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 March 31, 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 May 20, 2013, 83,238,071 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 March 31, 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.
Worlds
Inc.
Table
of Contents
|
Page |
Balance Sheets as of
March 31, 2013 (unaudited) and December 31, 2012 (audited) |
3 |
Statements of Operations
for the three months ended March 31, 2013 and 2012 (unaudited) |
4 |
Statements of Cash Flows
for the three months ended March 31, 2013 and 2012 (unaudited) |
5 |
Notes to Financial Statements |
6 |
PART
I – FINANCIAL INFORMATION
Item 1. Financial Statements
Worlds Inc. |
|
|
|
|
Balance Sheets |
|
|
|
|
March 31, 2013 and December 31, 2012 |
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
March 31, 2013 |
|
December 31, 2012 |
|
|
(Restated) |
|
(Restated) |
ASSETS: |
|
|
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
248,003 |
|
|
$ |
95,069 |
|
Restricted cash and cash equivalents |
|
|
1,950,000 |
|
|
|
|
|
Due from related party |
|
|
236,774 |
|
|
|
134,654 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
2,434,777 |
|
|
|
229,724 |
|
|
|
|
|
|
|
|
|
|
Patents |
|
|
7,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,441,777 |
|
|
$ |
236,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT: |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
797,908 |
|
|
$ |
797,908 |
|
Accrued expenses |
|
|
1,884,550 |
|
|
|
1,953,934 |
|
Derivative liability |
|
|
4,581,308 |
|
|
|
0 |
|
Notes payable |
|
|
773,279 |
|
|
|
773,279 |
|
Convertible notes payable, net |
|
|
21,918 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
8,058,963 |
|
|
|
3,525,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (Par value $0.001 authorized 100,000,000 shares, issued and outstanding 83,238,071and 79,813,071 at March 31, 2013 and December 31, 2012, respectively) |
|
|
83,238 |
|
|
|
79,813 |
|
Common stock subscribed but not yet issued (523,333 and 1,500,000 at March 31, 2013 and December 31, 2012, respectively) |
|
|
523 |
|
|
|
1,500 |
|
Subscription receivable |
|
|
0 |
|
|
|
(10,000 |
) |
Additional paid in capital |
|
|
27,304,684 |
|
|
|
26,788,926 |
|
Common stock-warrants |
|
|
132,831 |
|
|
|
203,237 |
|
Deferred compensation |
|
|
(232,037 |
) |
|
|
(12,500 |
) |
Accumulated deficit |
|
|
(32,906,426 |
) |
|
|
(30,339,374 |
) |
Total stockholders deficit |
|
|
(5,617,185 |
) |
|
|
(3,288,398 |
) |
|
|
|
|
|
|
|
|
|
Total Liabilities and stockholders' deficit |
|
$ |
2,441,777 |
|
|
$ |
236,723 |
|
See
Notes to Condensed Financial Statements
Worlds Inc. |
|
|
|
|
Statements of Operations |
|
|
|
Three Months Ended March 31, 2013 and 2012 |
|
|
|
|
|
Unaudited |
|
Unaudited |
|
|
2013 |
|
2012 |
Revenues |
|
(Restated) |
|
|
Revenue |
|
$- |
|
$- |
|
|
|
|
|
Total Revenue |
|
- |
|
- |
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Gross Profit/(Loss) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued for services renderred |
|
|
62,263 |
|
|
|
207,035 |
|
Selling, General & Admin. |
|
|
248,936 |
|
|
|
50,160 |
|
Salaries and related |
|
|
47,026 |
|
|
|
48,315 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(358,225 |
) |
|
|
(305,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
Loss on change in fair value of derivative liability |
|
|
(2,181,308 |
) |
|
|
— |
|
Interest Expense |
|
|
(27,518 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net (Loss) |
|
$ |
(2,567,051 |
) |
|
$ |
(305,510 |
) |
|
|
|
|
|
|
|
|
|
Weighted Average Loss per share |
|
$ |
(0.03 |
) |
|
$ |
(0.00 |
) |
Weighted Average Common Shares Outstanding |
|
|
81,832,238 |
|
|
|
75,071,122 |
|
See
Notes to Condensed Financial Statements
Worlds Inc. |
|
|
|
|
Statements of Cash Flows |
|
|
|
|
Three Months Ended March 31, 2013 and 2012 |
|
|
|
|
|
|
Unaudited |
|
Unaudited |
|
|
2013 |
|
2012 |
|
|
(Restated) |
|
|
Cash flows from operating activities: |
|
|
|
|
Net (loss) |
|
$ |
(2,567,051 |
) |
|
$ |
(305,510 |
) |
Adjustments to reconcile net loss to net cash (used in) operating activities |
|
|
|
|
|
|
|
|
Common stock issued for services renderred |
|
|
62,263 |
|
|
|
207,035 |
|
Amortization of discount to note payable |
|
|
21,918 |
|
|
|
— |
|
Derivative expenses |
|
|
3,007,846 |
|
|
|
— |
|
Changes in fair value of derivative liabilities |
|
|
(826,538 |
) |
|
|
— |
|
Accounts payable and accrued expenses |
|
|
(69,384 |
) |
|
|
9,100 |
|
Due from related party |
|
|
(102,120 |
) |
|
|
(12,296 |
) |
Net cash (used in) operating activities: |
|
|
(473,066 |
) |
|
|
(101,671 |
) |
|
|
|
|
|
|
|
|
|
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 warrants |
|
|
78,500 |
|
|
|
|
|
Proceeds from issuance of note payable |
|
|
2,400,000 |
|
|
|
— |
|
Net cash provided by financing activities |
|
|
2,576,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
2,102,934 |
|
|
|
141,329 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
95,069 |
|
|
|
152,526 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
2,198,003 |
|
|
$ |
293,855 |
|
|
|
|
|
|
|
|
|
|
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
Worlds
Inc.
NOTES
TO FINANCIAL STATEMENTS
Three
Months Ended March 31, 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
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered
a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations.
The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no
assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or
that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient
revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company
to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. For the
past year the Company has been operating at a significantly reduced capacity, with only one full time employee, performing primarily
consulting services and licensing software and using consultants to perform any additional work that may be required.
Use of Estimates
The preparation
of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents
are comprised of highly liquid money market instruments, which have original maturities of three months or less at the time of
purchase.
Due from Related Party
Due from
related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses.
Revenue Recognition
Effective
for the second quarter of 2011, the Company spun off its online businesses to Worlds Online Inc. The Companys sources of
revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated
from enforcing its patents. Prior to the spin-off, the Company had the following sources of revenue: (1) consulting/licensing
revenue from the performance of development work performed on behalf of the Company 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 customers acceptance indicating the product has been completed to their satisfaction except for development
work and service revenue which is recognized when the services have been performed. Deferred revenue represents cash payments
received in advance to be recorded as revenue when earned. The corresponding cost associated with those contracts is also deferred
as deferred costs until the revenue is ultimately recognized.
Research and Development Costs
Research
and development costs are charged to operations as incurred.
Property and Equipment
Property
and equipment are stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets
ranging from three to five years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from
the accounts, and any resulting gains or losses are included in income. Maintenance and repairs are charged to expense in the
period incurred.
Impairment of Long Lived Assets
The Company
evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting
Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment
of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to
be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values.
The Company adopted the statement on inception. No impairments of these types of assets were recognized during the three months
ended March 31, 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
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 March 31, 2013.
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 sheet.
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 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 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 March 31, 2013 and 2012.
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.
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.
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 March 31, 2013, and loss on
change in the fair value of the derivative liability for the three months ended March 31, 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 March 31,
2013
| |
Original | |
Adjustment | |
Restated |
| |
| | | |
| | | |
| | |
Derivative liability | |
$ | 2,345,621 | | |
$ | 2,235,687 | | |
$ | 4,581,308 | |
For the three months
ended March 31, 2013
| |
Original | |
Adjustment | |
Restated |
| |
| | | |
| | | |
| | |
Gain (loss) on change in fair value of derivative liability | |
$ | 54,379 | | |
$ | (2,235,687 | ) | |
$ | (2,181,308 | ) |
Net (loss) | |
| (331,364 | ) | |
| (2,235,687 | ) | |
| (2,567,051 | ) |
Weighted average loss per share | |
$ | 0.00 | | |
$ | (0.03 | ) | |
$ | (0.03 | ) |
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 three months ended March 31, 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 three months ended March 31, 2013, the Company raised $78,500 with the exercise of warrants covering 523,333 shares of its
common stock at a price of $0.15 per share.
During
the three months ended March 31, 2013, the Company issued an aggregate of 1,050,000 shares of common stock as payment for services
rendered with an aggregate value of $281,800, $232,037 of which was recorded as deferred compensation as of March 31, 2013.
During
the three months ended March 31, 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 three months ended March 31, 2012, the Company sold 1,000,000 common shares for a cash investment of $250,000.
During
the three months ended March 31, 2012, the Company issued an aggregate of 417,952 shares of common stock and will issue 637,276
shares of common stock as payment for services rendered with an aggregate value of $207,035.
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. All of the Notes carry a 14% annual interest rate upon default and are payable on March 13, 2016. The Company has
determined that the conversion feature of the Notes represent an embedded derivative since the Notes are convertible into a variable
number of shares upon conversion. These Notes are classified as a derivative liability and not a note payable, see Note 12
below.
Notes payable at March 31, 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 | |
$ | -0- | |
2016 | |
$ | -0- | |
2017 | |
$ | -0- | |
| |
$ | 773,279 | |
NOTE 6- PROPERTY AND EQUIPMENT
The detail composition of
property and equipment at March 31, 2013 and December 31, 2012 is as follows:
| |
31-Mar | |
31-Dec |
| |
2013 | |
2012 |
Computer equipment | |
$ | 10,891 | | |
$ | 10,891 | |
Less: accumulated depreciation | |
| 10,891 | | |
| 10,891 | |
| |
$ | 0 | | |
$ | 0 | |
Depreciation expense recorded
for the three months ended March 31, 2013 and 2012 was $0 and $0, respectively.
NOTE 7 – STOCK
OPTIONS
During
the three months ended March 31, 2013, the Company issued 4,535,714 warrants as part of the senior secured convertible notes.
Such warrants triggered derivative liabilities of the Company due to their ratchet features (see Note 12 below). No stock
options were issued. During the three months ended March 31, 2013, 523,333 stock options were exercised for cash proceeds of $78,500.
During
the three months ended March 31, 2012, no stock options or warrants were exercised.
Stock
Warrants and Options |
Stock
warrants/options outstanding and exercisable on March 31, 2013 are as follows: |
|
|
|
Exercise
Price per Share |
Shares
Under Option/warrant |
Remaining
Life in Years |
| | |
| | |
| | |
| Outstanding | |
| | |
| | |
$ | 0.50 | |
| 4,535,714 | |
| 4.96 | |
$ | 0.35 | |
| 212,500 | |
| 0.75 | |
$ | 0.20 | |
| 300,000 | |
| 0.75 | |
$ | 0.15 | |
| 1,014,167 | |
| 1.75 | |
$ | 0.115 | |
| 500,000 | |
| 4.58 | |
$ | 0.11 | |
| 150,000 | |
| 2.05 | |
$ | 0.11 | |
| 300,000 | |
| .05 | |
$ | 0.070 | |
| 7,500,000 | |
| 4.50 | |
$ | 0.05 | |
| 600,000 | |
| .60 | |
| Exercisable | |
| | |
| | |
$ | 0.50 | |
| 4,535,714 | |
| 4.96 | |
$ | 0.35 | |
| 212,500 | |
| 0.75 | |
$ | 0.20 | |
| 300,000 | |
| 0.75 | |
$ | 0.15 | |
| 1,014,167 | |
| 1.75 | |
$ | 0.11 | |
| 150,000 | |
| 2.05 | |
$ | 0.11 | |
| 300,000 | |
| .05 | |
$ | 0.070 | |
| 7,500,000 | |
| 4.50 | |
$ | 0.05 | |
| 600,000 | |
| .60 | |
NOTE 8 - INCOME TAXES
At
March 31, 2013, the Company had federal and state net operating loss carry forwards of approximately $33,000,000
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 three months ended March 31, 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 March 31, 2013 consists of net operating loss carry forwards calculated using federal and
state effective tax rates equating to approximately $12,870,000 less a valuation allowance in the amount of approximately $12,870,000.
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 $1,170,000 and $38,000 for the three months ended March 31, 2013 and 2012,
respectively.
The
Company’s total deferred tax asset as of March 31, 2013 is as follows:
Net operating loss carry
forwards |
|
$ |
12,870,000 |
|
Valuation allowance |
|
|
( 12,870,000 ) |
|
|
|
|
|
|
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 three months ended March 31, 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 9- 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 January 1, 2014
NOTE 10 - 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 March 31, 2013 is $236,774.
NOTE
11 - 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 its ability to prosecute its IP portfolio or that we will be able to
acquire additional patents.
NOTE 12 – 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
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 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.
The Company
has determined that the conversion feature of the Notes represent an embedded derivative since the Notes are convertible into
a variable number of shares upon conversion. Accordingly, the Notes are 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 Notes. Such discount will be accreted from the grant date to the maturity date of the Notes. 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 Notes resulted in an initial debt discount of $2,400,000 and an initial loss on the valuation of derivative liabilities
of $915,510 based on the initial fair value of the derivative liability of $3,315,510. 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 | |
$ | 3,315,510 | | |
| 3.0 | | |
$ | 0.326 | | |
$ | 0.465 | | |
| 238 | % | |
| 0.0038 | |
At March
31, 2013, the Company revalued the embedded derivative liability. For the period from the grant date to March 31, 2013, the Company
decreased the derivative liability of $3,315,510 by $597,887 resulting in a derivative liability of $2,717,623 at March 31, 2013.
The fair
value of the embedded derivative liability was calculated at March 31, 2013 utilizing the following assumptions:
Fair Value | |
Term (Years) | |
Assumed Conversion Price | |
Volatility Percentage | |
Risk-free Rate |
$ | 2,717,623 | | |
| 2.97 | | |
$ | 0.352 | | |
| 234 | % | |
| 0.0036 | |
The
carrying value of the Notes was $21,918 as of March 31, 2013. The Company recorded interest expense related to this note of $5,600
and amortization of the debt discount in the amount of $21,198 during the period ended March 31, 2013.
| 2) | Derivative
liabilities due to ratchet features of the warrants |
During
the three months ended March 31, 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
March 31, 2013, the Company revalued the embedded derivative liability. For the period from the grant date to March 31, 2013,
the Company decreased the derivative liability of $2,092,336 by $228,651 resulting in a derivative liability of $1,863,685 at
March 31, 2013.
The
fair value of the embedded derivative liability was calculated at March 31, 2013 utilizing the following assumptions:
Fair
Value |
Term
(Years) |
Exercise
Price |
Volatility
Percentage |
Risk-free
Rate |
$1,863,685 |
4.97 |
$0.50 |
234% |
0.0036 |
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 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.
Revenues
We
generated no revenue during
the quarter because we transferred the operations of the Company to Worlds Online Inc.
We classify
our expenses into two broad groups:
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.
RESULTS
OF OPERATIONS
Our
net revenues for each of the three months ended March 31, 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
months ended March 31, 2013 compared to three months ended March 31, 2012
Revenue
is $0 for the three months ended March 31, 2013 and 2012. We 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 March 31, 2013 and 2012.
Selling
general and administrative (SG&A) expenses increased by $198,776 from $50,160 to $248,936 for the three months ended March
31, 2012 and 2013, respectively. Increase is due to an increase in the overall level of activity surrounding the lawsuit and compared
to last year with an increase in professional service fees and consultants and with the activity around closing the strategic
financing agreement.
Salaries
and related decreased by $1,289 to $47,026 from $48,315 for the three months ended March 31, 2013 and 2012, respectively. The
CEO’s salary for the three months ended March 31, 2013 is in line with the amount allocated to Worlds Inc. in the prior
year.
Common
stock issued for services rendered decreased by $144,772 to $62,263 from $207,035 for the three months ended March 31, 2013 and
2012 respectively. The Company is still signing strategic business consulting and advice agreements for common stock however the
agreements have decreased in value.
For
the three months ended March 31, 2013, the Company had a loss on change in fair value of derivative liability of $2,181,308 and
interest expense of $27,518. The derivative liability are in connection with the issuance of the senior secured convertible notes
of $2,400,000 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 realized a net loss of $2,567,051 for the three months ended March 31, 2013 compared to a net loss
of $305,510 in the three months ended March 31, 2012.
Liquidity
and Capital Resources
Our financial
and liquidity position has improved substantially from the prior year period due primarily to the issuance of the convertible
notes payable entered into on March 20, 2013. Our cash and cash equivalents were $248,003 and our restricted cash and cash equivalents
were $1,950,000 at March 31, 2013. We raised an aggregate of $2,400,000 from issuing the convertible notes payable; we raised
$97,500 from a private placement of common stock; and we raised $78,500 from the exercising of warrants for common stock in the
three months ended March 31, 2013.
At March
31, 2012 our unrestricted cash was $43,855 and our restricted cash, being cash held in an escrow account until the common share
certificates from the private placement are issued, was $250,000.
During
the three months ended March 31, 2012 we raised an aggregate of $250,000 from a private placement of common stock.
There
were no capital expenditures in the three months ended March 31, 2013 or in the three months ended March 31, 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 March 31, 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 March 31, 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.
PART
II OTHER INFORMATION
Item
1. 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
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
During
the first quarter of 2013 the Company completed a private placement of 975,000 shares of unregistered common stock at a price
per share of $0.10 for aggregate proceeds of $97,500. The investors were “accredited” investors, no public advertising
was used, and the stock certificates issued contained a restrictive legend.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Mine Safety Disclosure
Not
applicable.
Item
5. Other Information
None.
Item
6. Exhibits
31.1 |
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Certification of Chief Executive
Officer |
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31.2 |
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Certification of Chief Financial Officer |
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32.1 |
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Statement required by 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Statement required by 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS* XBRL |
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Instance Document |
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101.SCH*XBRL |
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Taxonomy Extension Schema |
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101.CAL*XBRL |
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Taxonomy Extension Calculation
Linkbase |
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101.DEF* XBRL |
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Taxonomy Extension Definition Linkbase |
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101.LAB*XBRL |
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Taxonomy Extension Label Linkbase |
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101.PRE* XBRL |
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Taxonomy Extension Presentation
Linkbase |
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 |
|
INDEX
TO EXHIBITS
Exhibit No. |
|
Description |
|
|
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31.1 |
|
Certification of Chief Executive
Officer |
|
|
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31.2 |
|
Certification of Chief Financial Officer |
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|
|
32.1 |
|
Statement required by 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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|
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32.2 |
|
Statement required by 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS* XBRL |
|
Instance Document |
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101.SCH* XBRL |
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Taxonomy Extension Schema |
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101.CAL* XBRL |
|
Taxonomy Extension Calculation
Linkbase |
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101.DEF* XBRL |
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Taxonomy Extension Definition Linkbase |
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101.LAB* XBRL |
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Taxonomy Extension Label Linkbase |
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101.PRE* XBRL |
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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
three months ended March 31, 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
three months ended March 31, 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 |
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