for you to evaluate us based on our past performance because we have a relatively new business strategy with a limited operating history.

We have been actively engaged in the business of being an IP company for a relatively short period of time and, accordingly, have only limited financial results on which you can evaluate our company and its new operations. We are subject to, and have not been successful in addressing, the risks typically encountered by new enterprises and companies operating in the rapidly evolving Internet marketplace, including those risks relating to:

o the failure to develop brand name recognition and reputation;

o the failure to achieve market acceptance of our services; and

o an inability to grow and adapt our business and technology to evolving consumer demand.

We may not be able to successfully compete in our markets, which are characterized by intense competition and the presence of large competitors and rapidly changing technology.

Given our relatively limited resources, we have not been able to effectively compete in our target markets. These markets are characterized by intense competition, rapidly changing technology and increasing numbers of new market entrants who have developed or are developing potentially competitive products and services, often resulting in product obsolescence or short product life cycles. Our competitors include other enterprises utilizing 3D-based technology for online entertainment and marketing purposes, online and Internet service providers, online shopping malls, online direct music retailers, online music and book sites and traditional music retailers. Most of our competitors have significantly greater financial and operating resources compared to us.

Our limited resources may restrict our ability to manage any growth we may experience.

Growth of our business may place a significant strain on our management systems and resources and may require us to implement new operating and financial systems, procedures and controls. Our failure to manage our growth and expansion could adversely affect our business, results of operations and financial condition. Failure to implement new systems effectively or within a reasonable period of time could adversely affect our business, results of operations and financial condition.

If we are unable to protect our intellectual property rights, competitors may be able to use our technology or trademarks, which could weaken our competitive position.

In addition to our patents, we rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also intend to enter into confidentiality or license agreements with our employees, consultants and customers, and control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Although we have never been involved as a defendant in any intellectual property litigation, we could become a party to litigation as a result of alleged infringement of others' intellectual property. These claims and any resulting lawsuits could subject us to significant liability for damages and invalidation of our proprietary rights.

If we lose any of our key personnel or fail to hire and retain other talented employees, our operations could be harmed.

Our success is currently dependent, in large part, on the personal efforts of Thomas Kidrin, our president and chief executive officer. The loss of Mr. Kidrin's services could have a material adverse effect on our business and prospects. Our success is also dependent upon our ability to hire and retain additional qualified management, marketing, technical, financial, and other personnel, if and when our business grows. Competition for qualified personnel is intense and we may not be able to hire or retain additional qualified personnel. Any inability to attract and retain qualified management and other personnel would have a material adverse effect on our ability to grow our business and operations.

We may not be able to economically comply with any new government regulation that may be adopted with respect to the Internet.

New Internet legislation or regulation, or the application of existing laws and regulations to the Internet and e-commerce could add additional costs and risks to doing business on the Internet. We are subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications over the Internet and access to e-commerce. Although there are currently few laws and regulations directly applicable to e-commerce, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust, taxation and characteristics and quality of products and services.

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Risks related to our common stock

Possible issuances of our capital stock would cause dilution to our existing shareholders.

While we currently have approximately 83,938,071 shares of common stock outstanding, we are authorized to issue up to 100,000,000 shares of common stock. Therefore, we will be able to issue a substantial number of additional shares without obtaining shareholder approval. In the event we elect to issue additional shares of common stock in connection with any financing, acquisition or otherwise, current shareholders could find their holdings substantially diluted, which means they will own a smaller percentage of our company. There are now 5 million shares of blank preferred stock that the board can issue under any terms it wants and without any shareholder approval.

Certain shareholders control a substantial portion of our outstanding common stock.

Our chief executive officer owns a significant portion of the outstanding shares of our common stock and Mr. Kidrin may be issued an additional 7.5 million shares of our common stock upon the exercise of outstanding stock options. Accordingly, he will be able to influence the election of our directors and thereby influence or direct our policies.

No dividends have been paid on our common stock.

To date, we have not paid any cash dividends on our common stock and we do not expect to declare or pay dividends on the common stock in the foreseeable future. In addition, the payment of cash dividends may be limited or prohibited by the terms of any future loan agreements.

We are subject to "penny stock" regulations which may adversely impact the liquidity and price of our common stock.

Our common stock is currently deemed a "penny stock." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information on penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, broker-dealers who sell such securities to persons other than established customers and accredited investors (generally, those persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse), the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.

These requirements could reduce the level of trading activity, if any, in the secondary market for our common stock. As a result of the foregoing, our shareholders may find it more difficult to sell their shares.

The exercise or conversion of outstanding options into common stock will dilute the percentage ownership of our other shareholders. The sale of such common stock or other common stock in the open market could adversely affect the market price of our common stock.

As of March 25, 2013, there are outstanding options and warrants to purchase an aggregate of approximately 11,500,000 shares of our common stock and more options and warrants will likely be granted in the future to our officers, directors, employees and consultants. We have also issued $2.4M of convertible notes that currently convert into 4,535,714 shares along with a similar number of additional warrants. The exercise of outstanding stock options and warrants and conversion of notes will dilute the percentage ownership of our other shareholders. Sales, or the expectation of sales, of a substantial number of shares of our common stock in the public market, including shares of our common stock issuable upon exercise of our stock options, could adversely affect the prevailing market price of our common stock.

ITEM 2. DESCRIPTION OF PROPERTIES.

We do not own any property nor do we have any contracts or options to acquire any property in the future. Presently, we are operating out of offices in our president's residence at 11 Royal Road, Brookline, Massachusetts 02445, where we occupy approximately 800 square feet. This space is adequate for our present and our planned future operations. We currently pay no rent to our president for use of this space, although when funds are available we may do so in the future. In addition we have no written agreement or formal arrangement with our president pertaining to the use of this space. We have no current plans to occupy other or additional office space.

ITEM 3. LEGAL PROCEEDINGS.

In Cosmo Communications v. Worlds Inc. (our former name) in the Superior Court Of New Jersey Law Division, Bergen County, the court rendered a decision in favor of the plaintiff, Cosmo Communications on February 13, 2001. The judgment amount entered in April 2001, is approximately $205,000, of which the full amount is accrued. The judgment related to a consulting agreement for raising capital. The court ruled that the terms of the contract are binding on successors of the company and that Worlds.com is a successor company .

ITEM 4. MINE SAFETY DISCLOSURES.

N/A

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PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock began trading on the OTC Bulletin Board on October 20, 1998 under the symbol "WLDI." On February 11, 2000, in connection with the change in our name from Worlds Inc. to Worlds.com Inc., our symbol was changed to "WDDD." During 2001, our stock was no longer quoted on the OTC Bulletin Board and was quoted on the Pink Sheets, but returned to the Bulletin Board in the third quarter of 2008. The following table sets forth, for the periods indicated, the high and low bids for our common stock as reported on the OTC Bulletin Board or the Pink Sheets (representing interdealer quotations, without retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions):


Year Ended December 31, 2011:	High		Low
First quarter	$	0.36	$	0.17
Second quarter	$	0.49	$	0.23
Third quarter	$	0.31	$	0.15
Fourth quarter	$	0.18	$	0.10

Year Ended December 31, 2012:	High		Low
First quarter	$	0.35	$	0.09
Second quarter	$	0.27	$	0.11
Third quarter	$	0.16	$	0.08
Fourth quarter	$	0.20	$	0.12

Holders

As of December 31, 2012, we had 631 shareholders of record of our common stock.

Dividends

We have never paid a cash dividend on our common stock and do not anticipate paying any dividends in the near future.

Recent Sales of Unregistered Securities

The Company raised around $300k in November/December, 2012 through the sale in an exempt private placement of shares at a price of $0.10 per share and one warrant for each two shares purchased exercisable at a price of $0.15 per share.

Company Equity Compensation Plans

The following table sets forth information as of December 31, 2012 with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by stockholders		11,100,000	$	0.097		13,900,000
Stock option grants approved by stockholders		0	$	N/A		-
Total		11,100,000	$	0.097		13,900,000

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

When used in this form 10-K and in future filings by the Company with the Commission, The words or phrases such as "anticipate," "believe," "could," "would," “should,” "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes in technology that render our technology relatively inferior, obsolete or more expensive compared to others; foreign currency fluctuations; changes in the business prospects of our business partners and customers; increased competition, including from our business partners; delays in the delivery of broadband capacity to the homes and offices of persons who use our services; general disruptions to Internet service; and the loss of customer faith in the Internet as a means of commerce.

The following discussion should be read in conjunction with the financial statements and related notes which are included in this report under Item 8.

We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.

Overview

General

Starting in mid-2001 we were not able to generate enough revenue to sustain full operations and other sources of capital were not available. As a result, we have had to significantly curtail our operations since that time and at times almost halt them all together. Since mid-2007, as more funds became available from our financings, we were able to increase operations and become more active operationally.

On May 16, 2011, we transferred, through a spin-off to our then wholly owned subsidiary, Worlds Online Inc., the majority of our operations and related operational assets. We retained our patent portfolio which we intend to continue to increase and to more aggressively enforce against alleged infringers. We also entered into a License Agreement with Worlds Online Inc. to sublicense patented technologies.

The Company’s sources of revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents in litigation or otherwise.

Revenues

Prior to the spin-off we generated only modest revenue from VIP subscriptions to the Worlds Ultimate 3-D Chat service.

Expenses

We classify our expenses into two broad groups:

O	cost of revenues; and

O	selling, general and administration.

Liquidity and Capital Resources

We have had to limit our operations since mid 2001 due to a lack of liquidity. However, we were able to issue equity and convertible debt in the last few years and raise small amounts of capital from time to time that enabled us to begin upgrading our technology, develop new products and actively solicit additional business. We continue to pursue additional sources of capital though we have no current arrangements with respect to, or sources of, additional financing at this time and there can be no assurance that any such financing will become available. If we cannot raise additional capital, form an alliance of some nature with another entity, or start to generate sufficient revenues, we may need to once again scale back operations.

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RESULTS OF OPERATIONS

Our net revenues for each of the years ended December 31, 2012 and 2011 were $0 and $199, respectively. We had revenue from VIP subscriptions to our Worlds 3-D chat service before the spin-off in 2011 and no revenue in 2012 because all the operations were transferred over to Worlds Online Inc. in the spin off. The Company’s future sources of revenue after the spin off will be from sublicenses of the patented technology to Worlds Online Inc.’s customers and any revenue that may be generated from enforcing our patents in litigation or otherwise.

Year ended December 31, 2012 compared to year ended December 31, 2011

Revenue decreased by $199 to $0 for the year ended December 31, 2012 from $199 in the prior year. The decrease is due to the spin-off of the operating business to Worlds Online Inc.

Cost of revenues decreased by $86,459 to $0 in 2012 from $86,459 in 2011. Decrease is due to the operations of the company being transferred over to Worlds Online Inc. In 2011 the balance was for work involved in preparing the technical documentation required for the patent infringement cases and not related to revenue from operations.

Selling general and administrative (S, G & A) expenses increased by $22,512, from $333,249 to $355,761 for the years ended December 31, 2011 and 2012, respectively. Expenses are primarily professional fees and consulting fees and are consistent with the prior year. Salaries increased by $40,764 to $240,858 from $200,094 for the years ended December 31, 2012 and 2011 respectively. Increase is due to an allocation of time for the CEO between Worlds’ Inc. and the spin-off entity Worlds Online Inc. Common stock issued for services rendered decreased by $695,164 to $361,685 in 2012 compared to $1,056,849 in 2011. The decrease is due to the strategic business consulting and advice agreements that were in effect during 2011 and ended before 2012.

Other expenses include options expense of $705,918 for the year ended December 31, 2012 compared to option expense of $18,188 for the year ended December 31, 2011. Increase is due to options being issued to the CEO to replace those that expired during the year.

As a result of the foregoing, we realized a net loss of $1,664,221 for the year ended December 31, 2012 compared to a loss of $1,694,640 in the year ended December 31, 2011, a decrease in net losses of $30,419.

Liquidity and Capital Resources

At December 31, 2012, we had cash and cash equivalents of $95,069. We raised an aggregate of $307,500 in the fourth quarter of 2012 from a private placement, $210,000 of the proceeds was received in 2012 with $97,500 being received in 2013. During the 2^nd quarter of 2012 we raised an aggregate of $250,000 from a private placement.

At December 31, 2011, we had cash and cash equivalents of $152,526. We raised an aggregate of $150,000 in the third quarter of 2011 from a private placement and in December 2010, we raised an aggregate of $400,000 through a private placement of common stock.

No capital expenditures were made in 2012 or 2011.

Historically, our primary cash requirements have been used to fund the cost of operations, development of our products and patent protection, with additional funds having been used in promotion and advertising and in connection with the exploration of new business lines.

The funds raised in our 2011 and 2012 financings were and will be used to develop new products and services, enhance our patent portfolio, pay salaries to management and pay professional fees to our attorneys and auditors to prepare and file reports with the Securities and Exchange Commission. We hope to raise additional funds to be used for further developing our portfolio of patents and to document our technology in order to enforce our patents where there is infringement. No assurances can be given that we will be able to raise any additional funds.

Subsequent Events

On March 14, 2013 we entered into strategic financing agreements with several institutional investors that could provide the company with up to $2.3 million of debt financing based upon the amount of conversions and redemptions. The transaction documents provide, among other things, that (i) the investors will receive five year warrants in an amount equal to 100% of the number of shares of our common stock the investors would receive if the Notes (defined below) were converted on March 13, 2013, at an exercise price of $0.50 per share, (ii) $1.950 million of the funds will deposited in one of our bank accounts but will be subject to a control account agreement which will provide that we can only withdraw funds from the account as the investors convert or redeem the Notes, (iii) the investors have demand and piggy-back registration rights for the shares of common stock underlying the warrants and Notes, (iv) the Notes will be secured by a first priority security interest in all of our assets, other than our patents, (v) each investor may not convert any Note or exercise any warrants if doing so will cause the investor to own more than 4.99% of our outstanding common stock at any time, although under certain circumstances they can each own up to 9.99% of our outstanding common stock, (vi) we paid $40,000 of the investors’ legal fees incurred with respect to this transaction, and (vii) for the next three years the investors have a right to participate in up to 50% of any of our future financings. The warrants and Notes contain standard anti-dilution provisions and the Securities Purchase Agreements contains standard covenants for a financing of this nature. In the event we acquire any subsidiaries while the Notes are outstanding, such subsidiaries will be obligated to guaranty the Notes and any other obligations we owe to the investors pursuant to the transaction documents.

We issued an aggregate of $2.4 million face amount of Senior Secured Convertible Notes (the “Notes”). The Notes are divided into Series A, Series B and Series C with the Series A and B Notes aggregating to $1.95 million and the Series C Notes aggregating to $450,000. All of the Notes carry a 14% annual interest rate and are payable on March 13, 2016. Until July 1, 2013 (i) the Series A Notes initially convert into our common stock at a rate of $0.50 per share, (ii) the Series B initially convert at a rate of $0.75 per share and (iii) the Series C Notes initially convert at a rate of $0.35 per share, in each case subject to adjustments as provided in the Notes. Commencing July 1, 2013, the conversion rate for all Notes becomes the lower of (x) the conversion rate described above or (y) 85% of the average of the daily VWAP of each trading day during the twenty (20) consecutive trading day period ending on the trading day immediately prior to the conversion date, subject to adjustments as provided in the Notes. We have the right to redeem, at 120% of face value, up to 75% of the Series A and Series B Notes.

Recent Accounting Pronouncements

Recently issued accounting standards

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In May 2011, FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures.

In June 2011, FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company is reviewing ASU 2011-05 to ascertain its impact on the Company’s financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, which allows, but does not require, an entity when performing its annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created in ASU 2011-08, the calculation of a reporting unit’s fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that fair value of the reporting unit is less than its carrying amount. If it is less, the quantitative impairment test is then required. ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did not impact the Company’s results of operations or financial condition.

In December 2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial condition.

In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”. The guidance allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.

ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, before determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period.

ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is in the process of evaluating the guidance and the impact ASU 2012-02 will have on its financial statements.

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CONTENTS


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	11

BALANCE SHEETS	12

STATEMENTS OF OPERATIONS	13

STATEMENT OF STOCKHOLDERS’ DEFICIT	14

STATEMENTS OF CASH FLOWS	15

NOTES TO FINANCIAL STATEMENTS	16 - 20

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FL Office

7951 SW 6th St.,

Suite. 216

Plantation, FL 33324

Tel: 954-424-2345

Fax: 954-424-2230

NC Office

19720 Jetton Road,

3rd Floor

Cornelius, NC 28031

Tel: 704-892-8733

Fax: 704-892-6487

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Worlds Inc.

We have audited the accompanying balance sheets of Worlds Inc. (the “Company”) as of December 31, 2012 and 2011 and related statements of operations, stockholders’ deficit, and cash flows for the two years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Worlds Inc. (a Delaware corporation) as of December 31, 2012 and 2011 and the results of its operations and its cash flows for two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring operating losses, has an accumulated stockholders’ deficit, has negative working capital, has had minimal revenues from operations, and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/ Bongiovanni & Associates, CPA’s/

Bongiovanni & Associates, CPA’s

Certified Public Accountants

Cornelius, North Carolina

The United States of America

April 12, 2013

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Worlds Inc.
Balance Sheets
December 31, 2012 and 2011

	December 31, 2012		December 31, 2011
ASSETS:
Current Assets
Cash and cash equivalents	$	95,069	$	152,526
Due from related party		134,654		43,819
Prepaid expense		-		82,633
Total Current Assets		229,724		278,978

Patents		7,000		-

Total assets	$	236,724	$	278,978


LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities
Accounts payable	$	797,908	$	798,808
Accrued expenses		1,953,934		1,866,172
Notes payable		773,279		773,279

Total Current Liabilities		3,525,121		3,438,259


Stockholders' (Deficit)

Common stock (Par value $0.001 authorized 100,000,000 shares, issued and outstanding 79,813,071 and 74,862,146 at December 31, 2012 and 2011, respectively)		79,813		74,862
Common stock subscribed but not yet issued (1,500,000 and 525,000 at December 31, 2012 and 2011, respectively)		1,500		525
Subscription receivable		(10,000)		-
Additional paid in capital		26,580,244		25,231,804
Common stock-warrants		203,237		-
Deferred compensation		(12,500)		-
Accumulated deficit		(30,130,692)		(28,466,471)
Total stockholders deficit		(3,288,397)		(3,159,281)

Total Liabilities and stockholders' deficit	$	236,724	$	278,978


The Report of Independent Registered Public Accounting Firm and accompanying notes are an integral part of these financial statements

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Worlds Inc.
Statements of Operations
For the Years Ended December 31, 2012 and 2011


	For the Years Ended December 31,
	2012			2011
Revenues
Revenue	$	—		$	199

Total Revenue		—			199


Cost and Expenses

Cost of Revenue		—			86,459

Gross Profit/(Loss)		—			(86,260	)


Option Expense		705,918			18,188
Common Stock issued for services renderred		361,685			1,056,849
Selling, General & Admin.		355,761			333,249
Salaries		240,858			200,094

Operating loss		(1,664,221	)		(1,694,640	)


Other Income (Expense)
Interest Expense		—

Net (Loss)	$	(1,664,221	)	$	(1,694,640	)

Weighted Average Loss per share	$	(0.02	)	$	(0.02	)
Weighted Average Common Shares Outstanding		76,792,137			69,984,791


The Report of Independent Registered Public Accounting Firm and accompanying notes are an integral part of these financial statements

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Worlds Inc.
Statement of Stockholders' Deficit
For the Years Ended December 31, 2012 and 2011

												Common			Common
												Shares			Stock							Total
					Additional							Subscribed			Subscribed					Accumulated		stockholders'
	Common stock		Common stock		Paid-in			Common stock		Subscription		but not			but not			Deferred		Deficit		equity
	Shares		Amount		capital			Warrants		Receivable		Issued			Issued			compensation				(deficit)

Balances, December 31, 2010	62,781,122	$	62,780	$	23,453,111		$	—	$	—		3,358,331		$	3,358		$	—	$	(26,771,832)	$	(3,252,582)
Conversion of debt to equity	309,741		310		72,065			—		—		—			—			—		—		72,375
Issuance of common stock for services rendered	5,348,619		5,349		1,088,133			—		—		500,000			500			—		—		1,093,982
Issuance of common stock for cash investment	4,333,331		4,333		149,000			—		—		(3,333,331	)		(3,333	)		—		—		150,000
Exercise of warrants	1,160,804		1,161		117,285			—		—		—			0			—		—		118,446
Exercise of stock options	928,529		929		57,071			—		—		—			—			—		—		58,000
Deferred revenue	—		—		276,950			—		—		—			—			—		—		276,950
Issuance of stock options	—		—		18,188			—		—		—			—			—		—		18,188
Net Loss for the year ended December 31, 2011	—		—		—			—		—		—			—			—		(1,694,640)		(1,694,640)
Balances, December 31, 2011	74,862,146	$	74,862	$	25,231,804							525,000			525		$	—	$	(28,466,471)	$	(3,159,281)
Issuance of common stock for services rendered	3,100,925		3,101		371,609			—		—		(525,000	)		(525	)		(12,500)		—		361,684
Issuance of common stock for cash investment	1,700,000		1,700		466,800			—		(10,000)	)	1,500,000			1,500			—		—		460,000
Issuance of stock options	—		—		705,918			—		—		—			—			—		—		705,918
Exercise of stock options	150,000		150		7,350			—		—		—			—			—		—		7,500
Warrants issued with PPM	—				(203,237	)		203,237		—		—			—			—		—		—
Net Loss for the year ended December 31, 2012	—		—		—			—		—		—			—			—		(1,664,221)		(1,664,221)
Balances, December 31, 2012	79,813,071	$	79,813	$	26,580,244		$	203,237	$	(10,000)		1,500,000		$	1,500		$	(12,500)	$	(30,130,692)	$	(3,288,397)

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Worlds Inc.
Statements of Cash Flows
For the Years Ended December 31, 2012 and 2011

	For the years ended December 31,
		2012		2011
Cash flows from operating activities:
Net (loss)		$	(1,664,221)	$	(1,694,640)
Adjustments to reconcile net loss to net cash (used in) operating activities
Depreciation			-		759
Fair value of stock options issued			705,918		18,188
Common stock issued for services renderred			361,684		1,093,982
Prepaid expense			82,633		(10,258)
Accounts payable and accrued expenses			86,864		63,420
Due from related party			(90,835)		(43,819)
Net cash (used in) operating activities:			(517,958)		(572,368)

Cash flows from investing activities:
Patent			(7,000)		-
Net cash (used in) investing activities:			(7,000)		-

Cash flows from financing activities
Proceeds from issuance of common stock			460,000		150,000
Proceeds from exercise of warrants			-		118,446
Proceeds from exercise of options			7,500		58,000
Repayment of officer loan payable			-		(2,400)
Net cash provided by financing activities			467,500		324,046

Net increase/(decrease) in cash and cash equivalents			(57,458)		(248,322)

Cash and cash equivalents, beginning of year			152,526		400,848

Cash and cash equivalents, end of year		$	95,069	$	152,526

Non-cash financing activities

Common stock issued for payable		$	-	$	72,375
Deferred revenue			-		276,950
Prepayment of expenses through issuance of common stock			-		82,633



Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest		$	-	$	-
Income taxes		$	-	$	-

The Report of Independent Registered Public Accounting Firm and accompanying notes are an integral part of these financial statements

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Worlds Inc.

NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Description of Business

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. For the past year the Company has been operating at a significantly reduced capacity, with only one full time employee, performing primarily consulting services and licensing software and using consultants to perform any additional work that may be required.

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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of highly liquid money market instruments, which have original maturities of three months or less at the time of purchase.

Due from Related Party

Due from related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses.

Revenue Recognition

Effective for the second quarter of 2011, the Company spun off its online businesses to Worlds Online Inc. The Company’s sources of revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents. Prior to the spin-off, the Company had the following sources of revenue: (1) consulting/licensing revenue from the performance of development work performed on behalf of the Company, licensing revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and collectibility is reasonable assured. This will usually be in the form of a receipt of a customer’s acceptance indicating the product has been completed to their satisfaction except for development work and service revenue which is recognized when the services have been performed. Deferred revenue represents cash payments received in advance to be recorded as revenue when earned. The corresponding cost associated with those contracts is also deferred as deferred costs until the revenue is ultimately recognized.

Research and Development Costs

Research and development costs are charged to operations as incurred.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets ranging from three to five years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Maintenance and repairs are charged to expense in the period incurred.

Impairment of Long Lived Assets

The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during 2012 and 2011.

Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

Income Taxes

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

Notes Payable

The Company has $773,279 in short term notes outstanding at December 31, 2012 and 2011.

Deferred Revenue

As part of a debt refinancing in 2000, $631,950 of debt was renegotiated to deferred revenue representing future services to be provided by the Company. $355,000 has been amortized into income since then. The balance was transferred over to Worlds Online Inc. and no longer appears on the Company’s balance sheets.

Call Option Agreements

The Company has entered into call option agreements with 13 of its major shareholders. The call options give the Company the right to purchase up to 4,150,000 shares of stock back at prices ranging from $0.15 per share up to $0.40 per share. The Company issued an aggregate of 680,000 shares of stock to these shareholders as an inducement to enter into these call option agreements. The call option agreements have expiration dates of 1 and 2 years. In 2011, 12 of the call options were extended for 1 year. The Company issued 315,000 additional shares as an inducement to enter into the 1 year extensions. At December 31, 2012 all call options have expired

Comprehensive Income (Loss)

The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.

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Loss Per Share

Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of December 31, 2012 and 2011.

Commitments and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of December 31, 2012, and 2011 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets.

Risk and Uncertainties

The Company is subject to risks common to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.

Off Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the years ended December 31, 2012 or 2011.

Subsequent Events

On March 14, 2013 the Company entered into strategic financing agreements with several institutional investors that could provide the Company with up to $2.3 million of debt financing based upon the amount of conversions and redemptions. The transaction documents provide, among other things, that (i) the investors will receive five year warrants in an amount equal to 100% of the number of shares of our common stock the investors would receive if the Notes (defined below) were converted on March 13, 2013, at an exercise price of $0.50 per share, (ii) $1.950 million of the funds will deposited in one of our bank accounts but will be subject to a control account agreement which will provide that the Company can only withdraw funds from the account as the investors convert or redeem the Notes, (iii) the investors have demand and piggy-back registration rights for the shares of common stock underlying the warrants and Notes, (iv) the Notes will be secured by a first priority security interest in all of our assets, other than its patents, (v) each investor may not convert any Note or exercise any warrants if doing so will cause the investor to own more than 4.99% of our outstanding common stock at any time, although under certain circumstances they can each own up to 9.99% of our outstanding common stock, (vi) we paid $40,000 of the investors’ legal fees incurred with respect to this transaction, and (vii) for the next three years the investors have a right to participate in up to 50% of any of our future financings. The warrants and Notes contain standard anti-dilution provisions and the Securities Purchase Agreements contains standard covenants for a financing of this nature. In the event the Company acquire any subsidiaries while the Notes are outstanding, such subsidiaries will be obligated to guaranty the Notes and any other obligations we owe to the investors pursuant to the transaction documents.

Recent Accounting Pronouncements

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NOTE 2 - GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had periods where it had only minimal revenues from operations. There can be no assurance that the Company will be able to obtain the additional capital resources to fully implement its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material adverse effect on the Company, including possibly requiring the Company to reduce and/or cease operations.

These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 - PRIVATE PLACEMENTS OF EQUITY

During the year ended December 31, 2011, the Company issued an aggregate of 5,348,619 shares of common stock as payment for services rendered with an aggregate value of $1,093,482.

During the year ended December 31, 2011, the Company raised $118,446 with the exercise of warrants covering 1,160,804 shares of its common stock at a price per share ranging from $0.01 to $0.15 per share.

During the year ended December 31, 2011, the Company raised $58,000 with the exercise of options covering 928,529 shares of its common stock at a price ranging from $0.05 to $0.30 per share. 128,529 of those shares were exercised on a cashless basis by the surrender to the Company of an aggregate of 131,747 options with a value of $38,558 being equal to the difference in price between the exercise price and the market price on the date of exercise.

During the year ended December 31, 2011, the Company issued 4,333,331 common shares for a cash investment of $150,000. Included in these shares were 3,333,331 in shares from the prior year that were issued for $400,000.

During the year ended December 31, 2012, the Company sold 3,200,000 common shares for a cash investment of $307,000. $10,000 from the 4^th quarter financing was not received until 2013 and 1,500,000 shares were subscribed but not yet issued at December 31, 2012.

During the year ended December 31, 2012, the Company issued an aggregate of 2,575,925 shares of common stock as payment for services rendered with an aggregate value of $374,184, $12,500 of which was deferred and performed in the first quarter in 2013. The Company also issued an aggregate of 525,000 shares of common stock for services rendered in prior years.

During the year ended December 31, 2012, the Company raised $7,500 with the exercise of options covering 150,000 shares of its common stock at a price of $0.05 per share.

NOTE 4 - NOTES PAYABLE

Short term notes payable at December 31, 2012 consist of the following:

Unsecured note payable to a shareholder bearing 8% interest.
Entire balance of principal and unpaid interest due on demand	$	124,230

Unsecured note payable to a shareholder bearing 10% interest
Entire balance of principal and unpaid interest due on demand	$	649,049

Total current	$	773,279

2013	$	773,279
2014	$	-0-
2015	$	-0-
2016	$	-0-
2017	$	-0-
	$	773,279

NOTE 5- PROPERTY AND EQUIPMENT

The detail composition of property and equipment at December 31, 2012 and December 31, 2011 is as follows:


		December 31,2012		December 31, 2011
Computer equipment	$	10,891	$	10,891
Less: accumulated depreciation		10,891		10,891
Net book value	$	-0-	$	-0-

Depreciation expense recorded for the years ended December 31, 2012 and 2011 was $0 and $759, respectively.

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NOTE 6 – STOCK OPTIONS

During the year ended December 31, 2012, the Company issued 8,000,000 stock options to directors and officers of the Company. 7,500,000 stock options were issued as part of the employment agreement with its President and CEO, Thom Kidrin. The stock option allows Thom Kidrin to purchase 7,500,000 shares of the Company’s common stock at $0.076 per share per each individual option. The options expire on March 31, 2014. The Company issued 300,000 stock options to Chris Ryan, the Company’s CFO. The stock option allows Chris Ryan to purchase 300,000 shares of the Company’s common stock at $0.0115 per share per each individual option. The options expire on September 30, 2017. The Company issued 100,000 shares to each of the Company’s directors, Bernard Stolar and Robert Fireman. The stock options allow each director to purchase 100,000 shares of the Company’s common stock at $0.0115 per share per each individual option. The options expire on September 30, 2017. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the options.

During the period ended December 31, 2012, the Company recorded an expense of $705,918, equal to the estimated fair value of the options at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 1.6% risk-free interest, 0% dividend yield, 279% volatility, and expected life of 1.5 years for Mr Kidrin’s options and 4.5 years for the remaining options.

No stock options were issued in the year ended December 31, 2011.

During the year ended December 31, 2011, 1,160,804 warrants were exercised and 928,529 stock options were exercised for cash proceeds of $118,446 and $58,000, respectively.

Stock Warrants and Options

Stock warrants/options outstanding and exercisable on December 31, 2012 are as follows:

Exercise Price per Share	Shares Under Option/warrant		Remaining Life in Years

Outstanding
$0.35		212,500		1.00
$0.20		300,000		1.00
$0.15		1,537,500		2.00
$0.115		500,000		4.83
$0.11		150,000		2.30
$0.11		300,000		.30
$0.076		7,500,000		1.25
$0.05		600,000		.85

Exercisable
$0.35		212,500		1.00
$0.20		300,000		1.00
$0.15		1,537,500		2.00
$0.11		150,000		2.30
$0.11		300,000		.30
$0.076		7,500,000		1.25
$0.05		600,000		.85

NOTE 7 - INCOME TAXES

At December 31, 2012, the Company had federal and state net operating loss carry forwards of approximately $41,200,000 that expire in various years through the year 2025.

Due to operating losses, there is no provision for current federal or state income taxes for the year ended December 31, 2012 and 2011.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.

The Company’s deferred tax asset at December 31, 2012 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $16,060,000 less a valuation allowance in the amount of approximately $16,060,000. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $220,000 and $240,000 for the years ended December 31, 2012 and 2011, respectively.

The Company’s total deferred tax asset as of December 31, 2012 is as follows:

Net operating loss carry forwards	$	16,060,000
Valuation allowance		(16,060,000)

Net deferred tax asset	$	—

The reconciliation of income taxes computed at the federal and state statutory income tax rate to total income taxes for the year ended December 31, 2012 and 2011 is as follows:

Income tax computed at the federal statutory rate	34%
Income tax computed at the state statutory rate	5%
Valuation allowance	(39%)
Total deferred tax asset	0%

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NOTE 8 - EMPLOYMENT AGREEMENTS (COMMITMENT)

The Company is committed to an employment agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 30, 2012, is for five years with a one-year renewal option held by Mr. Kidrin. The agreement provides for a base salary of $175,000, which increases 10% on September 1 of each year; a monthly car allowance of $500; an annual bonus equal to 2.5% of Pre-Tax Income (as defined in the agreement); an additional bonus as follows: $75,000, if Pre-Tax Income for the year is between 150% and 200% of the prior fiscal year’s Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year is between 201% and 250% of the prior fiscal year’s Pre-Tax Income or (C) $200,000, if Pre-Tax Income for the year is 251% or greater than the prior fiscal year’s Pre-Tax Income, but in no event shall this additional bonus exceed five (5%) percent of Pre-Tax Income for such year; payment of up to $10,000 in life insurance premiums; options to purchase 7.5 million shares of Worlds Inc. common stock at an exercise price of $0.076 per share, all of which vested on August 30, 2012; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times his base amount (as defined in the agreement) in the event of a Change of Control (as defined in the agreement). The agreement also provides that Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12 months after termination.

NOTE 9 - PATENTS

Worlds Inc. currently has seven patents, 6,219,045 - 7,181,690 - 7,493,558 – 7,945,856, - 8,082,501, 8,145,998 and 8,161,383. On March 30, 2012, the Company filed a patent infringement lawsuit against Activision Bizzard Inc., Blizzard Entertainment Inc. and Activision Publishing Inc. in the United States District Court for the District of Massachusetts. Susman Godfrey LLP is lead counsel for the Company. The costs to prosecute those parties that the Company and our legal counsel believe to be infringing on said patents were capitalized under patents until a resolution is reached.

There can be no assurance that the Company will be successful in our ability to prosecute our IP portfolio or that we will be able to acquire additional patents.

NOTE 10 - Subsequent Events

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. We concluded that our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act were effective as of December 31, 2012 to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in SEC rules and forms.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth in Internal Control Over Financial Reporting — Guidance for Smaller Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Subject to the inherent limitations described in the following paragraph, our management has concluded that our internal controls over financial reporting was effective as December 31, 2012 at the reasonable assurance level.

Inherent Limitations Over Internal Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, our internal controls and procedures are designed to provide reasonable assurance of achieving their objectives.

Changes in Internal Control over Financial Reporting

We have made no change in our internal control over financial reporting during the fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report on Form 10-K.

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following table sets forth the name, age and position of our directors and executive officers. Our directors are elected annually and serve until the next annual meeting of stockholders. Except for Mr. Kidrin, all of our directors are independent.

Name	Age	Position
Thomas Kidrin	60	President, Chief Executive Officer, Secretary, Treasurer, Director
Christopher J. Ryan	52	Vice President-Finance, Principal Accounting and Chief Financial Officer
Bernard Stolar	66	Director
Robert Fireman	64	Director

Thomas Kidrin has been president, secretary and treasurer from December 1997 through July 2007 then added the title chief executive officer since August 2007. Mr. Kidrin was also president and a director of Worlds Acquisition Corp. from April 1997 to December 1997. He has been the chairman and president of Datastream Corporation, a designer and developer of interactive products and services, since 1993. From December 1991 to June 1996, Mr. Kidrin was a founder, director, and President of UC Television Network Corp., a company engaged in the design and manufacture of interactive entertainment/advertising networks in the college market under the brand name College Television Network, the largest private network on college campuses in the United States sold to MTV in 1996 now operating under MTVU. Mr. Kidrin has attended Drake University and the New School of Social Research.

Christopher J. Ryan has been Vice President-Finance since May 2000 and principal accounting and finance officer since August 2000. From August 1991 through April 2000, Mr. Ryan held a variety of financial management positions at Reuters America, an information services company. From 2001 through 2003, Mr. Ryan was the founder and President of CJR Advisory Services, a personal corporation through which he provided financial consulting services to various entities. Since 2004, Mr. Ryan has been the VP Finance of Peminic, Inc. Mr. Ryan is an inactive certified public accountant. He is a graduate of Montclair State University in New Jersey and received an M.B.A. degree from Fordham University in New York.

Bernard Stolar, noted for his expertise in both identifying and developing market-driving content and forging successful business partnerships, brings to the board over twenty years of senior-level experience within the interactive entertainment industry in all phases of company operations, including sales and marketing, product development, licensing, distribution, strategic planning and management. Mr. Stolar has served in high profile leadership roles at publicly and privately held interactive entertainment companies. Currently, Mr. Stolar is Dean of Games and Game Evangelist for Google, Inc. From February 2006 until its purchase by Google, Inc. in February 2007, Mr. Stolar was the Chairman of the Board of Adscape Media. Prior to this, he was president and chief operating office of BAM! Entertainment, where he transformed the company from a hand-held content company to a developer and marketer of interactive entertainment for next generation video game consoles. In 2000, Mr. Stolar joined Mattel, Inc. as president of Mattel Interactive, where he was responsible for directing and reorganizing the $1 billion Mattel Interactive division. From 1996 to 1999, Mr. Stolar served as president and chief operating officer of Sega of America, Inc. where he helped increase sales from $200 million to over $1 billion in three years, and orchestrated the launch of the Sega Dreamcast(TM), the fastest selling video game console in US history at that time. Mr. Stolar also served as executive vice president of Sony Computer Entertainment of America, where he was a key leader of the Sony Playstation® launch team, directing all third-party publishing in the U.S. Prior to that, Mr. Stolar served as president of Atari America's game division.

Robert Fireman is a seasoned executive in the building of technology and consumer driven companies. He brings to Worlds vast experience in the development of real time, loyalty based, stored value products and services. Mr. Fireman was a founder and former Director and General Manager of SmartSource Direct, Inc., a subsidiary of News America Marketing (News Corp). Mr. Fireman was responsible for the development, marketing and distribution of card-based loyalty, financial, and database products & services in retail, grocery and drug store chains encompassing over 50,000 stores throughout the U.S. Mr. Fireman has been a practicing attorney for over 25 years and is the managing attorney of Fireman & Associates LLP.

The board of directors did not meet during 2012 but acted by written consent seven times during the year. The board does not have any standing committees and when necessary, the entire board acts to perform such functions.

Family Relationships

None.

Legal Proceedings

None.

Audit Committee

We do not have a separately designated standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit committee for the purpose of overseeing the accounting and financial reporting processes, and audits of our financial statements. The Commission recently adopted new regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. We have only recently begun increasing our operations, and we are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert" or to so designate one of our current directors, but we intend to either retain an additional director who will qualify as such an expert or designate one of our current directors as such an expert, as soon as reasonably practicable. Our current directors, by virtue of their past employment experience, have considerable knowledge of financial statements, finance, and accounting, and have significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current directors capably fulfill the duties and responsibilities of an audit committee in the absence of such a designated expert at this time.

Code of Ethics

We have adopted a code of ethic (the "Code of Ethics") that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethics was filed as Exhibit 14.1 to a previous annual report. The Code of Ethics is being designed with the intent to deter wrongdoing, and to promote the following:

·	Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships

·	Full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the Commission and in other public communications we make

·	Compliance with applicable governmental laws, rules and regulations

·	The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code

·	Accountability for adherence to the code

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 31, 2012. Except as disclosed below, we believe that all of these filing requirements were satisfied by its executive officers, directors and by the beneficial owners of more than 10% of our common stock. In making this statement, we have relied solely on copies of any reporting forms received by us, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission. Each of our directors did not timely file one Form 4.

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ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth the compensation paid by us during the fiscal periods ending December 31, 2012, and 2011, to our chief executive officer, chief financial officer and to our other most highly compensated executive officers whose compensation exceeded $100,000 for those fiscal periods .

SUMMARY COMPENSATION TABLE (1)(2)
Name and principal position (a)	Year (b)		Salary ($) (c)		Bonus ($) (d)	Stock Awards ($) (e)		Option Awards ($) (f)	Securities underlying options (g)	All Other Compensation ($) (i)		Total ($) (j)
Thomas Kidrin President and CEO	2012	$	240,858	(3)	0	0	$	652,642		0	$	893,500	(3)
	2011	$	192,308		0	0		0		0	$	192,308
	2010	$	115,385		0	0		0		0	$	115,385
Chris Ryan, CFO	2012						$	31,966			$	31,966
	2011		0		0	0		0	0	0		0

(1) The above compensation does not include other personal benefits, the total value of which do not exceed $10,000.

(2) Pursuant to the regulations promulgated by the SEC, the table omits columns reserved for types of compensation not applicable to us.

(3) Mr. Kidrin has an employment agreement effective August 30, 2012 with a base annual salary of $175,000. A portion of his compensation has been deferred due to lack of funds.

Stock Option Grants

The following table sets forth information as of December 31, 2012 concerning unexercised options, unvested stock and equity incentive plan awards for the executive officers named in the Summary Compensation Table.

OUTSTANDING EQUITY AWARDS AT YEAR-ENDED DECEMBER 31, 2012

Name

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

Option

Exercise Price

($)

Option

Expiration

Date

Thom Kidrin

7,500,000

0.076

03-31-14

Compensation of Directors

On September 5, 2007, the Board of Directors adopted a compensation program for the directors whereby each director will receive compensation in the form of stock options for serving on the board. Five-year non-qualified stock options to purchase 100,000 shares of the Corporation’s common stock are to be granted annually on January 1 to each director then in office at an exercise price equal to the last reported trading price of our common stock on that day, with such option to vest in 12 months, provided the director serves for at least six months, following the date of grant. In addition, every director upon first joining our board receives 150,000 stock options that vest immediately and are exercisable for five years at a price equal to the last reported trading price of our common stock on that day.

The following table sets forth information concerning the compensation paid to each of our non-employee directors during 2012 for their services rendered as directors.

DIRECTOR COMPENSATION

Name

Fees Earned

or Paid in Cash

($)

Stock

Awards ($)

Option

Awards ($) (1)

All Other

Compensation

($)

Total

($)

Robert Fireman

10,655

Bernard Stolar

10,655

(1) This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2012 fiscal year for the fair value of stock options granted to the named director in fiscal year 2012, in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized from these awards by the named director.

Employment Agreements

Stock Option Plan

On September 4, 2007, our board of directors adopted the 2007 Stock Option Plan which was presented to our shareholders for their approval at our next annual meeting. The plan provides for the issuance of up to 25 million options of which not more than 22 million can be incentive stock options. In 2012, 150,000 options were exercised, at December 31, 2012 9,562,500 options were outstanding .

Compensation Committee Interlocks and Insider Participation

All of our officers and directors currently hold the same positions with our former subsidiary, Worlds Online Inc, although as described elsewhere herein it is the intent that our current non-employee directors will only serve during a transition period not to exceed 12 months. We do not have a compensation committee and all of our directors perform the function of a compensation committee, except that Mr. Kidrin, our president and CEO, does not participate in any deliberations with respect to his compensation and physically removes himself from the presence of the other directors while they deliberate over his compensation and bonuses. Accordingly, Mr. Kidrin, who is both our president and CEO and of Worlds Online Inc. may be deemed to fall within the parameters of a compensation committee interlock. To address this situation, as described above, Mr. Kidrin recuses himself from all deliberations of the board with respect to his compensation.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Name

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

Number of Securities

Underlying

Unexercised

Options

(#)

Unexercisable

Equity

Incentive

Plan

Awards: Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

Option

Exercise

Price

($)

Option

Expiration

Date

Thom Kidrin

7,500,000

0.076

03-31-14

Christopher Ryan

300,000

0.115

09-30-17

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth as of March 22, 2013, certain information with respect to the beneficial ownership of Common Stock by (i) each Director, nominee and executive officer of us; (ii) each person who owns beneficially more than 5% of the common stock; and (iii) all Directors, nominees and executive officers as a group. The percentage of shares beneficially owned is based on there having been 83,388,071 shares of common stock outstanding as of March 22, 2013.

OFFICERS, DIRECTORS AND BENEFICIAL OWNERS, AS OF MARCH 22, 2013

Name & Address of Beneficial Owner(1)	Amount & Nature of Beneficial Owner	% of Class(2)
Thomas Kidrin	8,790,000(3)	9.94%
Robert Fireman	400,000(4)	0.00%
Bernard Stolar	300,000(4)	0.00%
Steven Chrust	6,023,661(5)	7.99%
All directors and executive officers as a group (one person)	9,490,000(6 )	35.38%

(1) Unless stated otherwise, the business address for each person named is Worlds Inc., 11 Royal Road, Brookline, MA 02445.

(2) Calculated pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by a person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. We believe that each individual or entity named has sole investment and voting power with respect to the shares of common stock indicated as beneficially owned by them (subject to community property laws where applicable) and except where otherwise noted.

(3) Includes 7.5 million currently exercisable stock options.

(4) Consists of stock options all but 100,000 are currently exercisable.

(5) Includes common shares and warrants directly and indirectly owned.

(6) Includes 8,000,000 currently exercisable stock options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

We are not currently subject to the requirements of any stock exchange or inter-dealer quotation system with respect to having a majority of “independent directors” although we believe that we meet that standard inasmuch as Messrs. Stolar and Fireman are “independent” and only Mr. Kidrin, by virtue of being our president and CEO, is not independent. Although we are not currently subject to such rule, the independence of our directors meets the definition of such term as contained in NASDAQ Rule 5605(a)(2).

We currently own 19.7% of the outstanding common stock of our former wholly-owned subsidiary, Worlds Online Inc., and it has officers and directors which mirror ours, although as described elsewhere herein it is the intent that our current non-employee directors will only serve during a transition period not to exceed 12 months.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Fees Billed For Audit and Non-Audit Services

The following table represents the aggregate fees billed for professional audit services rendered to the independent auditor, Bongiovanni & Associates, P.A. (“Bongiovanni”), for our audit of the annual financial statements for the years ended December 31, 2012 and 2011. Bongiovanni was retained as our auditor in 2007. Audit fees and other fees of auditors are listed as follows:

Year Ended December 31	2012			2011
		Bongiovanni			Bongiovanni

Audit Fees (1)	$	26,500	(2)	$	26,500
Audit-Related Fees (3)		15,000			15,000
Tax Fees (4)	$	1,500		$	1,500
All Other Fees (5)		—			—
Total Accounting Fees and Services	$	43,000		$	43,000

(1)

Audit Fees. These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-QSB, and for services that are normally provided in connection with statutory and regulatory filings or engagements.

(2)

The amounts shown for Bongiovanni in 2012 and 2011 relate to (i) the audit of our annual financial statements for the years ended December 31, 2012 and 2011, and (ii) the review of the financial statements included in our filings on Form 10-Q for the first, second and third quarters of 2012 and 2011.

(3)

Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements.

(4)

Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.

(5)

All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.

Pre-Approval Policy For Audit and Non-Audit Services

We do not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services before we engage an accountant. All of the services rendered to us by Bongiovanni & Associates, P.A. were pre-approved by our Board of Directors.

We are presently working with our legal counsel to establish formal pre-approval policies and procedures for future engagements of our accountants. The new policies and procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that our new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy and procedures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.

(24)

Table of Contents

ITEM 15. EXHIBITS .

	3.1		Certificate of Incorporation (a)

	3.2		By-Laws- Restated as Amended (a)

	4.1		2007 Stock Option Plan (c)

	10.1		Consulting Agreement between the Registrant and SGC Advisory, Inc. (b)

	10.2		Employment Agreement between the Registrant and Thom Kidrin (**)

	10.3		License Agreement between Worlds Online Inc. and Registrant date as of May 16, 2011 (e)

	10.4		Securities Purchase Agreement dated as of March 14, 2013between the registrant and the Buyers listed thereon. (f)

	10.5		Form of Security and Pledge Agreement between the registrant the Collaleral Agent . (f)

	10.6		Form of Registration Rights Agreements between the registrant and the Buyers listed thereon. (f)

	10.7		Form of Warrant dated March 20, 2013 (f)

	10.8		Form of Series A Note dated March 20, 2013 (f)

	10.9		Form of Series B Note dated March 20, 2013 (f)

	10.10		Form of Series C Note dated March 20, 2013 (f)

	14.1		Code of Ethics (d)

	31.1		Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer **

	31.2		Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer **

	32.1.		Section 1350 Certifications of Chief Executive Officer **

	32.2.		Section 1350 Certifications of Chief Financial Officer **

	101.INS* XBRL		Instance Document

	101.SCH* XBRL		Taxonomy Extension Schema

	101.CAL* XBRL		Taxonomy Extension Calculation Linkbase

	101.DEF* XBRL		Taxonomy Extension Definition Linkbase

	101.LAB* XBRL		Taxonomy Extension Label Linkbase

	101.PRE* XBRL		Taxonomy Extension Presentation Linkbase

(a)	Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, and incorporated herein by reference.
(b)	Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on March 30, 2000, and incorporated herein by reference.

(c)	Filed previously as an exhibit to Registrant's Current Report on Form 8-K filed on September 7, 2007, and incorporated herein by reference.

(d)	Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on April 3, 2008, and incorporated herein by reference.

(e)	Incorporated by reference from Registration statement on form 10-12G (File No. 000-54433), Amendment No. 2 of Worlds Online Inc. filed on October 7, 2011

(f)	Filed previously as an exhibit to regisrtant current report on from 8K filed on March 15, 2013 and in coporated herein by referenced.

** Filed herewith

(25)

Table of Contents

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 13, 2013 WORLDS INC.

(Registrant)

By: /s/ Thomas Kidrin

Name: Thomas Kidrin

Title: President and Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

*/s/Thomas Kidrin* Thomas Kidrin	President, Chief Exectutive Officer and Director	April 13, 2013

*/s/ Christopher J. Ryan* Christopher J. Ryan	Vice President - Finance and Principal Accounting and Financial Officer	April 13, 2013

*/s/Bernard Stolar* Bernard Stolar	Director	April 13, 2013

*/s/Robert Fireman* Robert Fireman	Director	April 13, 2013

(26)

Table of Contents

EXHIBIT TO INDEX

	Exhibit No.		Description

	3.1		Certificate of Incorporation (a)

	3.2		By-Laws- Restated as Amended (a)

	4.1		2007 Stock Option Plan (c)

	10.1		Consulting Agreement between the Registrant and SGC Advisory, Inc. (b)

	10.2		Employment Agreement between the Registrant and Thom Kidrin (**)

	10.3		License Agreement between Worlds Online Inc. and Registrant dated as of May 16, 2011 (e)

	10.4		Securities Purchase Agreement dated as of March 14, 2013between the registrant and the Buyers listed thereon. (f)

	10.5		Form of Security and Pledge Agreement between the registrant the Collaleral Agent . (f)

	10.6		Form of Registration Rights Agreements between the registrant and the Buyers listed thereon. (f)

	10.7		Form of Warrant dated March 20, 2013 (f)

	10.8		Form of Series A Note dated March 20, 2013 (f)

	10.9		Form of Series B Note dated March 20, 2013 (f)

	10.10		Form of Series C Note dated March 20, 2013 (f)

	14.1		Code of Ethics (d)

	31.1.		Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer **

	31.2.		Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer **

	32.1.		Section 1350 Certifications of Chief Executive Officer **

	32.2.		Section 1350 Certifications of Chief Financial Officer **

	101.INS* XBRL		Instance Document

	101.SCH* XBRL		Taxonomy Extension Schema

	101.CAL* XBRL		Taxonomy Extension Calculation Linkbase

	101.DEF* XBRL		Taxonomy Extension Definition Linkbase

	101.LAB* XBRL		Taxonomy Extension Label Linkbase

	101.PRE* XBRL		Taxonomy Extension Presentation Linkbase

(a)	Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, and incorporated herein by reference.

(b)	Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on March 30, 2000, and incorporated herein by reference.

(c)	Filed previously as an exhibit to Registrant's Current Report on Form 8-K filed on September 7, 2007, and incorporated herein by reference.

(d)	Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on April 3, 2008, and incorporated herein by reference.

(e)	Incorporated by reference from Registration statement on form 10-12G (File No. 000-54433), Amendment No. 2 of Worlds Online Inc. filed on October 7, 2011

(f)	Filed previously as an exhibit to registrant current report on form 8K filed on March 15, 2013 and incorporated herein by referenced

** Filed herewith

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EXHIBIT 31.1

Certifications

I, Thomas Kidrin, certify that:

1. I have reviewed this annual report on Form 10-K of Worlds Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 13, 2013

/s/ Thomas Kidrin

Thomas Kidrin

Chief Executive Officer

EX-31.2 4 ex31_2.htm CERTIFICATIONS

EXHIBIT 31.2

Certifications

I, Christopher J. Ryan, Principal Accounting and Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Worlds Inc.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 13, 2013

/s/ Christopher J. Ryan

Christopher J. Ryan

Principal Accounting and Financial Officer

EX-32.1 5 ex32_1.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Worlds Inc. (the "Company") on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas Kidrin, Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, our financial condition and result of operations.


	WORLDS INC. (Registrant)

Date: April 13, 2012	By:	/*s/ Thomas Kidrin*
		Thomas Kidrin Chief Executive Officer

EX-32.2 6 ex32_2.htm

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Worlds Inc. (the "Company") on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher J. Ryan, Principal Accounting and Financial Officer of the Company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, our financial condition and result of operations.


	WORLDS INC. (Registrant)

Date: April 13, 2013	By:	*/s/ Christopher J. Ryan*
		Christopher J. Ryan Principal Accounting and Financial Officer

EX-10.2 7 ex10_2.htm

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of August 30, 2012 by and between Thomas Kidrin (the "Executive") and Worlds Inc., a Delaware corporation (the "Company").

W I T N E S S E T H:

WHEREAS, Executive and the Company desire to enter into an Employment Agreement to provide for Executive's employment by the Company on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, representations and warranties set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

1. Offices and Duties. The Company hereby employs Executive during the Term (as hereinafter defined) to serve as the Company’s President and Chief Executive Officer and to perform such executive and supervisory duties on behalf of the Company as the Company’s Board of Directors may from time to time reasonably direct. Executive hereby accepts such employment and agrees that throughout the Term he shall faithfully, diligently and to the best of his ability, in furtherance of the business of the Company, perform the duties assigned to him or incidental to the offices assumed by him pursuant to this Section. Executive shall devote substantially approximately one-half of his business time and attention to the business and affairs of the Company, but Executive shall not be required to devote any minimum amount of time or report or perform his duties hereunder on a fixed or periodic basis, and Executive may engage or participate in such other activities incidental to any other employment, occupation or business venture or enterprise as do not materially interfere with or compromise his ability to perform his duties hereunder. The Company understands that Executive is also providing executive level services for Worlds Online Inc., a Delaware corporation and former subsidiary of the Company, and the Company acknowledges that the provision of such services is permitted hereunder and shall not be deemed a breach of this Agreement. Executive shall at all times be subject to the direction and control of the Company’s Board of Directors, and observe and comply with such rules, regulations, policies and practices as the Company’s Board of Directors may from time to time establish.

2. Term. The employment of Executive hereunder shall commence on the date hereof and end on August 30, 2017, provided, that Executive shall have the right in his sole discretion to extend the term for an additional 12 months ending on August 30, 2018, by notifying the Company in writing of such no later than June 1, 2018, subject in all respects to earlier termination upon the terms and conditions provided elsewhere herein. The term during which Executive is employed hereunder shall be referred to herein as the “Term”. As used herein, “Termination Date” means the last day of the Term.

3. Compensation.

(a) As compensation for his services hereunder, the Company shall pay to Executive during the Term:

(i) a base salary at the rate of $175,000 per annum (the “Base Salary”), such Base Salary to be paid in substantially equal installments no less often than twice monthly;

(ii) the Base Salary shall be increased by 10% on September 1 of each year of the Term over the prior year’s Base Salary;

(iii) a car allowance in the amount of $500 per month, payable monthly;

(iv) a bonus (the “2.5% Bonus”) in respect of each Bonus Period (as hereinafter defined), payable within ninety (90) days after the end of such Bonus Period, in an amount equal to two and one-half percent (2.5%) of Pre-Tax Income (as hereinafter defined) for the applicable Bonus Period, provided, however, that the maximum amount of the 2.5% Bonus earned for any Bonus Period shall not exceed 50% of Executive’s then Base Salary, and further provided, that the 2.5% Bonus shall only be payable if the Company reports Net Income (as hereinafter defined) for such Bonus Period;

(v) a bonus (the “Additional Bonus”) in respect of each Bonus Period, payable within ninety (90) days after the end of such Bonus Period, as follows: (A) $75,000, if Pre-Tax Income for the Bonus Period is between 150% and 200% of the prior fiscal year’s Pre-Tax Income; or (B) $100,000, if Pre-Tax Income for the Bonus Period is between 201% and 250% of the prior fiscal year’s Pre-Tax Income; or (C) $200,000, if Pre-Tax Income for the Bonus Period is 251% or greater than the prior fiscal year’s Pre-Tax Income, provided, however, that the Additional Bonus payable to Executive with respect to any Bonus Period shall not exceed five (5%) percent of Pre-Tax Income for such Bonus Period, and further provided, that the 2.5% Bonus shall only be payable if the Company reports Net Income for such Bonus Period and the Company’s Earnings Per Share (as hereinafter defined) are higher for such Bonus Period than in the year prior to such Bonus Period; and

(vi) such additional incentive or bonus compensation as the Company’s Board of Directors may from time to time determine.

(b) For the purposes of paragraph 3(a):

(i) “Bonus Period” is a fiscal year of the Company ending during the Term; and

(ii) The “Pre-Tax Income,” “Net Income,” and “Earnings Per Share” in any Bonus Period is the Company’s income before provision for income taxes as reported in its audited financial statements for such Bonus Period.

The determination of the Pre-Tax Income and the 2.5% Bonus and Additional Bonus for any Bonus Period shall be determined by the Company’s then Chief Financial Officer (or other senior most accounting official if no one holds a position with that title) in accordance with the Company’s audited financial statements as prepared by the Company’s independent auditor, which shall be conclusive and binding upon the Company and Executive.

(c) The Company shall provide major medical, hospitalization and dental insurance for the benefit of Executive and his family consistent with benefits made available to other of the Company’s senior executives and if no such benefits are then available or paid to other executives, than in the amount of, and providing coverage for, no lesser benefits than Executive has prior to the date hereof, and the Company shall pay all premiums and any other costs or expenses incurred to maintain such policies in effect during the Term.

(d) In addition to his Base Salary and other compensation provided herein, Executive shall be entitled to participate, to the extent he is eligible under the terms and conditions thereof, in any stock, stock option or other equity participation plan and any profit-sharing, pension, retirement, insurance, medical service or other employee benefit plan generally available to the executive officers of the Company, and to receive any other benefits or perquisites generally available to the executive officers of the Company pursuant to any employment policy or practice, which may be in effect from time to time during the Term. The above notwithstanding, the Company shall use its commercially reasonable efforts to obtain for the benefit of Executive a life insurance policy with a death benefit of at least $2 million payable to a beneficiary of Executive’s choice, provided, however, that the Company shall not be obligated to spend more than $10,000 annually on the premiums for such policy. Except as otherwise expressly provided herein, the Company shall be under no obligation hereunder to institute or to continue any such employee benefit plan or employment policy or practice.

(e) No provision hereof is intended, or shall be deemed, to impair or limit Executive’s eligibility to receive, or any right he may now or at any time hereafter have to receive, hold or dispose of any common stock, par value $.001 per share, of the Company (the “Common Stock”) or other securities of the Company or to receive, hold or exercise any options, warrants or other rights to acquire any Common Stock or other securities of the Company.

(f) During the Term, Executive shall not be entitled to additional compensation for serving in any office of the Company (or any subsidiary thereof) to which he is elected or appointed, except that, throughout any period or periods during which he shall serve as a director of the Company (or such subsidiary), Executive shall be entitled to directors’ fees in accordance with the policies and practices of the Company (or such subsidiary) then in effect.

4. Stock Options.

(a) By its approval of this Agreement, the Company’s Board of Directors has approved the issuance to Executive of an option to acquire 7,500,000 shares of the Company’s Common Stock, under and pursuant to the provisions of the Worlds.com, Inc. 2007 Stock Option Plan, as adopted by the Company’s Board of Directors and as approved by the Company’s Shareholders (the “Plan”) and on the terms set forth in the Stock Option Agreement annexed to this Agreement as Exhibit A (the “Option Agreement”), which provides inter alia that such option shall vest as set forth below, and be exercisable at the exercise price of $0.076 per share (which is the closing market price of the Company’s Common Stock on the last trading date prior to the date hereof) at any time during the five (5) year period following the date hereof (subject to earlier termination as provided under the Plan):

(i) the option to acquire 7,500,000 shares shall vest immediately;

(b) The option being granted hereby is subject in all respects to the terms and provisions of the Plan and the Option Agreement, including, without limitation, the termination provisions contained in the Plan, and in the event of any conflict between the terms of this Agreement and the Plan or the Option Agreement, the Plan or the Option Agreement shall control. The option granted hereby is also subject to the approval of the Plan by the Company’s shareholders. It is the intention of the parties hereto that, to the extent possible, the options granted herein shall be “incentive stock options” as such term is defined in the Internal Revenue Code of 1986 and any of the terms of the options shall be modified, as minimally as necessary, to maintain their status as incentive stock options.

(c) Executive shall receive such other option, restrictive stock awards or other security-based compensation as the Board of Directors shall approve.

5. Expense Allowance. The Company shall pay directly, or advance funds to Executive or reimburse Executive for, all expenses reasonably incurred by him in connection with the performance of his duties as an employee or consultant hereunder, upon the submission to the Company of itemized expense reports, receipts or vouchers in accordance with its then customary policies and practices.

6. Location; Office. Except for routine travel and temporary accommodation reasonably required to perform his services hereunder, Executive shall not be required to perform his services hereunder at any location other than the principal executive office of the Company, which office shall be located throughout the Term at its location on the date hereof, or, if relocated, at a location within a distance of 30 miles from its location on the date hereof, or at such other office or site to which Executive may, in his sole discretion, consent; nor shall he be required to relocate his principal residence to, or otherwise to reside at, any location specified by the Company. The Company shall provide Executive with suitable office space, furnishings and equipment, secretarial and clerical services and such other facilities and office support as Executive may reasonably request.

7. Vacation. Executive shall be entitled to four (4) weeks paid vacation during each year of his full time employment hereunder, such vacation to be taken at such time or times as shall be agreed upon by Executive and the Company. Vacation time shall be cumulative from year to year, except that Executive shall not be entitled to take more than six weeks vacation during any consecutive 12-month period during the Term. Accrued but unused vacation time shall be paid in cash on the Termination Date, except that in the event of a Termination pursuant to Section 12, the amount of accrued vacation time to be paid on the Termination Date shall be limited to six weeks and in the event of a Termination pursuant to Section 13, the amount of vacation time to be paid on the Termination Date shall be limited to four weeks.

8. Key-Man Insurance. The Company shall have the right from time to time to purchase, increase, modify or terminate insurance policies on the life of Executive for the benefit of the Company in such amounts as the Company may determine in its sole discretion. In connection therewith, Executive shall, at such time or times and at such place or places as the Company may reasonably direct, submit himself to such physical examinations and execute and deliver such documents as the Company may deem necessary or appropriate.

9. Trade Secrets.

(a) Executive shall hold in a fiduciary capacity for the benefit of the Company all confidential or proprietary information relating to or concerned with the Company or its Affiliates (as defined below) or its products or services, prospective products or services, operations, business and affairs (“Confidential Information”), and he shall not, at any time hereafter, use or disclose any Confidential Information to any person other than to the Company or its designees or except as may otherwise be required in connection with the business and affairs of the Company, and in furtherance of the foregoing Executive agrees that:

(i) Executive will receive, maintain and hold Confidential Information in strict confidence and will use the same level of care in safeguarding it that he uses with his own confidential material of a similar nature;

(ii) Executive will take all such steps as may be reasonably necessary to prevent the disclosure of Confidential Information; and

(iii) Executive will not utilize Confidential Information for his personal benefit without first having obtained the Company’s consent to such utilization.

“Affiliate” of a Person means another Person directly or indirectly controlling, controlled by, or under common control with, such Person; for this purpose, “control” of a Person means the power (whether or not exercised) to direct the policies, operations or activities of such Person by virtue of the ownership of, or right to vote or direct the manner of voting of, securities of such Person, or pursuant to agreement or law or otherwise. The term “Person” includes without limitation a natural person, corporation, joint stock company, limited liability company, partnership, joint venture, association, trust, governmental authority, or any group of the foregoing acting in concert.

(b) The commitments set forth in paragraph 9(a) shall not extend to any portion of Confidential Information:

(i) that is generally available to the public;

(ii) that was not acquired, directly or indirectly and/or in any manner, from the Company and which Executive lawfully had in his possession prior to the date of this Agreement; or

(iii) that, hereafter, through no act or omission on the part of the Executive, becomes information generally available to the public.

(c) At any time upon written request by the Company (i) the Confidential Information, including any copies, shall be returned to the Company, and (ii) all documents, drawings, specifications, computer software, and any other material whatsoever in the possession of the Executive that relates to such Confidential Information, including all copies and/or any other form of reproduction and/or description thereof made by Executive shall, at the Company’s option, be returned to the Company or destroyed.

(d) In the event that Executive becomes legally compelled (by deposition, interrogatory, request of documents, subpoena, civil investigative demand or similar process) to disclose any of the Confidential Information, the Executive shall provide the Company with prompt prior written notice of such requirement so that it (or its designees) may seek a protective order or other appropriate remedy and/or waive compliance with the terms of this Agreement. In the event that such protective order or other remedy is not obtained, or the Company waives compliance with the provisions hereof, the Executive agrees to furnish only such portion of the Confidential Information which is legally required to be furnished.

10. Intellectual Property. Any idea, invention, design, process, system, procedure, improvement, development or discovery conceived, developed, created or made by Executive, alone or with others, during the Term and applicable to the business of the Company, whether or not patentable or registrable, shall become the sole and exclusive property of the Company. Executive shall disclose the same promptly and completely to the Company and shall, during the Term or thereafter, (i) execute all documents requested by the Company for vesting in the Company the entire right, title and interest in and to the same, (ii) execute all documents requested by the Company for filing and procuring such applications for patents, trademarks, service marks or copyrights as the Company, in its sole discretion, may desire to prosecute, and (iii) give the Company all assistance it may reasonably require, including the giving of testimony in any Proceeding (as defined below), in other to obtain, maintain and protect the Company’s right therein and thereto.

A “Proceeding” is any suit, action, arbitration, audit, investigation or other proceeding before or by any court, magistrate, arbitration panel or other tribunal, or any governmental agency, authority or instrumentality of competent jurisdiction.

11. No Competition.

(a) During the Restricted Period (as defined below), Executive shall not, directly or indirectly:

(i) own, control, manage, operate, participate or invest in, or otherwise be connected with, in any manner, any business activity, venture or enterprise which is engaged in any business in the United States in which the Company (or any subsidiary thereof) is currently engaged or is engaged at the time of termination of Executive’s employment hereunder, or

(ii) for himself or on behalf of any other person, employ or engage any person who at the time shall have been within the preceding 12-month period an employee of the Company (or such subsidiary) or contact any supplier, customer or employee of the Company (or such subsidiary) for the purpose of soliciting or diverting any supplier, customer or employee from the Company (or such subsidiary).

(b) The provisions of paragraph 11(a) notwithstanding, Executive may (i) invest his funds in securities of an issuer if the securities of such issuer are listed for trading on a registered securities exchange or actively traded in an over-the-counter market and Executive’s holdings therein represent less than 5% of the total number of shares or principal amount of the securities of such issuer outstanding and (ii) work as an executive and be a director of Worlds Online Inc.

(c) Executive acknowledges that the provisions of this Section, and the period of time, geographic area and scope and type of restrictions on his activities set forth herein, are reasonable and necessary for the protection of the Company.

(d) “Restricted Period” shall mean the period commencing on the date hereof and ending July 15, 2018; provided, however, that if Executive has exercised his option to extend the Term to July 15, 2018 in accordance with Section 2 hereof, the Restricted Period shall end July 15, 2019.

12. Termination Upon Disability. In the event that the Board of Directors determines that the Executive is unable to perform his duties hereunder by reason of any disability or incapacity (due to any physical or mental injury, illness or defect) for an aggregate of 180 days in any consecutive 12-month period, the Company shall have the right to terminate Executive’s employment hereunder within 30 days after the 180th day of his disability or incapacity by giving Executive notice to such effect at least 10 days prior to the date of termination set forth in such notice, and on such date such employment shall terminate. The Board of Directors’ determination shall be made after due inquiry, on the basis of convincing evidence presented in at least two medical opinions rendered by reputable physicians with experience in diagnosing and treating the condition described in the opinion.

13. Termination for Cause.

(a) In addition to any other rights or remedies provided by law or in this Agreement, the Company may terminate Executive’s employment under this Agreement if:

(i) Executive is convicted of, or enters a plea of guilty or nolo contendere (which plea is not withdrawn prior to its approval by the court) to, a felony offense or the commission of a fraud against, or embezzlement or misappropriation of funds or other assets of, the Company (or any subsidiary thereof) and either Executive fails to perfect an appeal of such conviction prior to the expiration of the maximum period of time within which, under applicable law or rules of court, such appeal may be perfected or, if Executive does perfect such an appeal, his conviction of such as offense is sustained on appeal; or

(ii) the Company’s Board of Directors determines, after due inquiry, based on convincing evidence, that Executive has:

(A)

violated, or caused the Company (or any subsidiary thereof) or any officer, employee or other agent thereof, or any other person to violate, any material law, regulation or ordinance or any material rule, regulation, policy or practice established by the Company’s Board of Directors;

(B)

willfully, or because of gross or persistent negligence, (x) failed properly to perform his duties hereunder or (y) acted in a manner detrimental to, or adverse to the interests of, the Company; or

(C)

violated, or failed to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by Executive hereunder;

and that, in the case of any violation or failure referred to in clause (A), (B) or (C) of this paragraph (ii) of Section 13(a), such violation or failure has caused, or is reasonably likely to cause, the Company to suffer or incur a substantial casualty, loss, penalty, expense or other liability or cost.

(b) The Company may effect such termination for cause by giving Executive notice to such effect, setting forth in reasonable detail the factual basis for such termination, at least thirty (30) days prior to the date of termination set forth therein; provided, however, that Executive may avoid such termination if Executive, prior to the date of termination set forth in such notice, explains to the reasonable satisfaction of the Company’s Board of Directors why the facts relied upon by the Company in terminating Executive’s employment do not constitute a For Cause Event (as defined below) or that Executive has ceased any such claimed violation and/or cured any such failure to perform within such 30 day period.

(c) In making any determination pursuant to Section 13(a) as to the occurrence of any act or event described in clauses (A) to (C) of paragraph (ii) thereof (each, a “For Cause Event”), each of the following shall constitute convincing evidence of such occurrence:

(i) if Executive is made a party to, or target of, any Proceeding arising under or relating to any For Cause Event, Executive’s failure to defend against such Proceeding or to answer any complaint filed against him therein, or to deny any claim, charge, averment, or allegation thereof asserting or based upon the occurrence of a For Cause Event;

(ii) any judgment, award, order, decree or other adjudication or ruling in any such Proceeding finding or based upon the occurrence of a For Cause Event; or

(iii) any settlement or compromise of, or consent decree issued in, any such Proceeding in which Executive expressly admits the occurrence of a For Cause Event;

provided that none of the foregoing shall be dispositive or create an irrebuttable presumption of the occurrence of such For Cause Event; and provided further that the Company’s Board of Directors may rely on any other factor or event as convincing evidence of the occurrence of a For Cause Event.

(d) In determining and assessing the detrimental effect of any For Cause Event on the Company and whether such For Cause Event warrants termination of Executive’s employment hereunder, the Company’s Board of Directors shall take the following factors, to the extent applicable and material, into account:

(i) whether the Company’s Board of Directors directed or authorized Executive to take, or to omit to take, any action involved in such For Cause Event, or approved, consented to or acquiesced in his taking or omitting to take such action;

(ii) any award of damages, penalty or other sanction, remedy or relief granted or imposed in any Proceeding based upon or relating to such For Cause Event, and whether such sanction, remedy or relief is sufficient to recompense the Company or any other injured person, or to prevent or to deter the recurrence of such For Cause Event;

(iii) whether any lesser sanction would be appropriate and effective; and

(iv) any adverse effect that the loss of Executive’s services would have, or be reasonably likely to have, upon the Company.

14. Termination by Executive for Good Reason. In addition to any other rights or remedies provided by law or in this Agreement, Executive may terminate his employment hereunder:

(i) if (A) the Company violates, or fails to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by it hereunder or (B) as a result of any action or failure to act by the Company, there is a material change in the nature or scope of the duties, obligations, rights or powers of Executive’s employment, by giving the Company notice to such effect, setting forth in reasonable detail the factual basis for such termination, at least thirty (30) days prior to the date of termination set forth therein; provided however that the Company may avoid such termination if it, prior to the date of termination set forth in such notice, cures or explains to the reasonable satisfaction of Executive the factual basis for termination set forth therein; or

(ii) if a Change of Control (as hereinafter defined) occurs while Executive is a full-time employee of the Company, by giving the Company notice to such effect within ninety (90) days after the occurrence of such Change of Control, setting forth the event or circumstance constituting such Change of Control, such termination to be effective upon the date of termination, not more than thirty (30) days after the date of such notice, set forth therein or, if no such date is set forth therein, immediately upon delivery of such notice to the Company.

15. Voluntary Termination. In addition to any other rights or remedies provided by law or in this Agreement, from and after the date hereof, Executive may terminate his employment hereunder by giving the Company written notice to such effect at least ninety (90) days prior to the date of termination set forth therein.

16. Compensation and Benefits upon Termination.

(a) Upon termination of Executive’s employment hereunder, he shall be entitled to receive, in any case, any Base Salary pursuant to Section 3(a)(i) accrued but unpaid to the Termination Date. Any amount payable to Executive under this subparagraph shall be paid promptly, and in any event within thirty (30) days after the Termination Date.

(b) If Executive’s employment is terminated as a result of a “For Cause Event” pursuant to Section 13, except for the payment of any amount required to be made by Section 16(a), from and after the Termination Date, the Company shall have no further obligation to Executive hereunder, including without limitation any obligation pursuant to Section 17.

(c) If the Executive’s employment is terminated (i) by him pursuant to Section 14(i); or (ii) by the Company other than as a result of a “For Cause Event” pursuant to Section 13; he shall be entitled to receive an amount equal to the full value of any Base Salary still remaining until the end of the Term plus an amount equal to three times the Base Salary at the time of termination. Notwithstanding the foregoing, if the Executive’s employment is terminated by the Company after a Change of Control has occurred for any reason other than as a result of a “For Cause Event” pursuant to Section 13, he shall be entitled to receive, upon the terms and subject to the conditions set forth in Section 17, the Parachute Amount (as hereinafter defined in Section 17). Any amount payable to Executive under this subparagraph shall be paid promptly, and in any event within thirty (30) days after the Termination Date.

(d) If the Executive’s employment terminates as a result of a Change of Control pursuant to Section 14(ii), he shall be entitled to receive, upon the terms and subject to the conditions set forth in Section 17, the Parachute Amount. Any amount payable to Executive under this subparagraph shall be paid promptly, and in any event within thirty (30) days after the Termination Date.

(e) If the Executive’s employment is terminated by him pursuant to Section 14(i) or 14(ii) of this Agreement, or by the Company other than as a result of a “For Cause Event” pursuant to Section 13, or if the Executive voluntarily terminates his employment pursuant to Section 15(a) of this Agreement, the Company shall for the two (2) year period following the Termination Date maintain and pay for Executive and his family, or reimburse Executive, for the cost of medical, dental, and hospitalization benefits comparable to such benefits maintained by the Company during the twelve (12) months prior to the Termination Date.

(f) Executive shall have no obligation hereunder to seek or to accept any other employment after the Termination Date or otherwise to mitigate the payments required to be made by this Section. No compensation or other amount received or receivable by Executive on account of any employment or engagement after the Termination Date shall be offset against or deducted from any payment required to be made by this Section 16 or Section 17.

(g) In the event the Company terminates Executive other than as a result of a “For Cause Event” pursuant to Section 13, or if the Executive’s employment is terminated by him pursuant to Section 14(i) or 14(ii) of this Agreement, Executive shall receive as his sole and exclusive remedy and damages the payments he would otherwise be entitled to receive under the applicable provisions of this Section 16 (and, if applicable, the other benefits provided under clause (h) of this Section 16).

(h) In the event of Executive’s death or if the Company terminates Executive for disability pursuant to Section 12, the Company shall pay, in the case of Executive’s death, Executive’s estate an amount equal to his then current Base Salary and in the event of termination for disability, an amount equal to two times his then current Base Salary. Any amount payable to Executive (or his estate) under this subparagraph shall be paid promptly, and in any event within thirty (30) days after the date Executive dies or is terminated for disability, as the case may be.

17. Change of Control.

(a) For the purposes of this Section 17:

(i) The “Act” is the Securities Exchange Act of 1934, as amended.

(ii) A “person” includes a “group” within the meaning of Section 13(d)(3) of the Act.

(iii) “Control” is used herein as defined in Rule 12b-2 under the Act.

(iv) “Beneficially owns” and “acquisition” are used herein as defined in Rules 13d-3 and 13d-5, respectively, under the Act.

(v) “Non-Affiliated Person” means any person, other than Executive, an employee stock ownership trust of the Company (or any trustee thereof for the benefit of such trust), or any person controlled by Executive, the Company or such a trust.

(vi) “Voting Securities” includes Common Stock and any other securities of the Company that ordinarily entitle the holders thereof to vote, together with the holders of Common Stock or as a separate class, with respect to matters submitted to a vote of the holders of Common Stock, but securities of the Company as to which the consent of the holders thereof is required by applicable law or the terms of such securities only with respect to certain specified transactions or other matters, or the holders of which are entitled to vote only upon the occurrence of certain specified events (such as default in the payment of a mandatory dividend on preferred stock or a scheduled installment of principal or interest of any debt security), shall not be Voting Securities.

(vii) “Right” means any option, warrant or other right to acquire any Voting Security (other than such a right of conversion or exchange included in a Voting Security).

(viii) The “Code” is the Internal Revenue Code of 1986, as amended.

(ix) “Base amount,” “present value” and “parachute payment” are used herein as defined in Section 280G of the Code.

(b) A “Change of Control” occurs when:

(i) a Non-Affiliated Person acquires control of the Company;

(ii) upon an acquisition of Voting Securities or Rights by a Non-Affiliated Person from persons other than the Executive (or persons controlled by the Executive) or any change in the number or voting power of outstanding Voting Securities, such Non-Affiliated Person beneficially owns Voting Securities or Rights entitling such person to cast a number of votes (determined in accordance with Section 17(g)) equal to or greater than 25% of the sum of (A) the number of votes that may be cast by all other holders of outstanding Voting Securities and (B) the number of votes that may be cast by such Non-Affiliated Person (determined in accordance with Section 17(g)); or

(iii) upon any change in the membership of the Company’s Board of Directors, a majority of the directors are persons who are not nominated or appointed by the Company’s Board of Directors as constituted prior to such change.

(c) The “Parachute Amount” to which Executive shall be entitled pursuant to Sections 16(c) and (d) shall equal 2.99 multiplied by the Executive’s base amount.

(d) It is intended that the present value of any payments or benefits to Executive, whether hereunder or otherwise, that are includible in the computation of the Parachute Amount shall not exceed 2.99 times the Executive’s base amount. Accordingly, if Executive receives any payment or benefit from the Company prior to payment of the Parachute Amount which, when added to the Parachute Amount, would subject any of the payments or benefits to Executive to the excise tax imposed by Section 4999 of the Code, the Parachute Amount shall be reduced by the least amount necessary to avoid such tax. The Company shall have no obligation hereunder to make any payment or provide any benefit to Executive after the payment of the Parachute Amount which would subject any of such payments or benefits to the excise tax imposed by Section 4999 of the Code.

(e) Any other provision hereof notwithstanding, Executive may (but only to the extent not prohibited by the United States securities laws, as then amended), prior to his receipt of the Parachute Amount pursuant to Section 17(d), waive the payment thereof, or, after his receipt of the Parachute Amount thereunder, treat some or all of such amount as a loan from the Company which Executive shall repay to the Company within 180 days after the receipt thereof, together with interest thereon at the rate provided in Section 7872 of the Code, in either case, by giving the Company notice to such effect.

(f) Any determination of the Executive’s base amount, the Parachute Amount, any liability for excise tax under Section 4999 of the Code or other matter required to be made pursuant to this Section 17, shall be made by the Company’s regularly-engaged independent certified public accountants, whose determination shall be conclusive and binding upon the Company and Executive; provided that such accountants shall give to Executive, on or before the date on which payment of the Parachute Amount or any later payment or benefit would be made, a notice setting forth in reasonable detail such determination and the basis therefor, and stating expressly that Executive is entitled to rely thereon.

(g) The number of votes that may be cast by holders of Voting Securities or Rights upon the issuance or grant thereof shall be deemed to be the largest number of votes that may be cast by the holders of such securities or the holders of any other Voting Securities into which such Voting Securities or Rights are convertible or for which they are exchangeable or exercisable, determined as though such Voting Securities or Rights were immediately convertible, exchangeable or exercisable and without regard to any anti-dilution or other adjustments provided for therein.

18. Other Termination Provisions.

(a) Throughout the 7-year period following the Termination Date, the Company shall indemnify Executive, and hold him harmless from, any loss, damages, liability, obligation or expense that he may suffer or incur in connection with any claim made or Proceeding commenced during such period relating to his service as a director, officer, employee or agent of the Company (or any subsidiary thereof) to the same extent and in same manner as the Company shall be obligated so to indemnify Executive immediately prior to the Termination Date; provided that, if during such 7-year period the Company adopts or assumes any indemnification policy or practice with respect to its directors, officers, employees or agents that is more favorable than that in effect on the Termination Date, Executive shall be entitled to such more favorable indemnification.

(b) Throughout the 7-year period following the Termination Date, the Company shall maintain for the benefit of Executive directors’ and officers’ liability insurance (on a “claims made” basis) providing coverage at least as favorable to Executive (including with respect to limits of liability, exclusions, and deductible and retention amounts) as that in effect on the Termination Date.

19. Limitation of Authority. Except as expressly provided herein, no provision hereof shall be deemed to authorize or empower either party hereto to act on behalf of, obligate or bind the other party hereto.

20. Notices. Any notice or demand required or permitted to be given or made hereunder to or upon either party hereto shall be deemed to have been duly given or made for all purposes if (a) in writing and sent by (i) messenger or an overnight courier service against receipt, or (ii) certified or registered mail, postage paid, return receipt requested, or (b) sent by telegram, telecopy, telex or similar electronic means, provided that a written copy thereof is sent on the same day by postage-paid first-class mail, to such party at the following address:

to the Company at: its then current address of its principal office as stated on the cover page of its most recent public filing under the Act and if such address is then Executive’s residence, to the address of the Company’s Chief Financial Officer.

with a copy to: Feder Kaszovitz LLP

845 Third Avenue, 11^th Floor

New York, New York 10022-6601

Attn: Irving Rothstein, Esq.

Fax: (212) 888-7776

to Executive at: 11 Royal Road

Brookline, MA 02445

Fax: (617) 975-3888

or such other address as either party hereto may at any time, or from time to time, direct by notice given to the other party in accordance with this Section. The date of giving or making of any such notice or demand shall be, in the case of clause (a) (i), the date of the receipt; in the case of clause (a) (ii), five business days after such notice or demand is sent; and, in the case of clause (b), the business day next following the date such notice or demand is sent.

21. Amendment. Except as otherwise provided herein, no amendment of this Agreement shall be valid or effective, unless in writing and signed by or on behalf of the parties hereto.

22. Waiver. No course of dealing or omission or delay on the part of either party hereto in asserting or exercising any right hereunder shall constitute or operate as a waiver of any such right. No waiver of any provision hereof shall be effective, unless in writing and signed by or on behalf of the party to be charged therewith. No waiver shall be deemed a continuing waiver or waiver in respect of any other or subsequent breach or default, unless expressly so stated in writing.

23. Governing Law. This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws of the Commonwealth of Massachusetts without regard to principles of choice of law or conflict of laws.

24. Jurisdiction. Each of the parties hereto hereby irrevocably consents and submits to the jurisdiction of the courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts in connection with any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, waives any objection to venue in the County of Norfolk, Commonwealth of Massachusetts, or such District, and agrees that service of any summons, complaint, notice or other process relating to such proceeding may be effected in the manner provided by clause (a) (ii) of Section 20.

25. Remedies. In the event of any actual or prospective breach or default by either party hereto, the other party shall be entitled to equitable relief, including remedies in the nature of rescission, injunction and specific performance. All remedies hereunder are cumulative and not exclusive, and nothing herein shall be deemed to prohibit or limit either party from pursuing any other remedy or relief available at law or in equity for such actual or prospective breach or default, including the recovery of damages.

26. Severability. The provisions hereof are severable and in the event that any provision of this Agreement shall be determined to be invalid or unenforceable in any respect by a court of competent jurisdiction, the remaining provisions hereof shall not be affected, but shall, subject to the discretion of such court, remain in full force and effect, and any invalid or unenforceable provision shall be deemed, without further action on the part of the parties hereto, amended and limited to the extent necessary to render the same valid and enforceable.

27. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and which together shall constitute one and the same agreement.

28. Assignment. This Agreement, and each right, interest and obligation hereunder, may not be assigned by either party hereto without the prior written consent of the other party hereto, and any purported assignment without such consent shall be void and without effect, except that this Agreement shall be assigned to, and assumed by, any person with or into which the Company merges or consolidates, or which acquires all or substantially all of its assets, or which otherwise succeeds to and continues the Company’s business substantially as an entirety. Except as otherwise expressly provided herein or required by law, Executive shall not have any power of anticipation, assignment or alienation of any payments required to be made to him hereunder, and no other person may acquire any right or interest in any thereof by reason of any purported sale, assignment or other disposition thereof, whether voluntary or involuntary, any claim in a bankruptcy or other insolvency proceeding against Executive, or any other ruling, judgment, order, writ or decree.

29. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement is not intended, and shall not be deemed, to create or confer any right or interest for the benefit of any person not a party hereto.

30. Titles and Captions. The titles and captions of the Articles and Sections of this Agreement are for convenience of reference only and do not in any way define or interpret the intent of the parties or modify or otherwise affect any of the provisions hereof.

31. Grammatical Conventions. Whenever the context so requires, each pronoun or verb used herein shall be construed in the singular or the plural sense and each capitalized term defined herein and each pronoun used herein shall be construed in the masculine, feminine or neuter sense.

32. References. The terms "herein," "hereto," "hereof," "hereby," and "hereunder," and other terms of similar import, refer to this Agreement as a whole, and not to any Article, Section or other part hereof.

33. No Presumptions. Each party hereto acknowledges that it has had an opportunity to consult with counsel and has participated in the preparation of this Agreement. No party hereto is entitled to any presumption with respect to the interpretation of any provision hereof or the resolution of any alleged ambiguity herein based on any claim that the other party hereto drafted or controlled the drafting of this Agreement.

34. Entire Agreement. This Agreement embodies the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes any prior agreement, commitment or arrangement relating thereto, written or oral, if any, which shall terminate immediately upon the commencement of the Term, except that each party thereto shall (a) remain required to perform any act and to satisfy any obligation or condition that such party is required to perform or satisfy thereunder with respect to any event occurring or circumstance existing prior to the commencement of the Term hereof (including without limitation the payment or delivery to Executive of any compensation, reimbursable expense or employee benefit or perquisite to which he may be entitled, but which has not yet been paid to him, on account of his employment under any such prior arrangement) that has not been so performed or satisfied, and (b) retain his or its right under any such prior assignment to assert or to allege any claim or cause of action relating to or based upon, or otherwise to enforce, any provision thereof with respect to any event occurring or circumstance existing during the term thereof.

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the day and year first above written.

THE COMPANY:

WORLDS INC.

By:

Name: Robert Fireman

Title: Director (on behalf of the Board)

EXECUTIVE:

Thomas Kidrin

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2011-01-01 2011-12-31 0000001961 us-gaap:RetainedEarningsMember 2009-12-31 0000001961 us-gaap:RetainedEarningsMember 2010-12-31 0000001961 us-gaap:RetainedEarningsMember 2011-12-31 0000001961 2010-01-01 2010-12-31 0000001961 2009-12-31 0000001961 2013-03-22 0000001961 2000-12-31 0000001961 2010-01-01 2011-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares utr:Y xbrli:pure utr:M WORLDS INC 0000001961 10-K 2012-12-31 false --12-31 No No Yes Smaller Reporting Company FY 2012 95069 152526 400848 134654 43819 82633 229724 278978 7000 236724 278978 3525121 3438259 797908 798808 1953934 1866172 773279 773279 79813 74862 1500 525 236724 278978 -3288397 -3159281 -3159281 62780 74862 79813 23453111 25231804 26580244 203237 -10000 3358 525 1500 -12500 -26771832 -28466471 -30130692 -3252582 26580244 25231804 -30130692 -28466471 -10000 100000000 100000000 79813071 74862146 79813071 74862146 1500000 525000 -12500 199 86459 -86260 355761 333249 240858 200094 -1664221 -1694640 -1664221 1664221 -1694640 -1664221 -1694640 -0.02 -0.02 76792137 69984791 0 759 82633 -10258 66864 63420 -90835 -43819 460000 150000 118446 7500 58000 -2400 467500 324046 -57458 -248322 276950 -7000 203237 680000 62781122 74862146 79813071 3358331 525000 1500000 309741 310 72065 72375 5348619 3100925 500000 -525000 5349 3101 1088133 371609 500 -525 -12500 1093982 361684 4333331 1700000 -3333331 1500000 460000 4333 1700 149000 466800 -10000 -3333 1500 150000 1160804 150000 7500 1161 150 117285 7350 118446 928529 705918 929 57071 705918 58000 631950 276950 276950 18188 18188 83938071 NOTE 9 - PATENTS Worlds Inc. currently has seven patents, 6,219,045 - 7,181,690 - 7,493,558 7,945,856, - 8,082,501, 8,145,998 and 8,161,383. On March 30, 2012, the Company filed a patent infringement lawsuit against Activision Bizzard Inc., Blizzard Entertainment Inc. and Activision Publishing Inc. in the United States District Court for the District of Massachusetts. Susman Godfrey LLP is lead counsel for the Company. The costs to prosecute those parties that the Company and our legal counsel believe to be infringing on said patents were capitalized under patents until a resolution is reached. There can be no assurance that the Company will be successful in our ability to prosecute our IP portfolio or that we will be able to acquire additional patents. -517958 -572368 7680034 NOTE 6 STOCK OPTIONS   During the year ended December 31, 2012, the Company issued 8,000,000 stock options to directors and officers of the Company. 7,500,000 stock options were issued as part of the employment agreement with its President and CEO, Thom Kidrin. The stock option allows Thom Kidrin to purchase 7,500,000 shares of the Companys common stock at $0.076 per share per each individual option. The option allows. The options expire on March 31, 2014. The Company issued 300,000 stock options to Chris Ryan, the Companys CFO. The stock option allows Chris Ryan to purchase 300,000 shares of the Companys common stock at $0.0115 per share per each individual option. The options expire on September 30, 2017. The Company issued 100,000 shares to each of the Companys directors, Bernard Stolar and Robert Fireman. The stock options allow each director to purchase 100,000 shares of the Companys common stock at $0.0115 per share per each individual option. The options expire on September 30, 2017. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the options.   During the period ended December 31, 2012, the Company recorded an expense of $705,918, equal to the estimated fair value of the options at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 1.6% risk-free interest, 0% dividend yield, 279% volatility, and expected life of 1.5 years for Mr Kidrins options and 4.5 years for the remaining options.   No stock options were issued in the year ended December 31, 2011.   During the year ended December 31, 2011, 1,160,804 warrants were exercised and 928,529 stock options were exercised for cash proceeds of $118,446 and $58,000, respectively.   <table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>     Stock Warrants and Options</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center; line-height: 115%">Stock warrants/options outstanding and exercisable on December 31, 2012 are as follows:</td></tr> <tr style="vertical-align: top"> <td style="line-height: 115%"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="text-align: center; line-height: 115%">Exercise Price per Share</td> <td style="line-height: 115%"> </td> <td colspan="3" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%">Shares Under Option/warrant</td> <td style="line-height: 115%"> </td> <td colspan="7" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%">Remaining Life in Years</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="text-align: center; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td colspan="7" style="text-align: center; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="line-height: 115%">Outstanding</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="width: 40%; text-align: center; line-height: 115%">$0.35</td> <td style="width: 1%; line-height: 115%"> </td> <td style="width: 12%; line-height: 115%"> </td> <td style="width: 18%; text-align: right; line-height: 115%">212,500</td> <td style="width: 1%; line-height: 115%"> </td> <td style="width: 3%; line-height: 115%"> </td> <td style="width: 1%; line-height: 115%"> </td> <td style="width: 11%; text-align: right; line-height: 115%">1.00</td> <td style="width: 0%; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center; line-height: 115%">$0.20</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">300,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">1.00</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center; line-height: 115%">$0.15</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">1,537,500</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">2.00</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center; line-height: 115%">$0.115</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">500,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">4.83</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center; line-height: 115%">$0.11</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">150,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">2.30</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center; line-height: 115%">$0.11</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">300,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">.30</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center; line-height: 115%">$0.076</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">7,500,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%; font-size: 12pt">1.25</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center; line-height: 115%">$0.05</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">600,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">.85</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="line-height: 115%">Exercisable</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center; line-height: 115%">$0.35</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">212,500</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">1.00</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center; line-height: 115%">$0.20</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">300,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">1.00</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center; line-height: 115%">$0.15</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">1,537,500</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">2.00</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center; line-height: 115%">$0.11</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">150,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">2.30</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center; line-height: 115%">$0.11</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">300,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">.30</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center; line-height: 115%">$0.076</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">7,500,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">1.25</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center; line-height: 115%">$0.05</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">600,000</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">.85</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> </table>     NOTE 7 - INCOME TAXES   At December 31, 2012, the Company had federal and state net operating loss carry forwards of approximately $41,200,000  that expire in various years through the year 2025.   Due to operating losses, there is no provision for current federal or state income taxes for the year ended December 31, 2012 and 2011.   Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.   The Companys deferred tax asset at December 31, 2012 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $16,060,000 less a valuation allowance in the amount of approximately $16,060,000. Because of the Companys lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $220,000 and $240,000 for the years ended December 31, 2012 and 2011, respectively.   The Companys total deferred tax asset as of December 31, 2012 is as follows:   <table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="width: 70%; line-height: 115%">Net operating loss carry forwards</td> <td style="width: 10%; line-height: 115%"> </td> <td style="width: 1%; line-height: 115%">$</td> <td style="width: 18%; text-align: right; line-height: 115%">16,060,000</td> <td style="width: 1%; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="line-height: 115%">Valuation allowance</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%">(16,060,000)</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="line-height: 115%">Net deferred tax asset</td> <td style="line-height: 115%"> </td> <td style="border-bottom: windowtext 1pt solid; line-height: 115%">$</td> <td style="border-bottom: windowtext 1pt solid; text-align: right; line-height: 115%"></td> <td style="line-height: 115%"> </td></tr> </table>     The reconciliation of income taxes computed at the federal and state statutory income tax rate to total income taxes for the year ended December 31, 2012 and 2011 is as follows:   <table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%"> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 80%; line-height: 115%">Income tax computed at the federal statutory rate</td> <td style="width: 20%; text-align: center; line-height: 115%">34%</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="line-height: 115%">Income tax computed at the state statutory rate</td> <td style="text-align: center; line-height: 115%">5%</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="line-height: 115%">Valuation allowance</td> <td style="border-bottom: black 1pt solid; text-align: center; line-height: 115%">(39%)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="line-height: 115%">Total deferred tax asset</td> <td style="border-bottom: black 2.25pt double; text-align: center; line-height: 115%">0%</td></tr></table>     NOTE 10 - Subsequent Events On March 14, 2013 the Company entered into strategic financing agreements with several institutional investors that could provide the Company with up to $2.3 million of debt financing based upon the amount of conversions and redemptions. The transaction documents provide, among other things, that (i) the investors will receive five year warrants in an amount equal to 100% of the number of shares of our common stock the investors would receive if the Notes (defined below) were converted on March 13, 2013, at an exercise price of $0.50 per share, (ii) $1.950 million of the funds will deposited in one of our bank accounts but will be subject to a control account agreement which will provide that the Company can only withdraw funds from the account as the investors convert or redeem the Notes, (iii) the investors have demand and piggy-back registration rights for the shares of common stock underlying the warrants and Notes, (iv) the Notes will be secured by a first priority security interest in all of our assets, other than its patents, (v) each investor may not convert any Note or exercise any warrants if doing so will cause the investor to own more than 4.99% of our outstanding common stock at any time, although under certain circumstances they can each own up to 9.99% of our outstanding common stock, (vi) we paid $40,000 of the investors legal fees incurred with respect to this transaction, and (vii) for the next three years the investors have a right to participate in up to 50% of any of our future financings. The warrants and Notes contain standard anti-dilution provisions and the Securities Purchase Agreements contains standard covenants for a financing of this nature. In the event the Company acquire any subsidiaries while the Notes are outstanding, such subsidiaries will be obligated to guaranty the Notes and any other obligations we owe to the investors pursuant to the transaction documents.   We will issue an aggregate of $2.4 million face amount of Senior Secured Convertible Notes (the Notes). The Notes are divided into Series A, Series B and Series C with the Series A and B Notes aggregating to $1.95 million and the Series C Notes aggregating to $450,000. All of the Notes carry a 14% annual interest rate and are payable on March 13, 2016. Until July 1, 2013 (i) the Series A Notes initially convert into our common stock at a rate of $0.50 per share, (ii) the Series B initially convert at a rate of $0.75 per share and (iii) the Series C Notes initially convert at a rate of $0.35 per share, in each case subject to adjustments as provided in the Notes. Commencing July 1, 2013, the conversion rate for all Notes becomes the lower of (x) the conversion rate described above or (y) 85% of the average of the daily VWAP of each trading day during the twenty (20) consecutive trading day period ending on the trading day immediately prior to the conversion date, subject to adjustments as provided in the Notes. We have the right to redeem, at 120% of face value, up to 75% of the Series A and Series B Notes. NOTE 5- PROPERTY AND EQUIPMENT   The detail composition of property and equipment at December 31, 2012 and December 31, 2011 is as follows:   <table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"></td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"></td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">December 31,2012</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%">December 31, 2011</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="width: 56%; line-height: 115%">Computer equipment</td> <td style="width: 1%; line-height: 115%"> </td> <td style="width: 2%; line-height: 115%">$</td> <td style="width: 18%; text-align: right; line-height: 115%">10,891</td> <td style="width: 1%; line-height: 115%"> </td> <td style="width: 1%; line-height: 115%"> </td> <td style="width: 2%; line-height: 115%">$</td> <td style="width: 18%; text-align: right; line-height: 115%">10,891</td> <td style="width: 1%; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="line-height: 115%">Less: accumulated depreciation</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%">10,891</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%">10,891</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="line-height: 115%"> Net book value</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 2.25pt double; line-height: 115%">$</td> <td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%; font-size: 10pt">-0-</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 2.25pt double; line-height: 115%">$</td> <td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> </table>   Depreciation expense recorded for the years ended December 31, 2012 and 2011 was $0 and $759, respectively. Property and Equipment   Property and equipment are stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets ranging from three to five years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Maintenance and repairs are charged to expense in the period incurred. 10891 10891 10891 10891 0 0 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td colspan="3" style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center">Stock Options</td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td colspan="11">Stock warrants/options outstanding and exercisable on December 31, 2012 are as follows</td></tr> <tr style="vertical-align: bottom"> <td colspan="3" style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: right"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: center">Exercise Price per Share</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: left">Shares Under Option/warrants</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: center"> </td><td style="border-bottom: Black 1pt solid; text-align: center">Remaining Life of Years</td><td style="padding-bottom: 1pt; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left"> </td><td style="text-align: center"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center"> </td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: left"> </td><td style="text-align: left">Outstanding</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center"> </td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 1%; text-align: left">$</td><td style="width: 26%; text-align: center">0.35</td><td style="width: 1%; text-align: left"> </td><td style="width: 4%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 30%; text-align: right">212,500</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td> <td style="width: 1%; text-align: center"> </td><td style="width: 26%; text-align: center">1.00</td><td style="width: 1%; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">$</td><td style="text-align: center">0.20</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">300,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">1.00</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">$</td><td style="text-align: center">0.15</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">1,537,500</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">2.00</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">$</td><td style="text-align: center">0.115</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">500,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">4.83</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">$</td><td style="text-align: center">0.11</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">150,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">2.30</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">$</td><td style="text-align: center">0.11</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">300,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">.30</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">$</td><td style="text-align: center">0.076</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">7,500,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">1.25</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">$</td><td style="text-align: center">0.05</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">600,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">.85</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"> </td><td style="text-align: center"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center"> </td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left"> </td><td style="text-align: left">Exercisable</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center"> </td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">$</td><td style="text-align: center">0.35</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">212,500</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">1.00</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">$</td><td style="text-align: center">0.20</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">300,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">1.00</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">$</td><td style="text-align: center">0.15</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">1,537,500</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">2.00</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">$</td><td style="text-align: center">0.11</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">150,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">2.30</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">$</td><td style="text-align: center">0.11</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">300,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">.30</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">$</td><td style="text-align: center">0.076</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">7,500,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">1.25</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">$</td><td style="text-align: center">0.05</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">600,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center">.85</td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left"> </td><td style="text-align: center"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center"> </td><td style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"> </td><td style="text-align: center"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: center"> </td><td style="text-align: center"> </td><td style="text-align: center"> </td></tr> </table>       NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES   Description of Business   On May 16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against alleged infringers. The Company also entered into a License Agreement with Worlds Online Inc. to sublicense its patented technologies.   Basis of Presentation   The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. For the past year the Company has been operating at a significantly reduced capacity, with only one full time employee, performing primarily consulting services and licensing software and using consultants to perform any additional work that may be required.   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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.   Cash and Cash Equivalents   Cash and cash equivalents are comprised of highly liquid money market instruments, which have original maturities of three months or less at the time of purchase.   Due from Related Party   Due from related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses.   Revenue Recognition   Effective for the second quarter of 2011, the Company spun off its online businesses to Worlds Online Inc. The Companys sources of revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents prior to the spin-off , the Company had the following sources of revenue: (1) consulting/licensing revenue from the performance of development work performed on behalf of the Company, licensing revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and collectibility is reasonable assured. This will usually be in the form of a receipt of a customers acceptance indicating the product has been completed to their satisfaction except for development work and service revenue which is recognized when the services have been performed. Deferred revenue represents cash payments received in advance to be recorded as revenue when earned. The corresponding cost associated with those contracts is also deferred as deferred costs until the revenue is ultimately recognized.   Research and Development Costs   Research and development costs are charged to operations as incurred.   Property and Equipment   Property and equipment are stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets ranging from three to five years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Maintenance and repairs are charged to expense in the period incurred.   Impairment of Long Lived Assets   The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during 2012 and 2011.   Stock-Based Compensation   The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.   Income Taxes   The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.   ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.   Notes Payable   The Company has $773,279 in short term notes outstanding at December 31, 2012 and 2011.   Deferred Revenue   As part of a debt refinancing in 2000, $631,950 of debt was renegotiated to deferred revenue representing future services to be provided by the Company. $355,000 has been amortized into income since then. The balance was transferred over to Worlds Online Inc. and no longer appears on the Companys balance sheets.   Call Option Agreements   The Company has entered into call option agreements with 13 of its major shareholders. The call options give the Company the right to purchase up to 4,150,000 shares of stock back at prices ranging from $0.15 per share up to $0.40 per share. The Company issued an aggregate of 680,000 shares of stock to these shareholders as an inducement to enter into these call option agreements. The call option agreements have expiration dates of 1 and 2 years. In 2011, 12 of the call options were extended for 1 year. The Company issued 315,000 additional shares as an inducement to enter into the 1 year extensions. At December 31, 2012 all call options have expired   Comprehensive Income (Loss)   The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.   Loss Per Share   Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of December 31, 2012 and 2011.   Commitments and Contingencies   The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.   If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Companys financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.   Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Companys financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Companys business, financial position, and results of operations or cash flows.    During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of December 31, 2012, and 2011 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets.   Risk and Uncertainties   The Company is subject to risks common to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.   Off Balance Sheet Arrangements   The Company does not have any off-balance sheet arrangements.   Uncertain Tax Positions   The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the years ended December 31, 2012 or 2011.   Subsequent Events On March 14, 2013 the Company entered into strategic financing agreements with several institutional investors that could provide the Company with up to $2.3 million of debt financing based upon the amount of conversions and redemptions. The transaction documents provide, among other things, that (i) the investors will receive five year warrants in an amount equal to 100% of the number of shares of our common stock the investors would receive if the Notes (defined below) were converted on March 13, 2013, at an exercise price of $0.50 per share, (ii) $1.950 million of the funds will deposited in one of our bank accounts but will be subject to a control account agreement which will provide that the Company can only withdraw funds from the account as the investors convert or redeem the Notes, (iii) the investors have demand and piggy-back registration rights for the shares of common stock underlying the warrants and Notes, (iv) the Notes will be secured by a first priority security interest in all of our assets, other than its patents, (v) each investor may not convert any Note or exercise any warrants if doing so will cause the investor to own more than 4.99% of our outstanding common stock at any time, although under certain circumstances they can each own up to 9.99% of our outstanding common stock, (vi) we paid $40,000 of the investors legal fees incurred with respect to this transaction, and (vii) for the next three years the investors have a right to participate in up to 50% of any of our future financings. The warrants and Notes contain standard anti-dilution provisions and the Securities Purchase Agreements contains standard covenants for a financing of this nature. In the event the Company acquire any subsidiaries while the Notes are outstanding, such subsidiaries will be obligated to guaranty the Notes and any other obligations we owe to the investors pursuant to the transaction documents. We issued an aggregate of $2.4 million face amount of Senior Secured Convertible Notes (the Notes). The Notes are divided into Series A, Series B and Series C with the Series A and B Notes aggregating to $1.95 million and the Series C Notes aggregating to $450,000. All of the Notes carry a 14% annual interest rate and are payable on March 13, 2016. Until July 1, 2013 (i) the Series A Notes initially convert into our common stock at a rate of $0.50 per share, (ii) the Series B initially convert at a rate of $0.75 per share and (iii) the Series C Notes initially convert at a rate of $0.35 per share, in each case subject to adjustments as provided in the Notes. Commencing July 1, 2013, the conversion rate for all Notes becomes the lower of (x) the conversion rate described above or (y) 85% of the average of the daily VWAP of each trading day during the twenty (20) consecutive trading day period ending on the trading day immediately prior to the conversion date, subject to adjustments as provided in the Notes. We have the right to redeem, at 120% of face value, up to 75% of the Series A and Series B Notes.    Recent Accounting Pronouncements   The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations. In May 2011, FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04).  ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.  The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures. In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income (ASU 2011-05), which amends current comprehensive income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders equity.  Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted.  The Company is reviewing ASU 2011-05 to ascertain its impact on the Companys financial position, results of operations or cash flows as it only requires a change in the format of the current presentation. In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which allows, but does not require, an entity when performing its annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created in ASU 2011-08, the calculation of a reporting units fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that fair value of the reporting unit is less than its carrying amount. If it is less, the quantitative impairment test is then required. ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did not impact the Companys results of operations or financial condition. In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial condition. In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The guidance allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, before determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is in the process of evaluating the guidance and the impact ASU 2012-02 will have on its financial statements.  NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES   Description of Business   On May 16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against alleged infringers. The Company also entered into a License Agreement with Worlds Online Inc. to sublicense its patented technologies.   Basis of Presentation   The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. For the past year the Company has been operating at a significantly reduced capacity, with only one full time employee, performing primarily consulting services and licensing software and using consultants to perform any additional work that may be required.   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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.   Cash and Cash Equivalents   Cash and cash equivalents are comprised of highly liquid money market instruments, which have original maturities of three months or less at the time of purchase.   Due from Related Party   Due from related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses.   Revenue Recognition   Effective for the second quarter of 2011, the Company spun off its online businesses to Worlds Online Inc. The Companys sources of revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents prior to the spin-off , the Company had the following sources of revenue: (1) consulting/licensing revenue from the performance of development work performed on behalf of the Company, licensing revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and collectibility is reasonable assured. This will usually be in the form of a receipt of a customers acceptance indicating the product has been completed to their satisfaction except for development work and service revenue which is recognized when the services have been performed. Deferred revenue represents cash payments received in advance to be recorded as revenue when earned. The corresponding cost associated with those contracts is also deferred as deferred costs until the revenue is ultimately recognized.   Research and Development Costs   Research and development costs are charged to operations as incurred.   Property and Equipment   Property and equipment are stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets ranging from three to five years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Maintenance and repairs are charged to expense in the period incurred.   Impairment of Long Lived Assets   The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during 2012 and 2011.   Stock-Based Compensation   The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.   Income Taxes   The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.   ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.   Notes Payable   The Company has $773,279 in short term notes outstanding at December 31, 2012 and 2011.   Deferred Revenue   As part of a debt refinancing in 2000, $631,950 of debt was renegotiated to deferred revenue representing future services to be provided by the Company. $355,000 has been amortized into income since then. The balance was transferred over to Worlds Online Inc. and no longer appears on the Companys balance sheets.   Call Option Agreements   The Company has entered into call option agreements with 13 of its major shareholders. The call options give the Company the right to purchase up to 4,150,000 shares of stock back at prices ranging from $0.15 per share up to $0.40 per share. The Company issued an aggregate of 680,000 shares of stock to these shareholders as an inducement to enter into these call option agreements. The call option agreements have expiration dates of 1 and 2 years. In 2011, 12 of the call options were extended for 1 year. The Company issued 315,000 additional shares as an inducement to enter into the 1 year extensions. At December 31, 2012 all call options have expired   Comprehensive Income (Loss)   The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.   Loss Per Share   Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of December 31, 2012 and 2011.   Commitments and Contingencies   The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.   If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Companys financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.   Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Companys financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Companys business, financial position, and results of operations or cash flows.    During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of December 31, 2012, and 2011 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets.   Risk and Uncertainties   The Company is subject to risks common to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.   Off Balance Sheet Arrangements   The Company does not have any off-balance sheet arrangements.   Uncertain Tax Positions   The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the years ended December 31, 2012 or 2011.   Subsequent Events On March 14, 2013 the Company entered into strategic financing agreements with several institutional investors that could provide the Company with up to $2.3 million of debt financing based upon the amount of conversions and redemptions. The transaction documents provide, among other things, that (i) the investors will receive five year warrants in an amount equal to 100% of the number of shares of our common stock the investors would receive if the Notes (defined below) were converted on March 13, 2013, at an exercise price of $0.50 per share, (ii) $1.950 million of the funds will deposited in one of our bank accounts but will be subject to a control account agreement which will provide that the Company can only withdraw funds from the account as the investors convert or redeem the Notes, (iii) the investors have demand and piggy-back registration rights for the shares of common stock underlying the warrants and Notes, (iv) the Notes will be secured by a first priority security interest in all of our assets, other than its patents, (v) each investor may not convert any Note or exercise any warrants if doing so will cause the investor to own more than 4.99% of our outstanding common stock at any time, although under certain circumstances they can each own up to 9.99% of our outstanding common stock, (vi) we paid $40,000 of the investors legal fees incurred with respect to this transaction, and (vii) for the next three years the investors have a right to participate in up to 50% of any of our future financings. The warrants and Notes contain standard anti-dilution provisions and the Securities Purchase Agreements contains standard covenants for a financing of this nature. In the event the Company acquire any subsidiaries while the Notes are outstanding, such subsidiaries will be obligated to guaranty the Notes and any other obligations we owe to the investors pursuant to the transaction documents. We will issue an aggregate of $2.4 million face amount of Senior Secured Convertible Notes (the Notes). The Notes are divided into Series A, Series B and Series C with the Series A and B Notes aggregating to $1.95 million and the Series C Notes aggregating to $450,000. All of the Notes carry a 14% annual interest rate and are payable on March 13, 2016. Until July 1, 2013 (i) the Series A Notes initially convert into our common stock at a rate of $0.50 per share, (ii) the Series B initially convert at a rate of $0.75 per share and (iii) the Series C Notes initially convert at a rate of $0.35 per share, in each case subject to adjustments as provided in the Notes. Commencing July 1, 2013, the conversion rate for all Notes becomes the lower of (x) the conversion rate described above or (y) 85% of the average of the daily VWAP of each trading day during the twenty (20) consecutive trading day period ending on the trading day immediately prior to the conversion date, subject to adjustments as provided in the Notes. We have the right to redeem, at 120% of face value, up to 75% of the Series A and Series B Notes.    Recent Accounting Pronouncements   The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations. In May 2011, FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04).  ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.  The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures. In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income (ASU 2011-05), which amends current comprehensive income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders equity.  Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted.  The Company is reviewing ASU 2011-05 to ascertain its impact on the Companys financial position, results of operations or cash flows as it only requires a change in the format of the current presentation. In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which allows, but does not require, an entity when performing its annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created in ASU 2011-08, the calculation of a reporting units fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that fair value of the reporting unit is less than its carrying amount. If it is less, the quantitative impairment test is then required. ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did not impact the Companys results of operations or financial condition. In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial condition. In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The guidance allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, before determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is in the process of evaluating the guidance and the impact ASU 2012-02 will have on its financial statements.  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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents   Cash and cash equivalents are comprised of highly liquid money market instruments, which have original maturities of three months or less at the time of purchase. Due from Related Party   Due from related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses. Revenue Recognition   Effective for the second quarter of 2011, the Company spun off its online businesses to Worlds Online Inc. The Companys sources of revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents prior to the spin-off, the Company had the following sources of revenue: (1) consulting/licensing revenue from the performance of development work performed on behalf of the Company, licensing revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and collectibility is reasonable assured. This will usually be in the form of a receipt of a customers acceptance indicating the product has been completed to their satisfaction except for development work and service revenue which is recognized when the services have been performed. Deferred revenue represents cash payments received in advance to be recorded as revenue when earned. The corresponding cost associated with those contracts is also deferred as deferred costs until the revenue is ultimately recognized. Research and Development Costs   Research and development costs are charged to operations as incurred. Impairment of Long Lived Assets   The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during 2012 and 2011. Stock-Based Compensation   The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Income Taxes   The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.   ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. NOTE 4 - NOTES PAYABLE   <table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>   Short term notes payable at December 31, 2012 consist of the following:</td> <td style="line-height: 115%"> </td> <td colspan="3" style="text-align: center; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="text-align: center; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td colspan="5" style="line-height: 115%">Unsecured note payable to a shareholder bearing 8% interest.</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="width: 70%; line-height: 115%">Entire balance of principal and unpaid interest due on demand</td> <td style="width: 10%; line-height: 115%"> </td> <td style="width: 1%; line-height: 115%">$</td> <td style="width: 18%; text-align: right; line-height: 115%">124,230</td> <td style="width: 1%; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Unsecured note payable to a shareholder bearing 10% interest</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Entire balance of principal and unpaid interest due on demand</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%">649,049</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Total current</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%">773,279</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">2013</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">773,279</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">2014</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">2015</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">2016</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">2017</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%">773,279</td> <td style="line-height: 115%"> </td></tr></table> Deferred Revenue   As part of a debt refinancing in 2000, $631,950 of debt was renegotiated to deferred revenue representing future services to be provided by the Company. $355,000 has been amortized into income since then. The balance was transferred over to Worlds Online Inc. and no longer appears on the Companys balance sheets. Call Option Agreements   The Company has entered into call option agreements with 13 of its major shareholders. The call options give the Company the right to purchase up to 4,150,000 shares of stock back at prices ranging from $0.15 per share up to $0.40 per share. The Company issued an aggregate of 680,000 shares of stock to these shareholders as an inducement to enter into these call option agreements. The call option agreements have expiration dates of 1 and 2 years. In 2011, 12 of the call options were extended for 1 year. The Company issued 315,000 additional shares as an inducement to enter into the 1 year extensions. At December 31, 2012 all call options have expired Comprehensive Income (Loss)   The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements. Loss Per Share   Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of December 31, 2012 and 2011. Commitments and Contingencies   The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.   If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Companys financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.   Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Companys financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Companys business, financial position, and results of operations or cash flows.    During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of December 31, 2012, and 2011 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets. Risk and Uncertainties   The Company is subject to risks common to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel. Off Balance Sheet Arrangements   The Company does not have any off-balance sheet arrangements. Uncertain Tax Positions   The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the years ended December 31, 2012 or 2011. Subsequent Events On March 14, 2013 the Company entered into strategic financing agreements with several institutional investors that could provide the Company with up to $2.3 million of debt financing based upon the amount of conversions and redemptions. The transaction documents provide, among other things, that (i) the investors will receive five year warrants in an amount equal to 100% of the number of shares of our common stock the investors would receive if the Notes (defined below) were converted on March 13, 2013, at an exercise price of $0.50 per share, (ii) $1.850 million of the funds will deposited in one of our bank accounts but will be subject to a control account agreement which will provide that the Company can only withdraw funds from the account as the investors convert or redeem the Notes, (iii) the investors have demand and piggy-back registration rights for the shares of common stock underlying the warrants and Notes, (iv) the Notes will be secured by a first priority security interest in all of our assets, other than its patents, (v) each investor may not convert any Note or exercise any warrants if doing so will cause the investor to own more than 4.99% of our outstanding common stock at any time, although under certain circumstances they can each own up to 9.99% of our outstanding common stock, (vi) we will pay $40,000 of the investors legal fees incurred with respect to this transaction, and (vii) for the next three years the investors have a right to participate in up to 50% of any of our future financings. The warrants and Notes contain standard anti-dilution provisions and the Securities Purchase Agreements contains standard covenants for a financing of this nature. In the event the Company acquire any subsidiaries while the Notes are outstanding, such subsidiaries will be obligated to guaranty the Notes and any other obligations we owe to the investors pursuant to the transaction documents. We issued an aggregate of $2.4 million face amount of Senior Secured Convertible Notes (the Notes). The Notes are divided into Series A, Series B and Series C with the Series A and B Notes aggregating to $1.95 million and the Series C Notes aggregating to $450,000. All of the Notes carry a 14% annual interest rate and are payable on March 13, 2016. Until July 1, 2013 (i) the Series A Notes initially convert into our common stock at a rate of $0.50 per share, (ii) the Series B initially convert at a rate of $0.75 per share and (iii) the Series C Notes initially convert at a rate of $0.35 per share, in each case subject to adjustments as provided in the Notes. Commencing July 1, 2013, the conversion rate for all Notes becomes the lower of (x) the conversion rate described above or (y) 85% of the average of the daily VWAP of each trading day during the twenty (20) consecutive trading day period ending on the trading day immediately prior to the conversion date, subject to adjustments as provided in the Notes. We have the right to redeem, at 120% of face value, up to 75% of the Series A and Series B Notes.   Recent Accounting Pronouncements   The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations. In May 2011, FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04).  ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.  The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures. In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income (ASU 2011-05), which amends current comprehensive income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders equity.  Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted.  The Company is reviewing ASU 2011-05 to ascertain its impact on the Companys financial position, results of operations or cash flows as it only requires a change in the format of the current presentation. In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which allows, but does not require, an entity when performing its annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created in ASU 2011-08, the calculation of a reporting units fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that fair value of the reporting unit is less than its carrying amount. If it is less, the quantitative impairment test is then required. ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did not impact the Companys results of operations or financial condition. In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial condition. In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The guidance allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, before determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is in the process of evaluating the guidance and the impact ASU 2012-02 will have on its financial statements.  4150000 2 100 0.15 315000 773279 205000 0.01 0.01 205000 P5Y 40000 361684 1093.982 525000 374184 1093482 12500 118446 1160804 0.01 0.15 150000 928529 82633 131747 38558 72375 3333331 4333331 470000 15000 400000 10000 0.05 0.30 0.05 0 -203237 -203237 203237 203237 705918 18188 NOTE 3 - PRIVATE PLACEMENTS OF EQUITY   During the year ended December 31, 2011, the Company issued an aggregate of 5,348,619 shares of common stock as payment for services rendered with an aggregate value of $1,093,482.   During the year ended December 31, 2011, the Company raised $118,446 with the exercise of warrants covering 1,160,804 shares of its common stock at a price per share ranging from $0.01 to $0.15 per share.   During the year ended December 31, 2011, the Company raised $58,000 with the exercise of options covering 928,529 shares of its common stock at a price ranging from $0.05 to $0.30 per share. 128,529 of those shares were exercised on a cashless basis by the surrender to the Company of an aggregate of 131,747 options with a value of $38,558 being equal to the difference in price between the exercise price and the market price on the date of exercise.   During the year ended December 31, 2011, the Company issued 4,333,331 common shares for a cash investment of $150,000. Included in these shares were 3,333,331 in shares from the prior year that were issued for $400,000.   During the year ended December 31, 2012, the Company sold 3,200,000 common shares for a cash investment of $470,000. $10,000 from the 4th quarter financing was not received until 2013 and 1,500,000 shares were subscribed but not yet issued at December 31, 2012.   During the year ended December 31, 2012, the Company issued an aggregate of 2,575,925 shares of common stock as payment for services rendered with an aggregate value of $374,184, $12,500 of which was deferred and performed in the first quarter in 2013. The Company also issued an aggregate of 525,000 shares of common stock for services rendered in prior years.   During the year ended December 31, 2012, the Company raised $7,500 with the exercise of options covering 150,000 shares of its common stock at a price of $0.05 per share. <table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>   Short term notes payable at December 31, 2012 consist of the following:</td> <td style="line-height: 115%"> </td> <td colspan="3" style="text-align: center; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center; line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="text-align: center; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td colspan="5" style="line-height: 115%">Unsecured note payable to a shareholder bearing 8% interest.</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="width: 70%; line-height: 115%">Entire balance of principal and unpaid interest due on demand</td> <td style="width: 10%; line-height: 115%"> </td> <td style="width: 1%; line-height: 115%">$</td> <td style="width: 18%; text-align: right; line-height: 115%">124,230</td> <td style="width: 1%; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Unsecured note payable to a shareholder bearing 10% interest</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Entire balance of principal and unpaid interest due on demand</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%">649,049</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Total current</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%">773,279</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="text-align: right; line-height: 115%"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">2013</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">773,279</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">2014</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">2015</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">2016</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">2017</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%">-0-</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%">773,279</td> <td style="line-height: 115%"> </td></tr></table> NOTE 8 - EMPLOYMENT AGREEMENTS (COMMITMENT)   The Company is committed to an employment agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 30, 2012, is for five years with a one-year renewal option held by Mr. Kidrin.  The agreement provides for a base salary of $175,000, which increases 10% on September 1 of each year; a monthly car allowance of $500; an annual bonus equal to 2.5% of Pre-Tax Income (as defined in the agreement); an additional bonus as follows: $75,000, if Pre-Tax Income for the year is between 150% and 200% of the prior fiscal years Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year is between 201% and 250% of the prior fiscal years Pre-Tax Income or (C) $200,000, if Pre-Tax Income for the year is 251% or greater than the prior fiscal years Pre-Tax Income, but in no event shall this additional bonus exceed five (5%) percent of Pre-Tax Income for such year; payment of up to $10,000 in life insurance premiums; options to purchase 7.5 million shares of Worlds Inc. common stock at an exercise price of  $0.076 per share, all of which vested on August 30, 2012; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times his base amount (as defined in the agreement) in the event of a Change of Control (as defined in the agreement).  The agreement also provides that Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12 months after termination.   -7000 705918 18188 NOTE 2 - GOING CONCERN   The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had periods where it had only minimal revenues from operations. There can be no assurance that the Company will be able to obtain the additional capital resources to fully implement its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material adverse effect on the Company, including possibly requiring the Company to reduce and/or cease operations.   These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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NOTE 5 - PROPERTY AND EQUIPMENT - Property and Equipment Details (Details) (USD $)

Dec. 31, 2012

Dec. 31, 2011

Property, Plant and Equipment [Abstract]

Computer equipment $ 10,891 $ 10,891

Less: accumulated depreciation 10,891 10,891

Net book value $ 0 $ 0

- Definition

The cumulative amount of depreciation, depletion and amortization (related to property, plant and equipment, but not including land) that has been recognized in the income statement.

+ References+ Details

- Definition

Amount, net of accumulated depreciation, depletion and amortization, of long-lived physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, furniture and fixtures, and computer equipment.

+ References+ Details

NOTE 5 - PROPERTY AND EQUIPMENT - Property and Equipment Details (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Abstract]
Computer equipment	$ 10,891	$ 10,891
Less: accumulated depreciation	10,891	10,891
Net book value	$ 0	$ 0

Balance Sheets (USD $)	Dec. 31, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Cash and Cash equivalent	$ 95,069	$ 152,526
Due from related party	134,654	43,819
Prepaid expenses		82,633
Total Current Assets	229,724	278,978
Patents	7,000
Total Assets	236,724	278,978
Accounts payable	797,908	798,808
Accrued expenses	1,953,934	1,866,172
Notes payable	773,279	773,279
Total Current Liabilities	3,525,121	3,438,259
Common stock (Par value $0.001 authorized 100,000,000 shares issued and outstanding 79,813,071 and 74,862,146 at December 31, 2012 and December 31, 2011, respectively)	79,813	74,862
Common stock subscribed but not yet issued (1,500,000 and 525,000 at December 31, 2012 and December 31, 2011, respectively)	1,500	525
Subscription receivable	(10,000)
Additional paid in capital	26,580,244	25,231,804
Common stock-warrants	203,237
Deferred compensation	(12,500)
Accumulated deficit	(30,130,692)	(28,466,471)
Total stockholders deficit	(3,288,397)	(3,159,281)
Total Liabilities and stockholders deficit	$ 236,724	$ 278,978

Shareholders Equity (USD $)	Common Stock	Additional Paid-In Capital	Common Stock Warrants	SubscriptionReceivables	Common Shares Subscribed Not Issued	Deferred Compensation	Retained Earnings / Accumulated Deficit	Total
Beginning Balance, amount at Dec. 31, 2009	$ 62,780	$ 23,453,111			$ 3,358		$ (26,771,832)	$ (3,252,582)
Beginning Balance, shares at Dec. 31, 2009	62,781,122				3,358,331
Conversion of debt to equity, shares	309,741
Conversion of debt to equity, amount	310	72,065						72,375
Common Stock Issued for services, shares	5,348,619				500,000
Common Stock Issued for services, amount	5,349	1,088,133			500			1,093,982
Issuance of common stock for cash investment, shares	4,333,331				(3,333,331)
Issuance of common stock for cash investment, amount	4,333	149,000			(3,333)			150,000
Exercise of option, shares	1,160,804
Exercise of option, amount	1,161	117,285						118,446
Issuance of stock options, shares	928,529
Issuance of stock options, amount	929	57,071						58,000
Issuance of stock options		18,188						18,188
Net loss for the year ended							(1,694,640)	(1,694,640)
Ending Balance, amount at Dec. 31, 2010	74,862	25,231,804			525		(28,466,471)	(3,159,281)
Deferred Revenue at Dec. 31, 2010		276,950						276,950
Ending Balance, shares at Dec. 31, 2010	74,862,146				525,000
Common Stock Issued for services, shares	3,100,925				(525,000)
Common Stock Issued for services, amount	3,101	371,609			(525)	(12,500)
Issuance of common stock for cash investment, shares	1,700,000				1,500,000			361,684
Issuance of common stock for cash investment, amount	1,700	466,800		(10,000)	1,500			460,000
Exercise of option, shares	150,000
Exercise of option, amount	150	7,350						7,500
Issuance of stock options, shares
Issuance of stock options, amount		705,918						705,918
Warrants issued with PPM		(203,237)	203,237
Net loss for the year ended							(1,664,221)	1,664,221
Ending Balance, amount at Dec. 31, 2011	79,813	26,580,244	203,237	(10,000)	1,500	(12,500)	(30,130,692)	(3,159,281)
Ending Balance, shares at Dec. 31, 2011	79,813,071				1,500,000
Warrants issued with PPM		(203,237)	203,237					0
Net loss for the year ended								(1,664,221)
Ending Balance, amount at Dec. 31, 2012								(3,288,397)
Deferred Revenue at Dec. 31, 2012								$ 631,950
Ending Balance, shares at Dec. 31, 2012								680,000

NOTE 3 - PRIVATE PLACEMENT OF EQUITY (Detail Narrative) (USD $)	12 Months Ended			24 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011
Note 3 - Private Placement Of Equity Detail Narrative
Common Stock Issued for services - shares	361,684	1,093.982
Common Stock Issued for services previously rendered - shares	525,000
Common Stock Issued for services - value	$ 374,184	$ 1,093,482
Deferred stock compensation	12,500
Proceeds from warrants exercise		118,446
Common Stock Issued for warrants exercise		1,160,804
Warrants exercise price - minimum		1.00%
Warrants exercise price - maximum		15.00%
Proceeds from options exercise	7,500	58,000
Common Stock Issued for options exercise	150,000	928,529
Options exercise price - minimum		$ 0.05
Options exercise price - maximum	$ 0.05	$ 0.30
Common Stock Issued for options exercise - cashless		82,633
Number of options exercised		131,747
Value of options exercised		38,558
Common stock issued for cash		72,375	3,333,331	4,333,331
Proceeds from sales of stock	470,000	15,000	400,000
Subscription receivable	$ 10,000
Common stock subscribed not yet issued	1,500,000	525,000		525,000

Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Common Stock, par value	$ 0.01	$ 0.01
Common Stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	79,813,071	74,862,146
Common Stock, shares outstanding	79,813,071	74,862,146
Common stock subscribed not yet issued	1,500,000	525,000

Document and Entity Information (USD $)	12 Months Ended
Document and Entity Information (USD $)	Dec. 31, 2012	Mar. 22, 2013
Document And Entity Information
Entity Registrant Name	WORLDS INC
Entity Central Index Key	0000001961
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float		$ 7,680,034
Entity Common Stock, Shares Outstanding		83,938,071
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012

Statements of Operations (USD $)	12 Months Ended
Statements of Operations (USD $)	Dec. 31, 2012	Dec. 31, 2011
Revenues
Revenue		$ 199
Total Revenue		199
Cost of Revenue		86,459
Gross Profit/(Loss)		(86,260)
Option expense	705,918	18,188
Common Stock issued for services rendered	361,684	1,093.982
Selling, General & Administrative	355,761	333,249
Salaries	240,858	200,094
Operating Income (Loss)	(1,664,221)	(1,694,640)
Other Income Expense
Interest Expense
Net (Loss)	$ (1,664,221)	$ 1,664,221
Weighted Average Net Income (Loss) per common share	$ (0.02)	$ (0.02)
Weighted Average Common Shares Outstanding	76,792,137	69,984,791

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (USD $) (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2010	Dec. 31, 2000
Accounting Policies [Abstract]
ShortTermBorrowings	$ 773,279
Deferred Reevenue	631,950	276,950
Repurchase of Shares	4,150,000
Shares Value			$ 0.15
[SharesIssued]	680,000
Additional Shares Issued			315,000
Unpaid Consulting Service	205,000
Company Reserves for Lawsuit	205,000
Debt Financing	2
Term	5 years
Common Stock Precentage	100
Legal Fees	$ 40,000

Statements of Cash Flows (USD $)	12 Months Ended
Statements of Cash Flows (USD $)	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net (loss)	$ (1,664,221)	$ 1,664,221
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation	0	759
Fair value of stock opotions issued	705,918	18,188
Common Stock issued for services rendered	361,684	1,093.982
Prepaid expenses	82,633	(10,258)
Accounts payable and accrued expenses	66,864	63,420
Due from related party	(90,835)	(43,819)
Net cash used in operating activities:	(517,958)	(572,368)
Cash flows from investing activities:
Patent	(7,000)
Net cash (used in) investing activities:	(7,000)
Proceeds from issuance of common stock	460,000	150,000
Proceeds from exercise of warrants		118,446
Proceeds from exercise of options	7,500	58,000
Repayment of officer loan payable		(2,400)
Net cash provided by financing activities	467,500	324,046
Net increase/(decrease) in cash and cash equivalents	(57,458)	(248,322)
Cash and cash equivalents beginning of year	152,526	400,848
Cash and cash equivalents end of year	95,069	152,526
Non-cash financing activities
Common stock issued for payable		72,375
Deferred revenue		276,950
Prepayment of expenses through issuance of commom stock		82,633
Interest
Income taxes