UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period
ended June 30, 2015
( ) 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 August 13, 2015, 112,966,637 shares of the Issuer's Common Stock were
outstanding.
Worlds Inc.
Table of Contents
Part I - Financial Information |
Page |
Item 1 |
Financial Statements |
2 |
|
Notes to Financial Statements |
5 |
Item 2 |
Management’s Discussions and Analysis of Financial Condition and Results of Operations |
15 |
Item 3 |
Quantitative and Qualitative Disclosures About Market Risk |
N/A |
Item 4 |
Controls and Procedures |
17 |
|
|
|
Part II – Other Information |
|
Item 1 |
Legal Proceedings |
18 |
Item 1A |
Risk Factors |
N/A |
Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
18 |
Item 3 |
Default Upon Senior Securities |
18 |
Item 4 |
Mine Safety Disclosures |
N/A |
Item 5 |
Other Information |
18 |
Item 6 |
Exhibits |
18 |
Signatures |
|
19 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Worlds Inc. |
|
|
Balance Sheets |
|
|
June 30, 2015 and December 31, 2014 |
|
|
|
Unaudited |
Audited |
|
June 30, 2015 |
December 31, 2014 |
|
|
|
|
|
|
|
ASSETS: |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
98,855 |
|
$ |
27,661 |
|
Other receivables |
|
90,000 |
|
|
— |
|
|
|
|
|
|
|
|
Total Current Assets |
|
188,855 |
|
|
27,661 |
|
|
|
|
|
|
|
|
Total assets |
$ |
188,855 |
|
$ |
27,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT: |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Accounts payable |
$ |
797,908 |
|
$ |
797,908 |
|
Accrued expenses |
|
2,210,515 |
|
|
2,287,977 |
|
Due to related party |
|
45,914 |
|
|
9,416 |
|
Derivative liability |
|
497,982 |
|
|
426,591 |
|
Notes payable |
|
773,279 |
|
|
773,279 |
|
Notes Payables |
|
460,000 |
|
|
325,000 |
|
Convertible notes payable (net of $216,667 discount at June 30, 2015 and $13,822 discount at December 31, 2014) |
|
88,333 |
|
|
11,803 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
4,873,932 |
|
|
4,631,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (Par value $0.001 authorized 150,000,000 shares, issued and outstanding 112,996,637 and 96,851,941 at June 30, 2015 and December 31, 2014, respectively) |
|
112,997 |
|
|
96,852 |
|
Common stock subscribed but not yet issued 268,000 and 0 at June 30, 2015 and December 31, 2014, respectively) |
|
268 |
|
|
— |
|
Additional paid in capital |
|
34,525,017 |
|
|
31,409,427 |
|
Common stock-warrants |
|
97,869 |
|
|
97,869 |
|
Accumulated deficit |
|
(39,421,227 |
) |
|
(36,208,461 |
) |
Total stockholders deficit |
|
(4,685,075 |
) |
|
(4,604,312 |
) |
|
|
|
|
|
|
|
Total Liabilities and stockholders' deficit |
$ |
188,855 |
|
$ |
27,661 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements |
Worlds Inc. |
Statements of Operations |
For the six and three Months Ended June 30, 2015 and 2014 |
|
| |
Unaudited | |
Unaudited |
| |
Six months ended June 30 | |
Three months ended June 30 |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Revenues | |
| | | |
| | | |
| | | |
| | |
Revenue | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Total Revenue | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Cost and Expenses | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Cost of Revenue | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Gross Profit/(Loss) | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Option Expense | |
| 62,629 | | |
| 66,451 | | |
| 62,629 | | |
| — | |
Common Stock issued for services rendered | |
| 80,400 | | |
| 75,908 | | |
| 80,400 | | |
| 39,300 | |
Selling, General & Admin. | |
| 136,401 | | |
| 160,920 | | |
| 60,993 | | |
| 71,385 | |
Salaries and related | |
| 112,092 | | |
| 104,663 | | |
| 59,154 | | |
| 55,625 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (391,522 | ) | |
| (407,943 | ) | |
| (263,177 | ) | |
| (166,310 | |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
Loss on settlement of convertible notes | |
| (2,336,035 | ) | |
| — | | |
| — | | |
| — | |
Gain (Loss) on change in fair value of derivative liability | |
| (309,931 | ) | |
| (161,667 | ) | |
| (197,982 | ) | |
| (260,201 | ) |
Derivative liabilities expense | |
| (31,434 | ) | |
| — | | |
| — | | |
| — | |
Interest Expense | |
| (113,844 | ) | |
| (298,959 | ) | |
| (94,894 | ) | |
| (52,113 | ) |
Debt issuance expense | |
| (30,000 | ) | |
| — | | |
| (30,000 | ) | |
| — | |
Net Income/(Loss) | |
$ | (3,181,332 | ) | |
$ | (868,569 | ) | |
| (586,053 | ) | |
$ | (478,624 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted Average Loss per share | |
$ | (0.03 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
Weighted Average Common Shares Outstanding | |
| 108,775,858 | | |
| 94,767,763 | | |
| 112,537,208 | | |
| 95,475,237 | |
| |
| | | |
| | | |
| | | |
| | |
The accompanying notes are an integral part of these financial statements |
Worlds Inc. |
|
|
|
|
Statements of Cash Flows |
|
|
|
|
Six Months Ended June 30, 2015 and 2014 |
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
|
|
Unaudited |
|
|
|
|
6/30/2015 |
|
|
|
6/30/2014 |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(3,181,332 |
) |
|
$ |
(868,569 |
) |
Adjustments to reconcile net loss to net cash (used in) operating activities |
|
|
|
|
|
|
|
|
Loss on settlement of convertible notes |
|
|
2,336,035 |
|
|
|
— |
|
Fair value of stock options issued |
|
|
62,629 |
|
|
|
66,451 |
|
Common stock issued for services renderred |
|
|
80,400 |
|
|
|
75,908 |
|
Amortization of discount to note payable |
|
|
102,155 |
|
|
|
289,345 |
|
Promissory note payable |
|
|
— |
|
|
|
1,000 |
|
Changes in fair value of derivative liabilities |
|
|
309,931 |
|
|
|
161,667 |
|
Derivative liabilities expense |
|
|
31,434 |
|
|
|
— |
|
Other receivables |
|
|
(90,000 |
) |
|
|
— |
|
Accounts payable and accrued expenses |
|
|
(51,557 |
) |
|
|
117,407 |
|
Due from/to related party |
|
|
36,499 |
|
|
|
95,713 |
|
Net cash (used in) operating activities: |
|
|
(363,807 |
) |
|
|
(61,078 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of note payable |
|
|
135,000 |
|
|
|
100,000 |
|
proceeds from convertible note payable |
|
|
300,000 |
|
|
|
— |
|
Net cash provided by financing activities |
|
|
435,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
71,193 |
|
|
|
38,922 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including restricted, beginning of year |
|
|
27,661 |
|
|
|
22,132 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including restricted, end of period |
|
$ |
98,856 |
|
|
$ |
61,054 |
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities |
|
|
|
|
|
|
|
|
Issuance of Common stocks to retire notes payable and warrant |
|
|
629,181 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
— |
|
|
$ |
— |
|
Income taxes |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements |
Worlds Inc.
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 2015
(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 to Related Party
Due to related party is comprised of
cash payments made by Worlds Online Inc. on behalf of Worlds 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 anticipated to be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing
its patents. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such
as a signed contract, delivery has occurred, the price is fixed or determinable, and collectibility is reasonable assured. This
will usually be in the form of a receipt of a customer’s acceptance indicating the product has been completed to their satisfaction
except for development work and service revenue which is recognized when the services have been performed.
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 six months ended June 30, 2015.
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 June 30, 2015 and December 31, 2014. The company has $325,000 in notes outstanding at June 30, 2015 and December
31, 2014, respectively.
Comprehensive Income (Loss)
The Company reports comprehensive income
and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes
standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items
of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.
Loss Per Share
Net loss per common share is computed
pursuant to section 260-10-45 of the FASB 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 June 30, 2015, there were 9,200,000 options whose effect
is anti-dilutive and not included in diluted net loss per share for June 30, 2015. The options and warrants may dilute future earnings
per share.
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 June 30, 2015, and 2014 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 six months ended June 30, 2015 and 2014, respectively.
Fair Value of Financial Instruments
The Company measures assets and liabilities
at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents
the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels
of inputs to measure fair value:
• |
|
Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
• |
|
Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
• |
|
Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, other receivables, accounts payable & accrued expenses, due to related party,
notes payable and notes payables, approximate their fair values because of the short maturity of these instruments. The Company's
convertible notes payable are measured at amortized cost.
The Company accounts for its derivative
liabilities, at fair value, on a recurring basis under level 3. See Note 5.
Embedded Conversion Features
The Company evaluates embedded conversion
features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion
feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value
recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated
under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments,
including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or
credits to income.
For option-based simple derivative
financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception
and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is re-assessed at the end of each reporting period.
Subsequent Events
The Company evaluated for subsequent
events through the issuance date of the Company’s financial statements.
Recent Accounting Pronouncements
The Company has reviewed all recently
issued, but not yet effective, accounting pronouncements up to ASU 2015-08, and does 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.
NOTE 2 - GOING CONCERN
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had periods
where it had only minimal revenues from operations. There can be no assurance that the Company will be able to obtain the additional
capital resources to fully implement its business plan or that any assumptions relating to its business plan will prove to be accurate.
The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available
to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material
adverse effect on the Company, including possibly requiring the Company to reduce and/or cease operations.
These factors raise substantial doubt
about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 3 - PRIVATE PLACEMENTS OF EQUITY
During the six months ended June 30,
2015, the company issued 15,608,696 common shares to the Class C Note holders in order to terminate the litigation between us,
terminate all agreements between us, cancel all warrants we have previously issued to them as well as the outstanding balance of
the Class C Notes. In order to have sufficient shares to deliver, we implemented the previously authorized amendment to our certificate
of incorporation and increased our authorized common stock to one hundred fifty million shares.
During the six months ended June 30,
2015, the Company issued an aggregate of 536,000 shares of common stock as payment for services rendered with an additional 268,000
shares subscribed but not yet issued for services rendered, an aggregate value of $80,400
During the six months ended June 30,
2014, the Company issued 2,830,973 common shares by converting $374,375 of the convertible notes payable into common stock.
During the six months ended June 30,
2014, the Company issued an aggregate of 450,000 shares of common stock as payment for services rendered with an aggregate value
of $63,300. The Company also recognized stock issued for services in the amount of $12,609 for stocks issued in year 2013 but amortized
in this period.
During the six months ended June 30,
2014, the Company issued 63,526 shares to an officer of the company as payment for an accrued expense in the amount of $9,625.
NOTE 4 - 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 carried a 14% annual interest rate upon default and is payable on March 13, 2016. The Company had
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. On January 23, 2015 we entered into an agreement with the Series C note holders to, among other
things, terminate the litigation between us, terminate all agreements between us, cancel all warrants we have previously issued
to them as well as the outstanding balance of the Class C Note, provide for mutual releases and delivery of fifteen million six
hundred and eight thousand and six hundred and ninety six shares of our common stock. In order to have sufficient shares to deliver,
we implemented the previously authorized amendment to our certificate of incorporation and increased our authorized common stock
to one hundred fifty million shares.
The Notes are classified as a derivative
liability and not a note payable, see Note 9 below.
Notes payable at June 30, 2015 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 | |
| |
| | |
Promissory notes | |
$ | 460,000 | |
Total current | |
$ | 1,233,279 | |
| |
| | |
2015 | |
$ | 1,233,279 | |
2016 | |
$ | -0- | |
2017 | |
$ | -0- | |
2018 | |
$ | -0- | |
2019 | |
$ | -0- | |
| |
$ | 1,233,279 | |
We issued
promissory notes in the amount of $135,000 during the six months ended June 30, 2015. One of the promissory notes in the amount
of $25,000 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 are 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 holders of the promissory notes
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.
We had
issued promissory notes in the amount of $325,000 during the year ended December 31, 2014. 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
the same terms as the notes issued in 2015.
NOTE 5 - DERIVATIVE LIABILITIES
| (A) | Convertible Notes Issued in May 8, 2015 |
The Company identified conversion features
embedded within convertible debt issued in May 8, 2015. The Company has determined that the features associated with the embedded
conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company
cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
As
a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is
summarized as follow:
|
|
|
Derivative
Liabilities |
|
Fair
value at the commitment date-May 8, 2015 |
|
|
$ |
331,434 |
|
|
Fair value mark
to market adjustment |
|
|
|
166,548 |
|
|
Balances as of June
30, 2015 |
|
|
|
497,982 |
|
|
The
fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following
management assumptions as of June 30, 2015:
|
|
Commitment
Date |
|
Remeasurement
Date |
Expected
dividends |
|
|
0% |
|
|
|
0% |
|
Expected volatility |
|
|
167% |
|
|
|
175% |
|
Expected term |
|
|
0.5 years |
|
|
|
0.4 years |
|
Risk free
interest rate |
|
|
0.08% |
|
|
|
0.11% |
|
| (B) | Settlement of Derivative Liabilities |
On January 23, 2015 we entered into
an agreement with Hudson Bay IP Opportunities Master Fund LP to, among other things, terminate the litigation between us, terminate
all agreements between us, cancel all warrants we have previously issued to them as well as the outstanding balance of the Class
C Note, provide for mutual releases and our delivery of eight million shares of our common stock, of which seven million shares
will be subject to certain volume limitations upon resale. In order to have sufficient shares to deliver, we implemented the previously
authorized amendment to our certificate of incorporation and increased our authorized common stock to one hundred fifty million
shares. We entered into essentially similar agreements with the other holders of our Class C Notes, albeit for less shares. As
a result of the settlement, the company recorded a loss on settlement of convertible notes of $2,336,035 during the six months
ended June 30, 2015.
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 $96,119 based on the initial fair value of the derivative
liability of $546,119. 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 |
|
3/20/2013 |
|
|
$ |
546,119 |
|
|
|
3.0 |
|
|
$ |
0.326 |
|
|
$ |
0.465 |
|
|
|
238 |
% |
|
|
0.0038 |
|
During the three months ended March 31, 2015 the Company
settled a lawsuit brought forth by the note holders, effectively terminating and canceling all remaining agreements, warrants
and notes. As a result of the settlement, the company recorded a loss on settlement of convertible notes of $2,336,035 during
the six months ended June 30, 2015.
As of the date of the settlement with
the noteholders, the Company revalued the embedded derivative liability and recorded a loss on change in fair value of derivative
liability of $143,383. For the period from December 31, 2014 to June 30, 2015, the Company decreased this derivative liability
to $0.
NOTE 6 - DEBT DISCOUNT
The
Company recorded the $300,000 debt discount due to the $331,434 derivative liabilities.
The
debt discount was recorded in 2015 and pertains to convertible debt issued that contains ratchet features that are required to
be reported at fair value.
Debt discount is summarized as follows:
| |
June 30, 2015 |
Debt discount as of December 31, 2014 | |
$ | 13,822 | |
Amortization due to settlement | |
| (13,822 | ) |
Debt discount as of March 31, 2015 | |
| — | |
Debt discount on May 8, 2015 Convertible note payable | |
$ | 107,016 | |
Accumulated amortization | |
| (50,347 | ) |
Debt discount on notes payable, net | |
$ | 56,669 | |
Amortization of debt discount on notes
payable for the six months ended June 30, 2015 and June 30, 2014 was $64,169 and $289,345, respectively.
NOTE 7 - CONVERTIBLE DEBENTURES
On May 8, 2015, the Company
issued convertible debentures to certain accredited investors. The total principal amount of the debentures is $300,000 and
matures on November 8, 2015 with a zero percent interest rate. The debentures are convertible into shares of the
Company’s common stock at the lower of the fixed price ($0.89) or fifty five percent (55%) of the average if the three
lower trading price for 20 trading days prior to conversion.
As of June 30, 2015, the aggregate carrying
value of the debentures was $83,333 net of debt discounts of $216,667.
NOTE 8 – STOCK OPTIONS
During the six months ended June
30, 2015, the Company issued 300,000 options to the Company’s directors. The directors, Bernard Stolar, Robert Fireman and
Edward Gildea each received 100,000 options for serving as board members in 2015. An additional 300,000 options were issued to
Christopher Ryan the Chief Financial Officer of the Company.
During the six months ended June 30,
2015, the Company recorded an option expense of $62,629 equal to the estimated fair value of the options at the date of grants.
The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 1.63% risk-free interest,
0% dividend yield, 175% volatility, and expected life of 5 years.
No stock options were exercised during
the six months ended June 30, 2015.
On January 23, 2015 we entered into
an agreement with the Class C note holders who held four million five hundred thirty five thousand seven hundred and fourteen warrants
to purchase our common stock. The settlement agreement, among other things, cancelled all warrants we have previously issued to
them.
During the six months ended June 30,
2014, the Company issued 450,000 options to the Company’s directors. The directors, Bernard Stolar, Robert Fireman and Edward
Gildea each received 100,000 options for serving as board members in 2014. Edward Gildea joined the board on January 10, 2014 and
received an additional 150,000 options for joining the Company’s board.
During the six months ended June 30,
2014, the Company recorded an option expense of $66,451 equal to the estimated fair value of the options at the date of grants.
The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 0.93% risk-free interest,
0% dividend yield, 210% volatility, and expected life of 5 years.
Stock Warrants and Options |
Stock
warrants/options outstanding and exercisable on June 30, 2015 are as follows: |
|
|
|
Exercise Price per Share |
Shares Under Option/warrant |
Remaining Life in Years |
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
$ |
0.19 |
|
|
200,000 |
|
|
2.50 |
|
$ |
0.155 |
|
|
200,000 |
|
|
3.50 |
|
$ |
0.14 |
|
|
250,000 |
|
|
3.50 |
|
$ |
0.115 |
|
|
300,000 |
|
|
2.25 |
|
$ |
0.11 |
|
|
600,000 |
|
|
5.00 |
|
$ |
0.11 |
|
|
150,000 |
|
|
.10 |
|
$ |
0.070 |
|
|
7,500,000 |
|
|
2.25 |
|
$ |
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
|
|
$ |
0.19 |
|
|
200,000 |
|
|
2.50 |
|
$ |
0.115 |
|
|
200,000 |
|
|
3.50 |
|
$ |
0.14 |
|
|
250,000 |
|
|
3.50 |
|
$ |
0.115 |
|
|
300,000 |
|
|
2.25 |
|
$ |
0.11 |
|
|
150,000 |
|
|
0.10 |
|
$ |
0.070 |
|
|
7,500,000 |
|
|
2.25 |
|
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 August 30, 2012; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times his base amount (as
defined in the agreement) in the event of a Change of Control (as defined in the agreement). The agreement also provides
that Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12
months after termination.
NOTE 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 to related party is comprised of
cash payments for operating expenses made by worlds Online Inc. on behalf of Worlds Inc. The balance at June 30, 2015 is $45,914
and the balance on December 31, 2014 is $9,416.
NOTE 11 - PATENTS
Worlds Inc. currently has nine
patents, 6,219,045 - 7,181,690 - 7,493,558 – 7,945,856, - 8,082,501, – 8,145,998 – 8,161,383, – 8,407,592
and 8,640,028. 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.
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 period
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 period.
Expenses
We classify our expenses into two broad
groups:
• |
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 June 30, 2015 and 2014 were $0. All the operations were transferred over to Worlds Online Inc. in
the spin off. The Company’s future sources of revenue after the spin off are 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 in litigation
or otherwise.
Three months ended June 30, 2015
compared to the three months ended June 30, 2014
Revenue is $0 for the three months ended
June 30, 2015 and 2014. All the operations were transferred over to Worlds Online Inc. in the spin off. 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 June 30, 2015 and 2014.
Selling general and administrative (SG&A)
expenses decreased by $10,392 from $71,385 to $60,993 for the three months ended June 30, 2014 and 2015, respectively. Decrease
is due to limited operations in 2015 where last year there was a greater overall level of activity surrounding the lawsuit and
related professional service fees.
Salaries and related increased by $3,529
to $59,154 from $55,625 for the three months ended June 30, 2014 and 2013, respectively. The increase is due to an increase in
the CEO’s salary based on the terms of his employment agreement.
Common stock issued for services rendered
increased by $41,100 to $80,400 from $39,300 for the three months ended June 30, 2015 and 2014 respectively. The Company incurred
a broker fee in arranging for the funding during the quarter which was paid by the issuance of common stock. In 2014 there was
one strategic business consulting and advice agreement for common stock.
For the three months ended June 30,
2015, the Company recorded an option expense of $62,629 equal to the estimated fair value of the options at the date of grants.
The options were issued to the Directors of the Company and an officer of the company. For the three months ended June 30, 2014,
the Company had no option expense.
For the three months ended June 30,
2015, the company had a loss on change in fair value of derivative liability of $197,892 and interest expense of $94,894. For the
three months ended June 30, 2014, the Company had a loss on change in fair value of derivative liability of $260,201 and interest
expense of $52,113, both related to the issuance of secured convertible notes that are required to be recorded as a derivative
liability.
For the three months ended June 30,
2015, the Company incurred a debt issuance expense of $30,000 related to the secured convertible notes.
As a result of the foregoing, we realized
a net loss of $586,053 for the three months ended June 30, 2015 compared to a net loss of $478,624 in the three months ended June
30, 2014.
Six months ended June 30, 2015 compared
to six months ended June 30, 2014
Revenue is $0 for the six months ended
June 30, 2015 and 2014. All the operations were transferred over to Worlds Online Inc. in the spin off. 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 six months
ended June 30, 2015 and 2014.
Selling general and administrative (SG&A)
expenses decreased by $24,519 from $160,920 to $136,401 for the six months ended June 30, 2014 and 2015, respectively. Decrease
is due to limited operations in 2015 where last year there was a greater overall level of activity surrounding the lawsuit and
related professional service fees.
Salaries and related increased by $7,428
to $112,092 from $104,663 for the six months ended June 30, 2015 and 2014, respectively. The increase is due to an increase in
the CEO’s salary based on the terms of his employment agreement.
Common stock issued for services rendered
increased by $4,492 to $80,400 from $75,908 for the six months ended June 30, 2015 and 2014 respectively. The Company incurred
a broker fee in arranging for the funding during the quarter which was paid by the issuance of common stock. In 2014 there was
one strategic business consulting and advice agreement for common stock.
For the six months ended June 30, 2015,
the Company recorded an option expense of $62,629, equal to the estimated fair value of the options at the date of grants. The
option expense was due to 600,000 options granted to the Company’s directors and an officer of the company. The directors,
Bernard Stolar, Robert Fireman and Edward Gildea each received 100,000 options for serving as board members in 2015. Christopher
Ryan, an officer of the company received 300,000 options. For the six months ended June 30, 2014, the Company recorded an option
expense of $66,451, equal to the estimated fair value of the options at the date of grants. The option expense was due to 450,000
options granted to the Company’s directors during the first quarter of 2014. The directors, Bernard Stolar, Robert Fireman
and Edward Gildea each received 100,000 options for serving as board members in 2014. Edward Gildea joined the board on January
10, 2014 and received an additional 150,000 options for joining the Company’s board.
For the six months ended June 30, 2015
we had a loss on settlement of convertible notes of $2,336,035.
For the six months ended June 30, 2015,
the company had a loss on change in fair value of derivative liability of $309,931, interest expense of $113,844and a derivative
liabilities expense of $31,434. For the six months ended June 30, 2014, the Company had a loss on change in fair value of derivative
liability of $161,667 and interest expense of $298,959. The derivative liabilities are in connection with the issuance of the secured
convertible notes which are required to be recorded as a derivative liability.
As a result of the foregoing, we realized
a net loss of $3,181,332 for the six months ended June 30, 2015 compared to a net loss of $868,569 in the six months ended June
30, 2014.
Liquidity and Capital Resources
At June 30, 2015, our cash and cash
equivalents were $98,855. We raised an aggregate of $435,000 from issuing notes and convertible notes payable during the six months
ended June 30, 2015.
There were no capital expenditures in
the six months ended June 30, 2015.
Historically, our primary cash requirements
have been used to fund the cost of operations, development of our products and patent protection, with additional funds having
been used in promotion and advertising and in connection with the exploration of new business lines.
The funds raised in our 2014 and 2015 financings
were and will be used to develop new products and services, enhance our patent portfolio, pay salaries to management and pay professional
fees to our attorneys and auditors to prepare and file reports with the Securities and Exchange Commission. We hope
to raise additional funds to be used for further developing our portfolio of patents and to document our technology in order to
enforce our patents where there is infringement. No assurances can be given that we will be able to raise any additional
funds.
Item 4. Controls And Procedures
As of June 30, 2015, 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 our disclosure controls and procedures were effective as
of June 30, 2015. 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.
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 2014 Annual Report on Form 10-K.
There have been no material changes from the risk factors previously disclosed in our 2014 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 |
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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: August 13, 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 31.1
Certifications
I, Thomas Kidrin, certify that:
1. I have reviewed this amendment
to quarterly report on Form 10-Q 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: August 13, 2015
/s/ Thomas Kidrin
Thomas Kidrin
Chief Executive Officer
EXHIBIT 31.2
Certifications
I, Christopher J. Ryan, certify
that:
1. I have reviewed this amendment
to quarterly report on Form 10-Q 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: August 13, 2015
/s/ Christopher J. Ryan
Christopher J. Ryan
Chief 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 for the six months ended June 30, 2015 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:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, our financial condition and result of operations. |
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WORLDS, INC |
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(Registrant) |
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Date: August 13, 2015 |
By:/s/ Thomas Kidrin |
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Thomas Kidrin |
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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 for the six months ended
June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher
J. Ryan, Chief 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. |
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WORLDS, INC |
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(Registrant) |
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Date: August 13, 2015 |
By:/s/ Christopher
J. Ryan |
|
Christopher J. Ryan |
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Chief Financial Officer |
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