0001264931-15-000058.txt : 20150206 0001264931-15-000058.hdr.sgml : 20150206 20150206171227 ACCESSION NUMBER: 0001264931-15-000058 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20121231 FILED AS OF DATE: 20150206 DATE AS OF CHANGE: 20150206 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24115 FILM NUMBER: 15585487 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/A 1 worldsincka.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K /A

Amendment No. 1

  

(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.

 

EXPLANATORY NOTE

 

 

This Amendment No. 1 to Annual Report on Form 10-K/A (this “Amended Report”) is being filed with the Securities and Exchange Commission to amend the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Original 10-K”) of WORLDS, INC. solely to correct the disclosure with respect to certain employee stock options.  No other changes are being made and this Amended Report still speaks only as of the date it was initially filed.

 

This Amended Report includes currently-dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

(1)

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  

 

(2)

 

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.

 

(3)

 

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:

 

o 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.

 

o   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.

 

o   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.

 

(4)

 

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.

 

(5)

 

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.

 

(6)

 

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 

 

(7)

  

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

 

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.

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 $914,600 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 $1,872,903 for the year ended December 31, 2012 compared to a loss of $1,694,640 in the year ended December 31, 2011, an increase in net losses of $178,263.

 

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 2nd 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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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, PA/

Bongiovanni & Associates, PA

Certified Public Accountants

Cornelius, North Carolina

The United States of America

April 12, 2013 except for Note 2 and Note 7,

for which the date is February 6, 2015

 

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Worlds Inc.      
Balance Sheets      
December 31, 2012 and 2011      
       
   December 31, 2012  December 31, 2011
   (Restated)    
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    26,788,926     25,231,804 
Common stock-warrants   203,237    —   
Deferred compensation   (12,500)   —   
Accumulated deficit   ( 30,339,374 )   (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

 

(12)

 

Worlds Inc.      
Statements of Operations      
For the Years Ended December 31, 2012 and  2011   
    
   For the Years Ended December 31,
   2012  2011
   (Restated)    
Revenues      
Revenue  $—     $199 
           
Total Revenue   —      199 
           
           
Cost and Expenses          
           
Cost of Revenue        86,459 
           
Gross Profit/(Loss)   —      (86,260)
           
           
Option Expense    914,600     18,188 
Common Stock issued for services rendered   361,654    1,056,849 
Selling, General & Admin.   355,761    333,249 
Salaries   240,858    200,094 
           
Operating loss   ( 1,872,903 )   (1,694,640)
           
           
Other Income (Expense)          
Interest Expense   —        
           
Net (Loss)  $( 1,872,903 )  $(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

 

(13)

 

Worlds Inc.
Statement of Stockholders' Deficit For the Years Ended December 31, 2012 (Restated) and 2011
                                                   
                             Common    Common                
                             Shares     Stock              Total 
              Additional              Subscribed    Subscribed              stockholders' 
    Common stock    Common stock    Paid-in    Common stock    Subscription    but not     but not     Deferred     Accumulated    equity 
    Shares    Amount    capital    Warrants    Receivable    Issued    Issued    compensation    Deficit    (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   —      —       914,600     —      —      —      —      —      —      914,600 
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   —      —      —      —      —      —      —      —       (1,872,903 )   (1,872,903)
Balances, December 31, 2012   79,813,071   $79,813   $ 26,788,926    $203,237   $(10,000)   1,500,000   $1,500   $(12,500)  $( 30,339,374 )  $(3,288,397)
                                                   
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 Cash Flows      
For the Years Ended December 31, 2012 and 2011      
       
   2012  2011
    (Restated)    
Cash flows from operating activities:      
Net (loss)  $ (1,872,903 )  $(1,694,640)
Adjustments to reconcile net loss to net cash (used in) operating activities          
Depreciation   —      759 
Fair value of stock options issued    914,600     18,188 
Common stock issued for services rendered   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

 

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 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 collectability 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.

 

(16)

 

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.

 

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 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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NOTE – 2 RESTATEMENT OF FINANCIAL STATEMENTS

 

The Company identified errors related to understatement of Option expense for the year ended December 31, 2012. The facts underlying the Company’s original conclusion is that 7.5 million stock options granted to President and CEO of the Company, Thom Kidrin, were only 18 month options and were expiring on March 31, 2014. In fact they were five (5) year options expiring in September 2017. Accordingly, all the financial statements for the year ended December 31, 2012 are restated. The Company did not find any understatement in option expenses for the comparative year ended December 31, 2011.

 

The following table sets forth all the accounts in the original amounts and restated amounts, respectively.

 

As of December 31, 2012   Original   Adjustment   Restated
             
Additional paid in capital   $ 26,580,244     $ 208,682     $ 26,788,926    
                         
Accumulated deficit   $ (30,130,692 )   $ (208,682 )   $ (30,339,374 )
                         
For the year ended December 31, 2012                        
Option expense   $ 705,918     $ 208,682     $ 914,600  
Operating (loss)   $ (1,664,221 )   $ (208,682 )   $ (1,872,903 )
Net (loss)   $ (1,664,221 )   $ (208,682 )   $ (1,872,903 )

 

NOTE 3 - 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 4 - 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 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.

 

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NOTE 5 - 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 6- 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.

 

NOTE 7 – 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 $0.070 per share per each individual option. The options expire on September 30, 2017. 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 $0.115 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 $0.115 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 $914,600 , 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 0.62% risk-free interest, 0% dividend yield, 279% volatility, and expected life of 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          
$0.070     7,500,000       4.75          
$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          
$0.070     7,500,000       4.75          
$0.05     600,000       .85          

 

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NOTE 8 - INCOME TAXES

 

At December 31, 2012, the Company had federal and state net operating loss carry forwards of approximately $30,000,000   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 $11,700,000 less a valuation allowance in the amount of approximately $11,700,000 . 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   $ 11,700,000  
Valuation allowance     (11,700,000)  
         
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%

 

NOTE 9 - 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  $0.070 per share, all of which vested on October 1, 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.  

 

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NOTE 10 - 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 11 - 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.

 

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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.  

 

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2012 our disclosure controls and procedures were ineffective inasmuch as draft documents were commingled with effective documents leading to erroneous documents being relied upon and distributed. The above statement notwithstanding, you are cautioned that no system is foolproof.

 

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.

 

(23)

 

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.

 

(24)

 

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   $ 861,324          0   $ 1,102,182 (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    0     0.070     09-30-2017

 

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   0    0    10,655       10,655 
   Bernard Stolar   0    0    10,655       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 

 

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  $0.070 per share, all of which vested on October 1, 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.   

 

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    0   $ 0.070      09-30-17
 Christopher Ryan   0    300,000    0   $0.115    09-30-17

 

 

(23)
Table of Contents

  

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.

 

(25)

 

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

 

(26)

 

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: February 6, 2015                                                                                            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 February 6, 2015
     

/s/ Christopher J. Ryan

Christopher J. Ryan

Vice President - Finance and Principal Accounting and Financial Officer February 6, 2015
     

/s/Bernard Stolar

Bernard Stolar

Director February 6, 2015
     

/s/Robert Fireman

Robert Fireman

Director February 6, 2015
     

 

(27)

 

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
       
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(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

 

EX-31.1 2 ex31_1.htm CERTIFICATIONS

 

EXHIBIT 31.1

 

Certifications

I, Thomas Kidrin, certify that: 

1. I have reviewed this Amendment  to annual report on Form 10-K/A 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: February 6, 2015

 

/s/ Thomas Kidrin

Thomas Kidrin

Chief Executive Officer

EX-31.2 3 ex31_2.htm CERTIFICATIONS

 

EXHIBIT 31.2

 

Certifications

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

1. I have reviewed this  Amendment to annual report on Form 10-K/A 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: February 6, 2015

 

/s/ Christopher J. Ryan

Christopher J. Ryan

Principal Accounting and Financial Officer

EX-32.1 4 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 amendment to Annual Report of Worlds Inc. (the "Company") on Form 10-K/A for the year ended December 31, 2012 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: February 6, 2015 By:   /s/ Thomas Kidrin
 

Thomas Kidrin

Chief Executive Officer

 

 

EX-32.2 5 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 amendment to Annual Report of Worlds Inc. (the "Company") on Form 10-K/ A for the year ended December 31, 2012 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: February 6, 2015 By:   /s/ Christopher J. Ryan
 

Christopher J. Ryan

Principal Accounting and Financial Officer

 

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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 $ 773,279us-gaap_ShortTermBorrowings    
Deferred Reevenue 631,950us-gaap_DeferredRevenue 276,950us-gaap_DeferredRevenue  
Repurchase of Shares 4,150,000us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardSharesToBeRepurchasedNextYear    
Shares Value     $ 0.15us-gaap_SharePrice
[SharesIssued] 680,000us-gaap_SharesIssued    
Additional Shares Issued     315,000WDDD_AdditionalSharesIssued
Unpaid Consulting Service 205,000WDDD_UnpaidConsultingService    
Company Reserves for Lawsuit 205,000WDDD_CompanyReserves    
Debt Financing 2us-gaap_DebtorInPossessionFinancingAmendmentsToArrangementIncreaseDecreaseInAmountArranged    
Term 5 years    
Common Stock Precentage 100WDDD_PrecentageofsharesofCommonStock    
Legal Fees $ 40,000us-gaap_LegalFees    

XML 15 R9.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 3 - GOING CONCERNS
12 Months Ended
Dec. 31, 2012
Note 3 - Going Concerns  
NOTE 3 - GOING CONCERNS

NOTE 3 - 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 6 - PROPERTY AND EQUIPMENT - Property and Equipment Details (Details) (USD $)
Dec. 31, 2012
Dec. 31, 2011
Property, Plant and Equipment [Abstract]    
Computer equipment $ 10,891us-gaap_PropertyPlantAndEquipmentNet $ 10,891us-gaap_PropertyPlantAndEquipmentNet
Less: accumulated depreciation 10,891us-gaap_AccumulatedDepreciationDepletionAndAmortizationPropertyPlantAndEquipment 10,891us-gaap_AccumulatedDepreciationDepletionAndAmortizationPropertyPlantAndEquipment
Net book value $ 0WDDD_NetBookValue $ 0WDDD_NetBookValue
XML 18 R28.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 6 - PROPERTY AND EQUIPMENT (Details Narrative) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Property, Plant and Equipment [Abstract]    
Depreciation $ 0us-gaap_Depreciation $ 759us-gaap_Depreciation
XML 19 R8.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
NOTE – 2 RESTATEMENT OF FINANCIAL STATEMENTS

NOTE – 2 RESTATEMENT OF FINANCIAL STATEMENTS

 

The Company identified errors related to understatement of Option expense for the year ended December 31, 2012. The facts underlying the Company’s original conclusion is that 7.5 million stock options granted to President and CEO of the Company, Thom Kidrin, were only 18 month options and were expiring on March 31, 2014. In fact they were five (5) year options expiring in September 2017. Accordingly, all the financial statements for the year ended December 31, 2012 are restated. The Company did not find any understatement in option expenses for the comparative year ended December 31, 2011.

 

The following table sets forth all the accounts in the original amounts and restated amounts, respectively.

 

As of December 31, 2012  Original  Adjustment  Restated
          
Additional paid in capital  $26,580,244   $208,682   $26,788,926  
                
Accumulated deficit  $(30,130,692)  $(208,682)  $(30,339,374)
                
For the year ended December 31, 2012               
Option expense  $705,918   $208,682   $914,600 
Operating (loss)  $(1,664,221)  $(208,682)  $(1,872,903)
Net (loss)  $(1,664,221)  $(208,682)  $(1,872,903)

 

XML 20 R2.htm IDEA: XBRL DOCUMENT v2.4.1.9
Balance Sheets (USD $)
Dec. 31, 2012
Dec. 31, 2011
Statement of Financial Position [Abstract]    
Cash and Cash equivalent $ 95,069us-gaap_CashAndCashEquivalentsAtCarryingValue $ 152,526us-gaap_CashAndCashEquivalentsAtCarryingValue
Due from related party 134,654us-gaap_DueFromRelatedPartiesCurrent 43,819us-gaap_DueFromRelatedPartiesCurrent
Prepaid expenses    82,633us-gaap_OtherPrepaidExpenseCurrent
Total Current Assets 229,724us-gaap_AssetsCurrent 278,978us-gaap_AssetsCurrent
Patents 7,000us-gaap_IntangibleAssetsNetExcludingGoodwill   
Total Assets 236,724us-gaap_Assets 278,978us-gaap_Assets
Accounts payable 797,908us-gaap_AccountsPayableCurrent 798,808us-gaap_AccountsPayableCurrent
Accrued expenses 1,953,934us-gaap_AccruedLiabilitiesCurrent 1,866,172us-gaap_AccruedLiabilitiesCurrent
Notes payable 773,279us-gaap_NotesPayableCurrent 773,279us-gaap_NotesPayableCurrent
Total Current Liabilities 3,525,121us-gaap_LiabilitiesCurrent 3,438,259us-gaap_LiabilitiesCurrent
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) 79,813us-gaap_CommonStockValueOutstanding 74,862us-gaap_CommonStockValueOutstanding
Common stock subscribed but not yet issued (1,500,000 and 525,000 at December 31, 2012 and December 31, 2011, respectively) 1,500WDDD_CommonStockSharesSubscribedButUnissuedValue 525WDDD_CommonStockSharesSubscribedButUnissuedValue
Subscription receivable (10,000)us-gaap_CommonStockShareSubscribedButUnissuedSubscriptionsReceivable   
Additional paid in capital 26,788,926us-gaap_AdditionalPaidInCapital 25,231,804us-gaap_AdditionalPaidInCapital
Common stock-warrants 203,237WDDD_CommonStockwarrants   
Deferred compensation (12,500)us-gaap_DeferredCompensationEquity   
Accumulated deficit (30,339,374)us-gaap_RetainedEarningsAccumulatedDeficit (28,466,471)us-gaap_RetainedEarningsAccumulatedDeficit
Total stockholders deficit (3,288,397)us-gaap_StockholdersEquity (3,288,397)us-gaap_StockholdersEquity
Total Liabilities and stockholders deficit $ 236,724us-gaap_LiabilitiesAndStockholdersEquity $ 278,978us-gaap_LiabilitiesAndStockholdersEquity
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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
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149,000us-gaap_StockIssuedDuringPeriodValueNewIssues
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117,285us-gaap_StockIssuedDuringPeriodValueOther
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Issuance of stock options, amount 929us-gaap_StockIssuedDuringPeriodValueStockOptionsExercised
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57,071us-gaap_StockIssuedDuringPeriodValueStockOptionsExercised
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Common Stock Issued for services, amount 3,101us-gaap_StockIssuedDuringPeriodValueShareBasedCompensation
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371,609us-gaap_StockIssuedDuringPeriodValueShareBasedCompensation
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/ us-gaap_StatementEquityComponentsAxis
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(12,500)us-gaap_StockIssuedDuringPeriodValueShareBasedCompensation
/ us-gaap_StatementEquityComponentsAxis
= WDDD_DeferredCompensationMember
   
Issuance of common stock for cash investment, shares 1,700,000us-gaap_StockIssuedDuringPeriodSharesNewIssues
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_CommonStockMember
      1,500,000us-gaap_StockIssuedDuringPeriodSharesNewIssues
/ us-gaap_StatementEquityComponentsAxis
= WDDD_CommonSharesSubscribedNotIssuedMember
     361,684us-gaap_StockIssuedDuringPeriodSharesNewIssues
Issuance of common stock for cash investment, amount 1,700us-gaap_StockIssuedDuringPeriodValueNewIssues
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_CommonStockMember
466,800us-gaap_StockIssuedDuringPeriodValueNewIssues
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_AdditionalPaidInCapitalMember
   (10,000)us-gaap_StockIssuedDuringPeriodValueNewIssues
/ us-gaap_StatementEquityComponentsAxis
= WDDD_SubscriptionReceivablesMember
1,500us-gaap_StockIssuedDuringPeriodValueNewIssues
/ us-gaap_StatementEquityComponentsAxis
= WDDD_CommonSharesSubscribedNotIssuedMember
      460,000us-gaap_StockIssuedDuringPeriodValueNewIssues
Exercise of option, shares 150,000us-gaap_StockIssuedDuringPeriodSharesOther
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_CommonStockMember
             
Exercise of option, amount 150us-gaap_StockIssuedDuringPeriodValueOther
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_CommonStockMember
7,350us-gaap_StockIssuedDuringPeriodValueOther
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_AdditionalPaidInCapitalMember
               7,500us-gaap_StockIssuedDuringPeriodValueOther
Issuance of stock options, shares                 
Issuance of stock options, amount    914,600us-gaap_StockIssuedDuringPeriodValueStockOptionsExercised
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_AdditionalPaidInCapitalMember
               914,600us-gaap_StockIssuedDuringPeriodValueStockOptionsExercised
Warrants issued with PPM   (203,237)WDDD_WarrantsIssuedWithPpm
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_AdditionalPaidInCapitalMember
203,237WDDD_WarrantsIssuedWithPpm
/ us-gaap_StatementEquityComponentsAxis
= WDDD_CommonStockWarrantsMember
         
Net (Loss)                   (1,872,903)us-gaap_NetIncomeLoss
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_RetainedEarningsMember
(1,872,903)us-gaap_NetIncomeLoss
Ending Balance, amount at Dec. 31, 2011 79,813us-gaap_StockholdersEquity
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_CommonStockMember
26,788,926us-gaap_StockholdersEquity
/ us-gaap_StatementEquityComponentsAxis
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203,237us-gaap_StockholdersEquity
/ us-gaap_StatementEquityComponentsAxis
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(10,000)us-gaap_StockholdersEquity
/ us-gaap_StatementEquityComponentsAxis
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1,500us-gaap_StockholdersEquity
/ us-gaap_StatementEquityComponentsAxis
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(12,500)us-gaap_StockholdersEquity
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(30,339,374)us-gaap_StockholdersEquity
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_RetainedEarningsMember
(3,288,397)us-gaap_StockholdersEquity
Ending Balance, shares at Dec. 31, 2011 79,813,071us-gaap_SharesIssued
/ us-gaap_StatementEquityComponentsAxis
= us-gaap_CommonStockMember
      1,500,000us-gaap_SharesIssued
/ us-gaap_StatementEquityComponentsAxis
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/ us-gaap_StatementEquityComponentsAxis
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203,237WDDD_WarrantsIssuedWithPpm
/ us-gaap_StatementEquityComponentsAxis
= WDDD_CommonStockWarrantsMember
        0WDDD_WarrantsIssuedWithPpm
Net (Loss)               (1,872,903)us-gaap_NetIncomeLoss
Ending Balance, amount at Dec. 31, 2012               (3,288,397)us-gaap_StockholdersEquity
Deferred Revenue at Dec. 31, 2012               $ 631,950us-gaap_DeferredRevenue
Ending Balance, shares at Dec. 31, 2012               680,000us-gaap_SharesIssued
XML 22 R22.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 7 - STOCK OPTIONS (Tables)
12 Months Ended
Dec. 31, 2012
Note 7 - Stock Options Tables  
Stock option table

 

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          
$0.070     7,500,000       4.75          
$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          
$0.070     7,500,000       4.75          
$0.05     600,000       .85          

XML 23 R24.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 4 - 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 4 - Private Placement Of Equity Detail Narrative        
Common Stock Issued for services - shares 361,654us-gaap_StockIssuedDuringPeriodSharesIssuedForServices 1,093.982us-gaap_StockIssuedDuringPeriodSharesIssuedForServices    
Common Stock Issued for services previously rendered - shares 525,000WDDD_CommonStockIssuedForServicesPreviouslyRenderedShares      
Common Stock Issued for services - value $ 374,184us-gaap_StockIssuedDuringPeriodValueIssuedForServices $ 1,093,482us-gaap_StockIssuedDuringPeriodValueIssuedForServices    
Deferred stock compensation 12,500us-gaap_DeferredCompensationShareBasedArrangementsLiabilityCurrent      
Proceeds from warrants exercise   118,446WDDD_ProceedsFromWarrantsExercise1    
Common Stock Issued for warrants exercise   1,160,804WDDD_CommonStockIssuedForWarrantsExercise    
Warrants exercise price - minimum   1.00%us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsExpectedVolatilityRateMinimum    
Warrants exercise price - maximum   15.00%us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsExpectedVolatilityRateMaximum    
Proceeds from options exercise 7,500us-gaap_ProceedsFromStockOptionsExercised 58,000us-gaap_ProceedsFromStockOptionsExercised    
Common Stock Issued for options exercise 150,000us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsVestedInPeriod 928,529us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsVestedInPeriod    
Options exercise price - maximum $ 0.05WDDD_PricePerShare $ 0.30WDDD_PricePerShare    
Common Stock Issued for options exercise - cashless    82,633WDDD_CommonStockIssuedForOptionsExerciseCashless    
Number of options exercised   131,747WDDD_NumberOfOptionsExercised    
Value of options exercised   38,558WDDD_ValueOfOptionsExercised    
Common stock issued for cash    72,375WDDD_StockIssued 3,333,331WDDD_StockIssued 4,333,331WDDD_StockIssued
Proceeds from sales of stock 470,000us-gaap_ProceedsFromIssuanceOrSaleOfEquity 15,000us-gaap_ProceedsFromIssuanceOrSaleOfEquity 400,000us-gaap_ProceedsFromIssuanceOrSaleOfEquity  
Subscription receivable $ 10,000us-gaap_StockholdersEquityNoteSubscriptionsReceivable      
Common stock subscribed not yet issued 1,500,000us-gaap_CommonStockSharesSubscribedButUnissued 525,000us-gaap_CommonStockSharesSubscribedButUnissued   525,000us-gaap_CommonStockSharesSubscribedButUnissued
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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (USD $)
12 Months Ended
Dec. 31, 2012
Accounting Policies [Abstract]  
NOTE 1 - ORGANIZATION AND DESACRIPTION OF BUSINESS

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 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 collectability 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.

 

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.

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 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. 

XML 26 R3.htm IDEA: XBRL DOCUMENT v2.4.1.9
Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2012
Dec. 31, 2011
Statement of Financial Position [Abstract]    
Common Stock, par value $ 0.01us-gaap_CommonStockParOrStatedValuePerShare $ 0.01us-gaap_CommonStockParOrStatedValuePerShare
Common Stock, shares authorized 100,000,000us-gaap_CommonStockSharesAuthorized 100,000,000us-gaap_CommonStockSharesAuthorized
Common Stock, shares issued 79,813,071us-gaap_CommonStockSharesIssued 74,862,146us-gaap_CommonStockSharesIssued
Common Stock, shares outstanding 79,813,071us-gaap_CommonStockSharesOutstanding 74,862,146us-gaap_CommonStockSharesOutstanding
Common stock subscribed not yet issued 1,500,000us-gaap_CommonStockSharesSubscribedButUnissued 525,000us-gaap_CommonStockSharesSubscribedButUnissued
XML 27 R17.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 11 - SUBSEQUENT EVENTS
12 Months Ended
Dec. 31, 2012
Subsequent Events [Abstract]  
NOTE 11 - SUBSEQUENT EVENTS

NOTE 11 - 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.

XML 28 R1.htm IDEA: XBRL DOCUMENT v2.4.1.9
Document and Entity Information (USD $)
12 Months Ended
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 true  
Amendment description

EXPLANATORY NOTE

 

 

This Amendment No. 1 to Annual Report on Form 10-K/A (this “Amended Report”) is being filed with the Securities and Exchange Commission to amend the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Original 10-K”) of WORLDS, INC. solely to correct the disclosure with respect to certain employee stock options.  No other changes are being made and this Amended Report still speaks only as of the date it was initially filed.

 

This Amended Report includes currently-dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

 
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   $ 7,680,034dei_EntityPublicFloat
Entity Common Stock, Shares Outstanding   83,938,071dei_EntityCommonStockSharesOutstanding
Document Fiscal Period Focus FY  
Document Fiscal Year Focus 2012  
XML 29 R18.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (USD $) (Policies)
12 Months Ended
Dec. 31, 2012
Accounting Policies [Abstract]  
Description of Business

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 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 collectability 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.

 

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.

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 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. 

Basis of Presentation

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 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.

 

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.

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 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. 

Use of Estimates

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

 

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

 

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

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 collectability 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

 

Research and development costs are charged to operations as incurred.

Property and Equipment

 

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

Impairment of Long Lived Assets

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

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

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

NOTE 5 - 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  
Deferred Revenue

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

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)

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

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

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

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

Off Balance Sheet Arrangements

 

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

Uncertain Tax Positions

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

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

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 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. 

XML 30 R4.htm IDEA: XBRL DOCUMENT v2.4.1.9
Statements of Operations (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Revenues    
Revenue    $ 199us-gaap_Revenues
Total Revenue    199us-gaap_Revenues
Cost of Revenue    86,459us-gaap_CostOfRevenue
Gross Profit/(Loss)    (86,260)us-gaap_GrossProfit
Option expense 914,600us-gaap_OtherExpenses 18,188us-gaap_OtherExpenses
Common Stock issued for services rendered 361,654us-gaap_StockIssuedDuringPeriodSharesIssuedForServices 1,093.982us-gaap_StockIssuedDuringPeriodSharesIssuedForServices
Selling, General & Administrative 355,761us-gaap_SellingGeneralAndAdministrativeExpense 333,249us-gaap_SellingGeneralAndAdministrativeExpense
Salaries 240,858us-gaap_SalariesWagesAndOfficersCompensation 200,094us-gaap_SalariesWagesAndOfficersCompensation
Operating Income (Loss) (1,872,903)us-gaap_OperatingIncomeLoss (1,694,640)us-gaap_OperatingIncomeLoss
Other Income Expense    
Interest Expense     
Net (Loss) $ (1,872,903)us-gaap_NetIncomeLoss $ (1,872,903)us-gaap_NetIncomeLoss
Weighted Average Net Income (Loss) per common share $ (0.02)us-gaap_EarningsPerShareBasic $ (0.02)us-gaap_EarningsPerShareBasic
Weighted Average Common Shares Outstanding 76,792,137us-gaap_WeightedAverageNumberOfSharesOutstandingBasic 69,984,791us-gaap_WeightedAverageNumberOfSharesOutstandingBasic
XML 31 R12.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 6 - PROPERTY AND EQUIPMENT
12 Months Ended
Dec. 31, 2012
Property, Plant and Equipment [Abstract]  
NOTE 6 - PROPERTY AND EQUIPMENT

NOTE 6- 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.

XML 32 R11.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 5 - NOTES PAYABLE
12 Months Ended
Dec. 31, 2012
Debt Disclosure [Abstract]  
NOTE 5 - NOTES PAYABLE

NOTE 5 - 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  
XML 33 R23.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 8 - INCOME TAXES (Tables)
12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Company's deferred tax assets

Net operating loss carry forwards   $ 11,700,000  
Valuation allowance     (11,700,000)  
         
Net deferred tax asset   $  

 

 

Reconciliation of income taxes - Fedaral and state statutory rate
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%
XML 34 R19.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS (Tables)
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
Original and restated amounts
As of December 31, 2012  Original  Adjustment  Restated
          
Additional paid in capital  $26,580,244   $208,682   $26,788,926  
                
Accumulated deficit  $(30,130,692)  $(208,682)  $(30,339,374)
                
For the year ended December 31, 2012               
Option expense  $705,918   $208,682   $914,600 
Operating (loss)  $(1,664,221)  $(208,682)  $(1,872,903)
Net (loss)  $(1,664,221)  $(208,682)  $(1,872,903)
XML 35 R15.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 9 - EMPLOYMENT AGREEMENTS (COMMITMENTS)
12 Months Ended
Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]  
NOTE 9 - EMPLOYMENT AGREEMENTS (COMMITMENTS)

NOTE 9 - 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  $0.070 per share, all of which vested on October 1, 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.  

XML 36 R13.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 7 - STOCK OPTION
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
NOTE 7 - STOCK OPTION

NOTE 7- 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 $0.070 per share per each individual option. The options expire on September 30, 2017. 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 $0.115 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 $0.115 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 $914,600, 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 0.62% risk-free interest, 0% dividend yield, 279% volatility, and expected life of 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          
$0.070     7,500,000       4.75          
$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          
$0.070     7,500,000       4.75          
$0.05     600,000       .85          

XML 37 R14.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 8 - INCOME TAXES
12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
NOTE 8 - INCOME TAXES

NOTE 8 - INCOME TAXES

 

At December 31, 2012, the Company had federal and state net operating loss carry forwards of approximately $30,000,000  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 $11,700,000 less a valuation allowance in the amount of approximately $11,700,000. 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   $ 11,700,000  
Valuation allowance     (11,700,000)  
         
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%

 

XML 38 R16.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 10 - PATENTS
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
NOTE 10 - PATENTS

NOTE 10 - 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.

XML 39 R21.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 6 - PROPERTY AND EQUIPMENT (Tables)
12 Months Ended
Dec. 31, 2012
Property, Plant and Equipment [Abstract]  
Property and Equipment Details

 

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

XML 40 R26.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS (Details Narrative)
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
Stock options granted to President and CEO of the Company 7.5us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsGrantsInPeriodGross
XML 41 R5.htm IDEA: XBRL DOCUMENT v2.4.1.9
Statements of Cash Flows (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities:    
Net (loss) $ (1,872,903)us-gaap_NetIncomeLoss $ (1,872,903)us-gaap_NetIncomeLoss
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation 0us-gaap_Depreciation 759us-gaap_Depreciation
Fair value of stock opotions issued 914,600us-gaap_FairValueOptionCreditRiskGainsLossesOnLiabilities 18,188us-gaap_FairValueOptionCreditRiskGainsLossesOnLiabilities
Common Stock issued for services rendered 361,654us-gaap_StockIssuedDuringPeriodSharesIssuedForServices 1,093.982us-gaap_StockIssuedDuringPeriodSharesIssuedForServices
Prepaid expenses 82,633us-gaap_IncreaseDecreaseInPrepaidExpense (10,258)us-gaap_IncreaseDecreaseInPrepaidExpense
Accounts payable and accrued expenses 66,864us-gaap_IncreaseDecreaseInAccountsPayableAndAccruedLiabilities 63,420us-gaap_IncreaseDecreaseInAccountsPayableAndAccruedLiabilities
Due from related party (90,835)us-gaap_IncreaseDecreaseInDueFromRelatedParties (43,819)us-gaap_IncreaseDecreaseInDueFromRelatedParties
Net cash used in operating activities: (517,958)us-gaap_NetCashProvidedByUsedInOperatingActivities (572,368)us-gaap_NetCashProvidedByUsedInOperatingActivities
Cash flows from investing activities:    
Patent (7,000)us-gaap_IncreaseDecreaseInIntangibleAssetsCurrent   
Net cash (used in) investing activities: (7,000)us-gaap_NetCashProvidedByUsedInInvestingActivities   
Proceeds from issuance of common stock 460,000us-gaap_ProceedsFromIssuanceOfCommonStock 150,000us-gaap_ProceedsFromIssuanceOfCommonStock
Proceeds from exercise of warrants    118,446us-gaap_ProceedsFromWarrantExercises
Proceeds from exercise of options 7,500us-gaap_ProceedsFromStockOptionsExercised 58,000us-gaap_ProceedsFromStockOptionsExercised
Repayment of officer loan payable    (2,400)us-gaap_IncreaseDecreaseInNotesPayableRelatedParties
Net cash provided by financing activities 467,500us-gaap_NetCashProvidedByUsedInFinancingActivities 324,046us-gaap_NetCashProvidedByUsedInFinancingActivities
Net increase/(decrease) in cash and cash equivalents (57,458)us-gaap_CashPeriodIncreaseDecrease (248,322)us-gaap_CashPeriodIncreaseDecrease
Cash and cash equivalents beginning of year 152,526us-gaap_CashAndCashEquivalentsAtCarryingValue 400,848us-gaap_CashAndCashEquivalentsAtCarryingValue
Cash and cash equivalents end of year 95,069us-gaap_CashAndCashEquivalentsAtCarryingValue 152,526us-gaap_CashAndCashEquivalentsAtCarryingValue
Non-cash financing activities    
Common stock issued for payable    72,375WDDD_StockIssued
Deferred revenue    276,950us-gaap_DeferredRevenuePeriodIncreaseDecrease
Prepayment of expenses through issuance of commom stock    82,633WDDD_CommonStockIssuedForOptionsExerciseCashless
Interest      
Income taxes      
XML 42 R10.htm IDEA: XBRL DOCUMENT v2.4.1.9
NOTE 4 - PRIVATE PLACEMENT OF EQUITY
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
NOTE 4 - PRIVATE PLACEMENT OF EQUITY

NOTE 4 - 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.

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    NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS - Original and restated amounts (Details) (USD $)
    12 Months Ended
    Dec. 31, 2012
    Dec. 31, 2011
    Dec. 31, 2010
    Notes to Financial Statements      
    Additional paid in capital, Original $ 26,580,244WDDD_AdditionalPaidInCapitalOriginal    
    Additional paid in capital, Adjustment 208,682WDDD_AdditionalPaidInCapitalAdjustment    
    Additional paid in capital, Restated 26,788,926us-gaap_AdditionalPaidInCapital 25,231,804us-gaap_AdditionalPaidInCapital  
    Accumulated deficit, Original (30,130,692)WDDD_AccumulatedDeficitOrigina    
    Accumulated deficit, Adjustment (208,682)WDDD_AccumulatedDeficitAdjustment    
    Accumulated deficit, Restated (30,339,374)us-gaap_RetainedEarningsAccumulatedDeficit (28,466,471)us-gaap_RetainedEarningsAccumulatedDeficit  
    Option expense, Original 705,918WDDD_OptionExpenseOriginal    
    Option expense, Adjustment 208,682WDDD_OptionExpenseAdjustment    
    Option expense, Restated 914,600us-gaap_OtherExpenses 18,188us-gaap_OtherExpenses  
    Operating (loss), Original (1,664,221)WDDD_OperatingLossOriginal    
    Operating (loss), Adjustment (208,682)WDDD_OperatingLossAdjustment    
    Operating (loss) (1,872,903)us-gaap_NetIncomeLoss (1,872,903)us-gaap_NetIncomeLoss (1,694,640)us-gaap_NetIncomeLoss
    Net (loss), Original (1,664,221)WDDD_NetLossOriginal    
    Net (loss), Adjustment (208,682)WDDD_NetLossAdjustment    
    Net (loss) $ (1,872,903)us-gaap_NetIncomeLoss $ (1,872,903)us-gaap_NetIncomeLoss $ (1,694,640)us-gaap_NetIncomeLoss
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    NOTE 5 - NOTES PAYABLE (Tables)
    12 Months Ended
    Dec. 31, 2012
    Notes to Financial Statements  
    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