UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q /A
Amendment No. 1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2013
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File number 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)
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(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 Exchange Act). Yes [ ] No [X]
As of October 31, 2013, 92,928,477 shares of the Issuer's Common Stock were outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to Quarterly Report on Form 10-Q/A (this “Amended Report”) is being filed with the Securities and Exchange Commission to amend the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 (the “Original 10-Q”) of WORLDS, INC. solely to correct the disclosure with respect to certain employee stock options and investor warrants. 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) |
Worlds Inc.
Part I - Financial Information | Page | |
Item 1 | Financial Statements | 3 |
Notes to Financial Statements | 6 | |
Item 2 | Management’s Discussions and Analysis of Financial Condition and Results of Operations | 13 |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | N/A |
Item 4 | Controls and Procedures | 15 |
Part II – Other Information | ||
Item 1 | Legal Proceedings | 16 |
Item 1A | Risk Factors | N/A |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
Item 3 | Default Upon Senior Securities | 16 |
Item 4 | Mine Safety Disclosures | N/A |
Item 5 | Other Information | 16 |
Item 6 | Exhibits | 16 |
Signatures | 17 |
(2) |
PART I – FINANCIAL INFORMATION
Worlds Inc. | ||||||||
Balance Sheets | ||||||||
September 30, 2013 and December 31, 2012 | ||||||||
Unaudited | Audited | |||||||
Sept. 30, 2013 | December 31, 2012 | |||||||
ASSETS: | ( Restated ) | ( Restated ) | ||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 63,836 | $ | 95,069 | ||||
Due from related party | 266,196 | 134,654 | ||||||
Total Current Assets | 330,032 | 229,724 | ||||||
Patents | 7,000 | 7,000 | ||||||
Total assets | $ | 337,032 | $ | 236,724 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT: | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 797,908 | $ | 797,908 | ||||
Accrued expenses | 1,949,651 | 1,953,934 | ||||||
Derivative liability | 1,401,841 | — | ||||||
Notes payable | 773,279 | 773,279 | ||||||
Convertible notes payable, net | 79,726 | — | ||||||
Total Current Liabilities | 5,002,405 | 3,525,121 | ||||||
Long Term Liabilities | ||||||||
Promissory note payable | 50,000 | — | ||||||
Total Current Liabilities | 5,052,405 | 3,525,121 | ||||||
Stockholders' (Deficit) | ||||||||
Common stock (Par value $0.001 authorized 100,000,000 shares, issued and outstanding 92,928,477 and 79,813,071 at September 30, 2013 and December 31, 2012, respectively) | 92,929 | 79,813 | ||||||
Common stock subscribed but not yet issued (0 and 1,500,000 at September 30, 2013 and December 31, 2012, respectively) | — | 1,500 | ||||||
Subscription receivable | — | (10,000 | ) | |||||
Additional paid in capital | 30,091,015 | 26,788,726 | ||||||
Common stock-warrants | 97,869 | 203,237 | ||||||
Deferred compensation | (160,867 | ) | (12,500 | ) | ||||
Accumulated deficit | (34,836,319 | ) | (30,339,374 | ) | ||||
Total stockholders deficit | (4,715,373 | ) | (3,288,398 | ) | ||||
Total Liabilities and stockholders' deficit | $ | 337,032 | $ | 236,723 |
See Notes to Condensed Financial Statements
(3) |
Worlds Inc. | |||||||||||||||||||||||||
Statements of Operations | |||||||||||||||||||||||||
Nine and Three Months Ended September 30, 2013 and 2012 | |||||||||||||||||||||||||
Unaudited Nine months ended Sept. 30 | Unaudited Three months ended Sept. 30 | ||||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||||
( Restated ) | ( Restated ) | ||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Total Revenue | — | — | — | — | |||||||||||||||||||||
Cost and Expenses | |||||||||||||||||||||||||
Cost of Revenue | — | — | |||||||||||||||||||||||
Gross Profit/(Loss) | — | — | — | — | |||||||||||||||||||||
Option Expense | |||||||||||||||||||||||||
Common Stock issued for services renderred | 2,955,915 | 299,333 | 2,723,399 | 65,297 | |||||||||||||||||||||
Selling, General & Admin. | 431,856 | 211,614 | 66,775 | 53,077 | |||||||||||||||||||||
Salaries and related | 159,357 | 197,108 | 47,119 | 68,267 | |||||||||||||||||||||
Operating loss | (3,547,128 | ) | (708,055 | ) | (2,837,293 | ) | (186,641 | ) | |||||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||||
Gain on change in fair value of derivative liability | (585,785 ) | — | 814,556 | — | |||||||||||||||||||||
Interest Expense | (365,462 | ) | — | (53,558 | ) | — | |||||||||||||||||||
Interest Income | 1,430 | — | — | — | |||||||||||||||||||||
Net (Loss) | $ | (4,496,944 | ) | $ | (708,055 | ) | $ | (2,076,295 | ) | $ | (186,641 | ) | |||||||||||||
Weighted Average Loss per share | $ | ( 0.05 | ) | $ | (0.01 | ) | $ | ( 0.02) | $ | * | |||||||||||||||
Weighted Average Common Shares Outstanding | 84,998,810 | 76,194,707 | 89,243,523 | 77,132,854 |
* - less than $0.01
See Notes to Condensed Financial Statements
(4) |
Worlds Inc. | ||||||||
Statements of Cash Flows | ||||||||
Nine Months Ended September 30, 2013 and 2012 | ||||||||
Unaudited | Unaudited | |||||||
2013 | 2012 | |||||||
( Restated ) | ||||||||
Cash flows from operating activities: | ||||||||
Net (loss) | $ | (4,496,944 | ) | $ | (708,055 | ) | ||
Adjustments to reconcile net loss to net cash (used in) operating activities | ||||||||
Common stock issued for services renderred | 2,955,915 | 299,333 | ||||||
Amortization of discount to note payable | 259,178 | — | ||||||
Derivative expenses | 3,007,846 | — | ||||||
Changes in fair value of derivative liabilities | (2,422,061 | ) | — | |||||
Accounts payable and accrued expenses | (69,275 | ) | 33,571 | |||||
Due from related party | (131,542 | ) | (21,970 | ) | ||||
Net cash (used in) operating activities: | (758,334 | ) | (397,121 | ) | ||||
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 | 97,500 | 250,000 | ||||||
Proceeds from exercise of options | — | 7,500 | ||||||
Proceeds from exercise of warrants | 131,000 | — | ||||||
Proceeds from promissory note | 50,000 | — | ||||||
Proceeds from issuance of note payable | 2,400,000 | — | ||||||
Redemption of notes payable | (1,951,400 | ) | — | |||||
Net cash provided by financing activities | 727,100 | 257,500 | ||||||
Net increase/(decrease) in cash and cash equivalents | (31,234 | ) | (146,621 | ) | ||||
Cash and cash equivalents, including restricted, beginning of year | 95,069 | 152,526 | ||||||
Cash and cash equivalents, including restricted, end of period | $ | 63,836 | $ | 5,905 | ||||
Non-cash financing activities | ||||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | — | $ | — | ||||
Income taxes | $ | — | $ | — |
See Notes to Condensed Financial Statements
(5) |
Worlds Inc.
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 2013
(Unaudited)
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 unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2012 and 2011 thereto contained in the Company’s Annual Report on Form 10-K/ A, Amendment No. 1 for the year ended December 31, 2012.
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 is expected to 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 and licensing revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. Following the spin-off we expect to receive revenue from royalties on licenses of our IP and from litigation settlements from infringers of our IP. 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 (“ASC”) 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 the nine months ended September 30, 2013 and 2012.
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 ASC 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 ASC. 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 $823,279 in short term notes outstanding at September 30, 2013.
Comprehensive Income (Loss)
The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB ASC which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the consolidated financial statements.
Loss Per Share
Net loss per common share is computed pursuant to section 260-10-45 of the FASB ASC. 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. As of September 30, 2013, there were 8,462,500 options and 5,273,214 warrants whose effect was anti-dilutive and not included in diluted net loss per share for the three and nine months ended September 30, 2013. The options and warrants may dilute future earnings per share.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC 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.
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 FASB ASC 740-10-25 for the nine months ended September 30, 2013 and 2012.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements up to ASU 2013-09, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
(6) |
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.
In addition, the Company identified errors related to understatement of derivative liabilities as of September 30, 2013, and loss on change in the fair value of the derivative liability for the three and nine months ended September 30, 2013. The facts underlying the Company’s original conclusion is that there were no derivative liabilities incurred when 4,535,714 warrants were granted to the investors in connection with the strategic financing agreements entered into in March of 2013. In fact such warrants’ ratchet features triggered derivative liabilities of the Company.
The following table sets forth all the accounts in the original amounts and restated amounts, respectively.
As of September 30, 2013
Original | Adjustment | Restated | |
Derivative liability | $ 359,127 | $ 1,042,714 | $ 1,401,841 |
For the nine months ended September 30, 2013
Original | Adjustment | Restated | |
Gain (loss) on change in fair value of derivative liability | $ 456,929 | $ (1,042,714) | $ (585,785) |
Net (loss) | (3,454,230) | (1,042,714) | (4,496,944) |
Weighted average loss per share | $ (0.04) | $ (0.01) | $ (0.05) |
For the three months ended June 30, 2013
Original | Adjustment | Restated | |
Gain on change in fair value of derivative liability | $ 6,399 | $ 808,157 | $ 814,556 |
Net (loss) | (2,884,452) | 808,157 | (2,076,295) |
Weighted average loss per share | $ (0.03) | $ 0.01 | $ (0.02) |
Statement of Equity as of January 1, 2013
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) |
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 nine months ended September 30, 2013, the Company sold 875,000 common shares for a cash investment of $87,500. The company received $10,000 for stock issued in 2012 and recorded as subscription receivable.
During the nine months ended September 30, 2013, the Company raised $120,000 with the exercise of warrants covering 800,000 shares of its common stock at a price of $0.15 per share.
During the nine months ended September 30, 2013, 100,000 stock options were exercised at a price of $0.11 per share for cash proceeds of $11,000.
During the nine months ended September 30, 2013, the Company issued an aggregate of 7,675,800 shares of common stock as payment for services rendered with an aggregate value of $2,609,332, $160,867 of which was recorded as deferred compensation as of September 30, 2013.
During the nine months ended September 30, 2013, the Company issued 1,500,000 common shares for a cash investment of $150,000 which was received in 2012. The shares were not issued as of December 31, 2012, and were recorded as common stock subscribed but not yet issued at December 31, 2012.
During the nine months ended September 30, 2012, the Company issued 1,000,000 common shares for a cash investment of $250,000.
During the nine months ended September 30, 2012, the Company issued an aggregate of 3,323,382 shares of common stock as payment for services rendered with an aggregate value of $299,333.
During the nine months ended September 30, 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.
(7) |
NOTE 5 - NOTES PAYABLE
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. The Series A and Series B notes were exchanged by the return of the face amount of the notes and for 7 million shares of common stock of the Company. The remaining Series C note carries a 14% annual interest rate upon default and is payable on March 13, 2016. The Company has determined that the conversion feature of the Note represent an embedded derivative since the Note is convertible into a variable number of shares upon conversion. This Notes is classified as a derivative liability and not a note payable, see Note 11 below.
Notes payable at September 30, 2013 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 | $ | 50,000 | ||
2016 | $ | -0- | ||
2017
|
$ | -0- | ||
$ | 823,279 |
We issued a promissory note in the amount of $50,000 on September 30, 2013. The promissory note carries a 6% annual interest rate and is payable upon the earlier of (a) 24 months from the date of the promissory note or (b) the Company reaching a settlement(s) on a patent infringement claim(s) and receiving an aggregate of at least $2 million net proceeds from such settlement(s).
The holder of the promissory note shall receive repayment in the full face amount of the note from the initial $500,000 the Company actually receives from the net proceeds of its patent infringement claim(s) or from the net proceeds of a public offering. In addition the holder shall receive a preferred return (i) in an amount equal to up to 200% of the initial face amount of the note out of available cash by sharing with all other investors in this series of notes in the allocation of 50% of the available cash received by the Company form $2M - $4M and (ii) in an amount equal to up to 100% of the initial face amount of the note out of available cash by sharing with all other investors in this series of notes in the allocation of 25% of the available cash received by the Company from $4M - $6M. In other words, if the Company collects $6M in the net proceeds of available cash, the holder will receive a return equal to 400% of its investment.
(8) |
NOTE 6 - STOCK OPTIONS
During the nine months ended September 30, 2013, the Company issued 4,535,714 warrants as part of the offering of the senior secured convertible notes. Such warrants triggered derivative liabilities of the Company due to their ratchet features (see Note 11 below) . During the nine months ended September 30, 2013, 800,000 warrants were exercised for cash proceeds of $120,000. During the nine months ended September 30, 2013, 100,000 stock options were exercised for cash proceeds of $11,000. During the nine months ended September 30, 2013, 900,000 stock options were exercised through a cashless exercise of options resulting in the issuance of 639,606 shares of common stock.
During the nine months ended September 30, 2012, stock options representing 150,000 shares at $0.05 per share were exercised. No warrants were exercised.
Stock Warrants and Options | ||||||||
Stock warrants/options outstanding and exercisable on September 30, 2013 are as follows: | ||||||||
Exercise Price per Share | Shares Under Option/warrant | Remaining Life in Years | ||||||
Outstanding | ||||||||
$ | 1.00 | 4,535,714 | 4.46 | |||||
$ | 0.35 | 212,500 | 0.25 | |||||
$ | 0.20 | 100,000 | 0.25 | |||||
$ | 0.19 | 200,000 | 4.25 | |||||
$ | 0.15 | 737,500 | 1.25 | |||||
$ | 0.115 | 300,000 | 4.08 | |||||
$ | 0.11 | 150,000 | 1.55 | |||||
$ | 0.070 | 7,500,000 | 4.00 | |||||
$ | ||||||||
Exercisable | ||||||||
$ | 1.00 | 4,535,714 | 4.46 | |||||
$ | 0.35 | 212,500 | 0.25 | |||||
$ | 0.20 | 100,000 | 0.25 | |||||
$ | 0.15 | 737,500 | 1.25 | |||||
$ | 0.115 | 300,000 | 4.08 | |||||
$ | 0.11 | 150,000 | 1.55 | |||||
$ | 0.070 | 7,500,000 | 4.00 |
(9) |
NOTE 7 - INCOME TAXE S
At September 30, 2013, the Company had federal and state net operating loss carry forwards of approximately $35,000,000 that expire in various years through the year 2026.
Due to operating losses, there is no provision for current federal or state income taxes for the nine months ended September 30, 2013 and 2012.
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 September 30, 2013 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $13,650,000 less a valuation allowance in the amount of approximately $13,650,000. 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 $1,950,000 and $200,000 for the nine months ended September 30, 2013 and 2012, respectively.
The Company’s total deferred tax asset as of September 30, 2013 is as follows:
Net operating loss carry forwards | $ | 13,650,000 |
||
Valuation allowance | (13,650,000) | |||
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 nine months ended September 30, 2013 and 2012 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 8 - COMMITMENTS AND CONTINGENCIES
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.
The Company is committed to a consulting agreement with an unrelated business consultant. The contract is dated January 1, 2012, calls for monthly payments in the amounts of $5,000 for the 24 month term of the contract and expires on December 31, 2013.
(10) |
NOTE 9 - RELATED PARTY TRANSACTIONS
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.
Due from related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses. The balance due at September 30, 2013 is $266,196.
NOTE 10 - PATENTS
Worlds Inc. currently has eight patents, 6,219,045 - 7,181,690 - 7,493,558 – 7,945,856, - 8,082,501, – 8,145,998 – 8,161,383 and 8,407,592. 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 its ability to prosecute its IP portfolio or that we will be able to acquire additional patents.
(11) |
NOTE 11 – DERIVATIVE LIABILITIES
1) | Derivative liabilities due to variable conversion ratio |
On March 20, 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 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 the Company acquires 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.
On July 15, 2013 we entered into Amendment and Exchange Agreements with each of the existing holders of our Series A, B and C Senior Secured Convertible Notes and related warrants to purchase our common stock, which securities were originally issued pursuant to that certain Securities Purchase Agreement dated as of March 14, 2013 (“Securities Purchase Agreement”), by and among us and such holders.
Each Exchange Agreement provides for, among other things, that:
(i) | Various restrictive provisions of the Securities Purchase Agreement and the Class C Senior Secured Convertible Notes were either eliminated by amendment or waived; | |
(ii) | the related warrants, initially exercisable into an aggregate of 4,535,714 shares of Common Stock at an initial exercise price of $0.50, were exchanged for new warrants, initially exercisable into an aggregate of 4,535,714 shares of Common Stock at an initial exercise price of $1.00; and | |
(iii) | the Series A and B Senior Secured Convertible Notes, with an aggregate original principal amount of $1,950,000, were exchanged for an aggregate of 7 million shares of our common stock and the payment by the Company to such holders of an aggregate of approximately $1,951,400 (the remaining cash amount held in a control account pursuant to the terms and conditions of the Series A and B Senior Secured Convertible Notes) |
The Company has determined that the conversion feature of the Note represent an embedded derivative since the Note is convertible into a variable number of shares upon conversion. Accordingly, the Note is not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of this derivative instrument has been recorded as a liability on the balance sheet with the corresponding amount recorded as a discount to the Note. Such discount will be accreted from the grant date to the maturity date of the Note. The change in the fair value of the derivative liability will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liability on the balance sheet. The beneficial conversion feature included in the Note resulted in an initial debt discount of $450,000 and an initial loss on the valuation of derivative liabilities of $171,658 based on the initial fair value of the derivative liability of $621,658. The fair value of the embedded derivative liability was calculated at grant date utilizing the following assumptions:
Grant Date |
Fair Value |
Term (Years) |
Assumed Conversion Price | Market Price on Grant Date |
Volatility Percentage |
Risk-free Rate |
3/20/13 | $621,658 | 3.0 | $0.326 | $0.465 | 238% | 0.0038 |
At September 30, 2013, the Company revalued the embedded derivative liability. For the period from the grant date to September 30, 2013, the Company decreased the derivative liability of $621,658 by $190,541 resulting in a derivative liability of $431,117 at September 30, 2013.
The fair value of the embedded derivative liability was calculated at September 30, 2013 utilizing the following assumptions:
Fair Value |
Term (Years) |
Assumed Conversion Price |
Volatility Percentage |
Risk-free Rate |
$431,117 | 2.47 | $0.213 | 212% | 0.0063 |
The carrying value of the Notes was $431,117 as of September 30, 2013. The Company recorded interest expense related to this note of $33,658 and amortization of the debt discount in the amount of $80,137 during the period ended September 30, 2013.
2) | Derivative liabilities due to ratchet features of the warrants |
On March 20, 2013, the Company issued 4,535,714 warrants (the “Warrants”) as part of the senior secured convertible notes. Pursuant to the warrants agreements, if and whenever on or after the grant date of the Warrants, the Company issued or sold, or in accordance with the warrants agreements is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Exercise Price of the Warrants in effect immediately prior to such issue or sale or deemed issuance or sale (“Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price.
The Company has determined that the ratchet features of the Warrants represent an embedded derivative since the Warrants are exercisable into a variable number of shares upon exercise. Accordingly, the Warrants are not considered to be conventional warrants under EITF 00-19 and the embedded ratchet feature must be accounted for as a derivative liability. Accordingly, the fair value of this derivative instrument has been recorded as a liability on the balance sheet with the corresponding amount recorded as derivative expenses. The change in the fair value of the derivative liability will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liability on the balance sheet. The ratchet feature included in the Warrants resulted in an initial derivative expenses of $2,092,336 on the grant date based on the initial fair value of the derivative liability. The fair value of the embedded derivative liability was calculated at grant date utilizing the following assumptions:
Grant Date |
Fair Value |
Term (Years) |
Exercise Price | Market Price on Grant Date |
Volatility Percentage |
Risk-free Rate |
3/20/13 | $2,092,336 | 5.0 | $0.50 | $0.465 | 238% | 0.0038 |
At September 30, 2013, the Company revalued the embedded derivative liability, based on the new exercise price of $1.00 per share pursuant to the Amendment and Exchange Agreements entered into on July 15, 2013. For the period from the grant date to September 30, 2013, the Company decreased the derivative liability of $2,092,336 by $1,121,612 resulting in a derivative liability of $970,724 at September 30, 2013.
The fair value of the embedded derivative liability was calculated at September 30, 2013 utilizing the following assumptions:
Fair Value |
Term (Years) |
Exercise Price |
Volatility Percentage |
Risk-free Rate |
$970,724 | 4.47 | $1.00 | 212% | 0.0139 |
NOTE 12 - SUBSEQUENT EVENT
On October 6th through October 27, 2013 we issued four Promissory Notes totaling $175,000. One of the Promissory Notes in the amount $50,000 was in lieu of payment of cash for an outstanding balance due to a consultant of the Company.
The promissory notes carry a 6% annual interest rate and is payable upon the earlier of (a) 24 months from the date of the promissory notes or (b) the Company reaching a settlement(s) on a patent infringement claim(s) and receiving an aggregate of at least $2 million net proceeds from such settlement(s).
The holders of the promissory notes shall receive repayment in the full face amount of the notes from the initial $500,000 the Company actually receives from the net proceeds of its patent infringement claim(s) or from the net proceeds of a public offering. In addition, the holders shall receive a preferred return (i) in an amount equal to up to 200% of the initial face amount of the notes out of available cash by sharing with all other investors in this series of notes in the allocation of 50% of the available cash received by the Company from $2M - $4M and (ii) in an amount equal to up to 100% of the initial face amount of the notes out of available cash by sharing with all other investors in this series of notes in the allocation of 25% of the available cash received by the Company from $4M - $6M. In other words, if the Company collects $6M in the net proceeds of available cash, the holder will receive a return equal to 400% of its investment.
(12) |
Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
When used in this Form 10-Q and in future filings by the Company with the Commission, the words or phrases such as "anticipate," "believe," "could," "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 due to general economic and business conditions; 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; 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 unaudited financial statements and related notes which are included under Item 1.
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.
At present, the Company’s anticipated 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.
(13) |
Revenues
We generated no revenue during the quarter because we transferred the operations of the Company to Worlds Online Inc. and our other anticipated revenue generation streams did not produce any income during the quarter.
We classify our expenses into two broad groups:
• | cost of revenues; and |
• | 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.
RESULTS OF OPERATIONS
Our net revenues for each of the three months ended September 30, 2013 and 2012 were $0 and $0, respectively. Our net revenue for each of the nine months ended September 30, 2013 and 2012 were $0 and $0, respectively. The Company’s sources of revenue after the spin off is currently anticipated to be from sublicenses of the patented technology to Worlds Online Inc.’s customers and any revenue that may be generated from enforcing our patents.
Three and nine months ended September 30, 2013 compared to three and nine months ended September 30, 2012
Revenue is $0 for the three months ended September 30, 2013 and 2012. Revenue is $0 because the online business operations including the VIP subscription business has been transferred to Worlds Online Inc. The business up to the spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to provide the resources required that would enable us to continue running the business.
Cost of revenues is $0 in the three months ended September 30, 2013 and 2012.
Selling general and administrative (S, G & A) expenses increased by $13,698 from $53,077 to $66,775 for the three months ended September 30, 2013. Increase is due to the activity around the amendments to the convertible notes and new promissory notes. Common stock issued for services rendered increased by $2,658,102 to $2,723,399 for three months ended September 30, 2013 compared to $65,297 for the same period in 2012. The increase is due to the Company converting the Series A and B convertible notes into 7 million shares and returning the face value of the notes to the investors and signing strategic business consulting, marketing and advice agreements during 2013. Salaries and related decreased by $21,148 to $47,119 from $68,267 for the three months ended September 30, 2013.
For the three months ended September 30, 2013, the Company had a gain on change in fair value of derivative liability of $814,556 and interest expense of $53,558, both related to the issuance of the senior secured convertible notes that are required to be recorded as a derivative liability.
As a result of the foregoing, we realized a net loss of $2,076,295 for the three months ended September 30, 2013 compared to a loss of $186,641 in the three months ended September 30, 2012, an increased loss of $1,889,654 .
Revenue was $0 and $0 for the nine months ended September 30, 2013 and 2012. Revenue is $0 because the online business operations including the VIP subscription business has been transferred to Worlds Online Inc. The business up to the spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to provide the resources required that would enable us to continue running the business.
Cost of revenues is $0 in the nine months ended September 30, 2013 and 2012.
Selling general and administrative expenses increased by $220,242, from $211,614 to $431,856 for the nine months ended September 30, 2013. Increase is due to an increase in the overall level of activity surrounding the lawsuit as compared to last year with an increase in professional service fees and consultants and with the activity around closing the strategic financing agreement, the amendment thereto and promissory notes.
Common stock issued for services rendered increased by $2,656,582 to $2,955,915 in 2013 compared to $299,333 for 2012. Increase is due to the Company converting the Series A and B convertible notes into 7 million shares and returning the face value of the notes to the investors, and signing strategic business consulting, marketing and advice agreements during 2013. Salaries and related decreased by $37,751 to $159,357 from $197,108 for the nine months ended September 30, 2013. For 2013, the CEO is working under an employment agreement where as last year the CEO’s salary was allocated between the Company and Worlds Online based upon a time allocation.
For the nine months ended September 30, 2013, the Company had a loss on change in fair value of derivative liability of $585,785 and interest expense of $365,462. The derivative liability are in connection with the issuance of the senior secured convertible notes of $450,000 and 4,535,714 warrants as part of the offering of notes, both of which are required to be recorded as a derivative liability.
As a result of the foregoing we had a net loss of $4,496,944 for the nine months ended September 30, 2013 compared to a loss of $708,055 in the nine months ended September 30, 2012.
(14) |
Liquidity and Capital Resources
Our cash and cash equivalents were $63,836 at September 30, 2013. We raised an aggregate of $2,400,000 from issuing the convertible notes payable but then redeemed the Series A and B and returned $1,950,000; we raised $97,500 from a private placement of common stock; we raised $120,000 from the exercising of warrants for common stock; and we raised $11,000 from the exercise of options in the nine months ended September 30, 2013.
During the nine months ended September 30, 2012 we raised an aggregate of $250,000 from a private placement of common stock.
There were no capital expenditures in the nine months ended September 30, 2013 or in the nine months ended September 30, 2012.
Historically, our primary cash requirements have been to fund the cost of operations, to keep the Company in compliance with its reporting requirements, 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.
We have had to severely diminish our operations due to a lack of liquidity from mid-2001 through most of 2007. We were able to find a small source of additional capital in each of 2007 - 2010. There can be no assurance that any significant financing would become available to us at this time. The additional capital that we secured in previous years enabled us to bid on new business. There can be no assurance that any such new business would be sold in the future.
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
Item 4. Controls And Procedures
As of September 30, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2013 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.
Changes in Internal Control Over Financial Reporting
During the quarter covered by this report there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(15) |
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
In early October 2013, Activision Publishing, Inc., a subsidiary of Activision Blizzard, Inc. filed a lawsuit claiming patent infringement against Worlds Inc. and Worlds Online Inc., in the U.S. District Court for the Central District of California. Activision alleges that Worlds violates U.S. Patent No. 6,014,145 entitled “Navigation with optimum viewpoints in three-dimensional workspace interactive displays having three-dimensional objects with collision barriers” and U.S. Patent No. 5,883,628 entitled “Climability: property for objects in 3-D virtual environments.”
The company believes Activision/ Blizzards' suit against Worlds is without merit and an attempt to apply pressure to Worlds due our lawsuit against them. Worlds' parent patent pre-dates Activision/ Blizzards' patents by more than one year.
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 1A. Risk Factors
We are not obligated to disclose our risk factors in this report, however, limited information regarding our risk factors appears in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in “Item 1A. RISK FACTORS” of our 2012 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2012 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
31.1 | Certification of Chief Executive Officer | |
31.2 | Certification of Chief Financial Officer | |
32.1 | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |
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 |
(16) |
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereto duly authorized.
Date: February 6, 2015
WORLDS INC.
By:
/s/ Thomas Kidrin Thomas Kidrin President and CEO By: /s/ Christopher Ryan Christopher Ryan Chief Financial Officer |
(17) |
INDEX TO EXHIBITS
Exhibit No. | Description | |
31.1 | Certification of Chief Executive Officer. | |
31.2 | Certification of Chief Financial Officer. | |
32.1 | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |
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 |
EXHIBIT 31.1
Certifications
I, Thomas Kidrin, certify that:
1. I have reviewed this amendment to quarterly report on Form 10-Q/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
EXHIBIT 31.2
Certifications
I, Christopher J. Ryan, Principal Accounting and Financial Officer, certify that:
1. I have reviewed this amendment to quarterly report on Form 10-Q/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
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 Quarterly Report of Worlds Inc. (the "Company") on Form 10-Q/A for the nine months ended September 30, 2013 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 |
Christopher J. Ryan | |
Chief Executive Officer
|
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 Quarterly Report of Worlds Inc. (the "Company") on Form 10- Q/A for the nine months ended September 30, 2013 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 |
NOTE 7 - INCOME TAXES - Reconciliation of income taxes (Details) (USD $)
|
9 Months Ended | |
---|---|---|
Sep. 30, 2013
|
Sep. 30, 2012
|
|
Income Tax Disclosure [Abstract] | ||
Income tax computed at the federal statutory rate | 34.00% | 34.00% |
Income tax computed at the state statutory rate | 5.00% | 5.00% |
Valuation allowance | (0.39) | (0.39) |
Total deferred tax asset | $ 0 | $ 0 |
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