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 September 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 October 21, 2015, 113,446,694 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 |
14 |
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 |
18 |
Item 2 |
Unregistered
Sales of Equity Securities and Use of Proceeds |
N/A |
Item 3 |
Default Upon
Senior Securities |
N/A |
Item 4 |
Mine Safety
Disclosures |
N/A |
Item 5 |
Other Information |
N/A |
Item 6 |
Exhibits |
18 |
Signatures |
|
19 |
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
Worlds Inc. | |
| |
|
Balance Sheets | |
| |
|
September 30, 2015 and December 31, 2014 | |
| |
|
| |
Unaudited | |
Audited |
| |
September
30, 2015 | |
December
31, 2014 |
| |
| |
|
ASSETS: | |
| |
|
Current Assets | |
| |
|
Cash
and cash equivalents | |
$ | 6,110 | | |
$ | 27,661 | |
| |
| | | |
| | |
Total Current Assets | |
| 6,110 | | |
| 27,661 | |
| |
| | | |
| | |
Total
assets | |
$ | 6,110 | | |
$ | 27,661 | |
| |
| | | |
| | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT: | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 797,908 | | |
$ | 797,908 | |
Accrued expenses | |
| 2,206,361 | | |
| 2,287,977 | |
Due to related party | |
| 42,560 | | |
| 9,416 | |
Derivative liability | |
| 216,718 | | |
| 426,591 | |
Notes payable | |
| 773,279 | | |
| 773,279 | |
Notes Payables | |
| 460,000 | | |
| 325,000 | |
Convertible notes
payable (net of $103,482 discount at September 30, 2015 and $13,822 discount at December 31, 2014) | |
| 196,518 | | |
| 11,803 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 4,693,344 | | |
| 4,631,974 | |
| |
| | | |
| | |
| |
| | | |
| | |
Stockholders' (Deficit) | |
| | | |
| | |
| |
| | | |
| | |
Common stock (Par value $0.001 authorized
150,000,000 shares, issued and outstanding 113,446,694 and 96,851,941 at September 30, 2015 and December 31, 2014, respectively) | |
| 113,447 | | |
| 96,852 | |
Additional paid in capital | |
| 34,549,341 | | |
| 31,409,427 | |
Common stock-warrants | |
| 97,869 | | |
| 97,869 | |
Accumulated deficit | |
| (39,447,891 | ) | |
| (36,208,461 | ) |
Total stockholders deficit | |
| (4,687,233 | ) | |
| (4,604,312 | ) |
| |
| | | |
| | |
Total
Liabilities and stockholders' deficit | |
$ | 6,110 | | |
$ | 27,661 | |
| |
| | | |
| | |
The accompanying
notes are an integral part of these financial statements |
Worlds Inc. | |
| |
| |
| |
|
Statements of Operations | |
| |
| |
| |
|
For the nine and three Months Ended September 30, 2015 and 2014 | |
| |
| |
| |
|
| |
Unaudited | |
Unaudited |
| |
Nine months ended September 30, | |
Three months ended September 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Revenues | |
| |
| |
| |
|
Revenue | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Total Revenue | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Cost and Expenses | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Cost of Revenue | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Gross Profit/(Loss) | |
| — | | |
| — | | |
| — | | |
| — | |
Option Expense | |
| 62,629 | | |
| 66,451 | | |
| — | | |
| — | |
Common Stock issued for services rendered | |
| 80,400 | | |
| 75,908 | | |
| — | | |
| — | |
Selling, General & Admin. | |
| 276,528 | | |
| 266,821 | | |
| 140,126 | | |
| 105,902 | |
Salaries and related | |
| 166,794 | | |
| 152,788 | | |
| 54,702 | | |
| 48,125 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (586,350 | ) | |
| (561,969 | ) | |
| (194,828 | ) | |
| (154,027 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
Loss on settlement of convertible notes | |
| (2,336,035 | ) | |
| — | | |
| — | | |
| — | |
Gain (Loss) on change in fair value of derivative liability | |
| (28,666 | ) | |
| (153,771 | ) | |
| 281,265 | | |
| 4,433 | |
Derivative liabilities expense | |
| (31,434 | ) | |
| — | | |
| | | |
| | |
Interest Expense | |
| (226,945 | ) | |
| (342,925 | ) | |
| (113,100 | ) | |
| (43,966 | ) |
Debt issuance expense | |
| (30,000 | ) | |
| — | | |
| — | | |
| — | |
Net Income/(Loss) | |
$ | (3,239,430 | ) | |
$ | (1,058,665 | ) | |
$ | (26,664 | ) | |
$ | (193,560 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted Average Loss per share | |
$ | (0.03 | ) | |
$ | (0.01 | ) | |
$ | ** | | |
$ | ** | |
Weighted Average Common Shares Outstanding | |
| 110,289,989 | | |
| 95,387,270 | | |
| 113,268,877 | | |
| 96,606,082 | |
**=less than $0.01 | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
The accompanying notes are an integral part of these financial statements |
Worlds Inc. | |
| |
|
Statements of Cash Flows | |
| |
|
Nine Months Ended September 30, 2015 and 2014 | |
| |
|
| |
| Unaudited | | |
| Unaudited | |
| |
| 9/30/2015 | | |
| 9/30/2014 | |
Cash flows from operating activities: | |
| | | |
| | |
Net (loss) | |
$ | (3,239,430 | ) | |
$ | (1,058,665 | ) |
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 rendered | |
| 80,400 | | |
| 75,908 | |
Amortization of discount to note payable | |
| 210,340 | | |
| 320,136 | |
Promissory note payable | |
| — | | |
| 1,000 | |
Changes in fair value of derivative liabilities | |
| 28,666 | | |
| 153,771 | |
Derivative liabilities expense | |
| 31,434 | | |
| — | |
Accounts payable and accrued expenses | |
| 229 | | |
| 154,918 | |
Due from/to related party | |
| 33,144 | | |
| 205,525 | |
Net cash (used in) operating activities: | |
| (456,552 | ) | |
| (80,955 | ) |
| |
| | | |
| | |
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 | |
| (21,552 | ) | |
| 19,045 | |
| |
| | | |
| | |
Cash and cash equivalents, including restricted, beginning of year | |
| 27,661 | | |
| 22,132 | |
| |
| | | |
| | |
Cash and cash equivalents, including restricted, end of period | |
$ | 6,110 | | |
$ | 41,178 | |
| |
| | | |
| | |
Non-cash financing activities | |
| | | |
| | |
Issuance of Common stocks to retire notes payable and warrant | |
| 653,687 | | |
| — | |
| |
| | | |
| | |
| |
| | | |
| | |
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 |
NOTES
TO FINANCIAL STATEMENTS
Nine
Months Ended September 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 nine months
ended September 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 September 30, 2015 and December 31, 2014. The company has $460,000
and $325,000 in notes outstanding at September 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 September 30, 2015, there
were 9,050,000 options whose effect is anti-dilutive and not included in diluted net loss per share for September 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 September 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 nine months ended September 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 2015-16, 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 nine months ended September 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 nine months ended September 30, 2015, the Company issued an aggregate of 804,000 shares of common stock as payment for services
rendered, an aggregate value of $80,400
During
the nine months ended September 30, 2015, the Company issued 182,057 shares to an officer of the company as payment for an accrued
expense in the amount of $24,506.07.
During
the nine months ended September 30, 2014, the Company issued 3,128,592 common shares upon the conversion of
$424,375 of the convertible notes payable into common stock.
During
the nine months ended September 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
shares issued in year 2013 but amortized in this period.
During
the nine months ended September 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 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
September 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 nine months ended September 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 |
|
|
|
114,717 |
|
|
Balances as
of September 30, 2015 |
|
|
|
216,717 |
|
|
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 September 30, 2015:
|
|
Commitment
Date |
|
Remeasurement
Date |
Expected
dividends |
|
|
0% |
|
|
|
0% |
|
Expected
volatility |
|
|
167% |
|
|
|
183% |
|
Expected
term |
|
|
0.5 years |
|
|
|
0.1 years |
|
Risk
free interest rate |
|
|
0.08% |
|
|
|
0.01% |
|
|
(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 nine months ended September 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 September 30, 2015, the
Company decreased this derivative liability to $0.
NOTE
6 - DEBT DISCOUNT
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:
|
|
September
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 |
|
$ |
300,000 |
|
Accumulated amortization |
|
|
(196,158 |
) |
Debt discount on
notes payable |
|
$ |
103,482 |
|
Amortization
of debt discount on notes payable for the nine months ended September 30, 2015 and September 30, 2014 was $196,158 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.
The Company signed a Forbearance
Agreement on October 26, 2015. Details are in the Subsequent Event footnote.
As
of September 30, 2015, the aggregate carrying value of the debentures was $196,518 net of debt discounts of $103,482.
NOTE
8 – STOCK OPTIONS
During
the nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months ended September 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 September 30, 2015 are as follows: |
|
|
|
Exercise
Price per Share |
Shares
Under Option/warrant |
Remaining
Life in Years |
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
$ |
0.19 |
|
|
200,000 |
|
|
2.25 |
|
$ |
0.155 |
|
|
200,000 |
|
|
3.25 |
|
$ |
0.14 |
|
|
250,000 |
|
|
3.25 |
|
$ |
0.115 |
|
|
300,000 |
|
|
2.00 |
|
$ |
0.11 |
|
|
600,000 |
|
|
4.75 |
|
$ |
0.070 |
|
|
7,500,000 |
|
|
2.00 |
|
$ |
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
|
|
$ |
0.19 |
|
|
200,000 |
|
|
2.25 |
|
$ |
0.115 |
|
|
200,000 |
|
|
3.25 |
|
$ |
0.14 |
|
|
250,000 |
|
|
3.25 |
|
$ |
0.115 |
|
|
300,000 |
|
|
2.00 |
|
$ |
0.070 |
|
|
7,500,000 |
|
|
2.00 |
|
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 September 30, 2015 is $42,560 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.
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.
See Part II Other Information,
Item 1. Legal Proceedings for current status of Litigation.
NOTE 12 – SUBSEQUENT
EVENT
The Company
signed a Forbearance Agreement on October 26, 2015 for the 10% Convertible Debenture with the principal amount of $300,000 that
was due November 8, 2015. The new maturity date of the debenture is May 8, 2016.
On October
30, 2015, the company entered into a new Debenture with the Lender, face amount of $405,000 having similar terms as the first Convertible
Debenture with a maturity date of April 30, 2016. The debenture included a forbearance fee of $90,000 and had an original issue
discount of 10%.
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. and our other
anticipated revenue generation streams did not produce any income during the quarter.
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 September 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 September 30, 2015 compared to the three months ended September 30, 2014
Revenue
is $0 for the three months ended September 30, 2015 and 2014. Revenue is $0 because the online business operations including the
VIP subscription business has been transferred to Worlds Online Inc. The business up to the spin off continued to run in a severely
diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to provide the
resources required that would enable us to continue running the business.
Cost
of revenues is $0 in the three months ended September 30, 2015 and 2014.
Selling
general and administrative (S, G & A) expenses increased by $34,224 from $105,902 to $140,126 for the three months ended September
30, 2015. Increase is due to the activity around the patent litigation. Salaries and related increased by $6,577 to $54,702 from
$48,125 for the three months ended September 30, 2015. Increase is due to the CEO’s salary based on the terms of his employment
agreement.
For
the three months ended September 30, 2015, the company had a gain on change in fair value of derivative liability of $281,265
and interest expense of $113,100. For the three months ended September 30, 2014, the company had a gain on change in fair value
of derivative liability of $4,433 and interest expense of $43,966, both related to the issuance of the senior secured convertible
notes that are required to be recorded as a derivative liability.
As
a result of the foregoing, we realized a net loss of $26,664 for the three months ended September 30, 2015 compared to a loss
of $193,560 in the three months ended September 30, 2014, a decreased loss of $166,896.
Nine
months ended September 30, 2015 compared to nine months ended September 30, 2014
Revenue
was $0 and $0 for the nine months ended September 30, 2015 and 2014. Revenue is $0 because the online business operations including
the VIP subscription business has been transferred to Worlds Online Inc. The business up to the spin off continued to run in a
severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to
provide the resources required that would enable us to continue running the business.
Cost
of revenues is $0 in the nine months ended September 30, 2015 and 2014.
Selling
general and administrative expenses increased by $9,706, from $266,821 to $276,528 for the nine months ended September 30, 2015.
Increase is due to greater overall level of activity surrounding the lawsuit.
Common
stock issued for services rendered increased by $4,492 to $80,400 in 2015 compared to $75,908 for 2014. The Company incurred a
broker fee in arranging for the funding during the period which was paid by the issuance of common stock. In 2014 there was one
strategic business consulting and advice agreement for common stock.
Salaries
and related increased by $14,006 to $166,794 from $152,788 for the nine months ended September 30, 2014. The increase is due to
an increase in the CEO’s salary based on the terms of his employment agreement.
For
the nine months ended September 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 nine months ended September
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 nine months ended September 30, 2015 we had a loss on settlement of convertible notes of $2,336,035.
For
the nine months ended September 30, 2015, the company had a loss on change in fair value of derivative liability of $28,666, interest
expense of $226,945 and a derivative liabilities expense of $31,434. For the nine months ended September 30, 2014, the company
had a loss on change in fair value of derivative liability of $153,771 and interest expense of $342,925 both related to the issuance
of the senior secured convertible notes that are required to be recorded as a derivative liability.
As
a result of the foregoing we had a net loss of $3,239,430 for the nine months ended September 30, 2015 compared to a loss of $1,058,665
in the nine months ended September 30, 2014.
Liquidity
and Capital Resources
At
September 30, 2015, our cash and cash equivalents were $6,110. We raised an aggregate of $435,000 from issuing notes and convertible
notes payable during the nine months ended September 30, 2015.
There
were no capital expenditures in the nine months ended September 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 September 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 September 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.
Judge
Denise Casper of The U.S. District Court, District of Massachusetts has issued the Joint Pretrial Schedule for the Worlds
Inc. vs. Activision Blizzard Inc. et al patent infringement lawsuit with the following dates:
1. |
Fact
discovery to be completed by 2/1/16. |
2. |
Opening
expert reports by 3/1/16. |
3. |
Rebuttal
expert reports by 4/1/16. |
4. |
Expert
discovery to be completed by 4/22/16. |
5. |
Dispositive/Daubert
Motions to be filed by 5/20/16. |
6. |
Opposition
to Dispositive/Daubert Motions to be filed by 6/20/16. |
7. |
Reply
ISO Dispositive/Daubert Motions to be filed by 7/11/16. |
8. |
Hearing
on Dispositive/Daubert Motions set for 7/20/16 at 2:00PM. |
9. |
Initial
Pretrial Conference set for 9/29/16 at 2:00PM. |
On
the Inter Party Review matter before the Patent Trial Board (PTAB), the company has submitted Preliminary Response’s
to the PTAB and anticipates a determination on whether a full review will be initiated before the end of the year.
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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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:
November 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: November 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: November 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 nine months ended September 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:
|
(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: November 13, 2015 |
By:/s/ Thomas Kidrin |
|
Thomas Kidrin |
|
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 nine months ended September 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. |
|
WORLDS INC |
|
(Registrant) |
|
|
Date: November 13, 2015 |
By:/s/ Christopher J. Ryan |
|
Christopher J. Ryan |
|
Chief Financial Officer |
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