UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
S |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31,
2014
£ |
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)
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Delaware |
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22-1848316 |
(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
11 Royal Road, Brookline, MA 02445
(Address of Principal Executive Offices)
(617) 725-8900
(Registrant’s Telephone Number,
Including Area Code)
Securities registered pursuant to
Section 12(b) of the Act:
Title of Each Class |
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Name Of Each Exchange
On Which Registered |
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None |
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Not Applicable |
Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No
S
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes £ No
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No
£
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes S
No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. £
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (check one):
£ Large
Accelerated Filer £
Accelerated Filer £ Non-Accelerated
Filer S Smaller
reporting company
(Do not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes £ No S
The aggregate market value
of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked closing price of such common equity, as of June 30, 2014 (closing price was $0.21)
was approximately $20,886,733.
As of February 20, 2015, 105,460,637 shares of
the Issuer's Common Stock were outstanding.
TABLE OF CONTENTS
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Part I |
Page # |
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Item 1 |
Business |
4 |
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Item 1A |
Risk Factors |
6 |
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Item 1B |
Unresolved Staff Comments |
N/A |
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Item 2 |
Properties |
8 |
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Item 3 |
Legal Proceedings |
8 |
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Item 4 |
Mine Safety Disclosures |
N/A |
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Part II |
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Item 5 |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
9 |
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Item 6 |
Selected Financial Data |
N/A |
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Item 7 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 |
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Item 7A |
Quantitative and Qualitative Disclosures About Market Risk |
N/A |
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Item 8 |
Financial Statements and Supplementary Data |
12 |
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Item 9 |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
26 |
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Item 9A |
Controls and Procedures |
26 |
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Item 9B |
Other Information |
26 |
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Part III |
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Item 10 |
Directors, Executive Officers and Corporate Governance |
27 |
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Item 11 |
Executive Compensation |
29 |
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Item 12 |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
31 |
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Item 13 |
Certain Relationships and Related Transactions, and Director Independence |
31 |
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Item 14 |
Principal Accountant Fees and Services |
31 |
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Item 15 |
Exhibits and Financial Statements Schedules |
32 |
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CAUTIONARY STATEMENT REGARDING FORWARD
LOOKING INFORMATION
This report includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements involve risks and uncertainties and our actual results could differ significantly from those discussed herein.
These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate," "expect," "intend," "plan," "will," "believe,"
and similar language, including those set forth in the discussion under "Description of Business," "Risk Factors"
and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-K.
We base our forward-looking statements on information currently available to us, and we believe that the assumption and expectations
reflected in such forward-looking statements are reasonable, and we assume no obligation to update them. Statements contained in
this Form 10-K that are not historical facts are forward-looking statements that are subject to the "safe harbor" created
by the Private Securities Litigation Reform Act of 1995.
PART I
ITEM 1. BUSINESS.
General
On May 16, 2011, the Company transferred,
through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational
assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against
alleged infringers. The Company also entered into a License Agreement with Worlds Online Inc. to sublicense its patented technologies.
Before the spin-off, Worlds was a leading
3D entertainment portal which leveraged its proprietary technology, which we retained through our patent portfolio, to offer visitors
a network of virtual, multi-user environments which we call "worlds". These worlds are visually engaging online environments
featuring animation, motion and content where people can come together and, by navigating through the website, shop, interact with
others, attend events and be entertained. In support of this portal and the overall business strategy, we design and develop software,
content and related technology for the creation of interactive, three-dimensional ("3D") Internet web sites. Using our
technology, we created our own Internet sites, as well as sites available through third-party online service providers.
Sites using our technology allow numerous,
simultaneous visitors to enter, navigate and share interactive "worlds". Our 3D Internet sites are designed to promote
frequent, repeat and prolonged visitation by users by providing them with unique online communities featuring dynamic graphics,
highly useful and entertaining information content, and interactive capabilities. We believe that sites are highly attractive to
advertisers because they offer access to demographic-specific user bases comprised of people that visit the site frequently and
stay for relatively long periods of time.
Recent developments
Between October 2013 and February 2014
we issued seven Promissory Notes totaling $325,000. One of the Promissory Notes in the amount $50,000 was in lieu of payment of
cash for an outstanding balance due to a consultant of the Company.
The promissory notes carry a 6% annual
interest rate and is payable upon the earlier of (a) 24 months from the date of the promissory notes or (b) the Company reaching
a settlement(s) on a patent infringement claim(s) and receiving an aggregate of at least $2 million net proceeds from such settlement(s).
The holders of the promissory notes
shall receive repayment in the full face amount of the notes from the initial $500,000 the Company actually receives from the net
proceeds of its patent infringement claim(s) or from the net proceeds of a public offering. In addition, the holders shall receive
a preferred return (i) in an amount equal to up to 200% of the initial face amount of the notes out of available cash by sharing
with all other investors in this series of notes in the allocation of 50% of the available cash received by the Company from $2M
- $4M and (ii) in an amount equal to up to 100% of the initial face amount of the notes out of available cash by sharing with all
other investors in this series of notes in the allocation of 25% of the available cash received by the Company from $4M - $6M.
In other words, if the Company collects $6M in the net proceeds of available cash, the holder will receive a return equal to 400%
of its investment.
On January 10, 2014, Mr. Edward J. Gildea
joined our Board of Directors.
On March 31, 2011, it was announced
that our board had determined it would be in the best interest of our shareholders to transfer all of our online and operational
technologies to our subsidiary, Worlds Online Inc. The assets were transfered as of May 16, 2011 and included: Worlds’
technology platform, Worlds Ultimate Chat, Aerosmith World, DMC Worlds, Cinema
Virtual, Pearson contracts and related revenue, URLs: Worlds.com,
Cybersexworld.com, Hang.com, and Worldsfunds.com, a digital inventory of over 10,000
3D objects, animation sequences, an extensive avatar library, texture maps and virtual world architectures.
Worlds Inc. has retained all of its
related Intellectual Property (IP) consisting of the nine existing patents, 6,219,045; 7,181,690; 7,493,558; 7,945,856; 8,082,501;
8,145,998; 8,161,385, 8,407,592 and 8,640,028 and all continuance claims currently before the USPTO including any to be filed going
forward.
We intend to endeavor to prosecute our
issued patents and any future issued patents against all parties that the company and our legal counsel believe to be infringing
on said patents.
Enforcement actions are subject to the
analysis of all relevant prior art and the costs associated with litigation.
We may also seek to acquire additional
patents we believe will enhance our portfolio position in the markets within which our existing patents cover.
There can be no assurance that we will
be successful in our ability to prosecute our IP portfolio or that we will be able to acquire additional patents.
As of December 31, 2014, we own an approximately
9.5% equity interest in Worlds Online.
On February 7, 2011 we changed our domicile
from New Jersey to Delaware, changed our name to Worlds Inc., increased our authorized common stock to 100 million shares and added
5 million shares of “blank check” preferred stock.
Our
Technology
We used our technology to produce three-dimensional
portals and web sites. We believe that our core technology delivers a considerably faster frame rate for user experiences and,
in some cases, a meaningful productivity increase in art production and integration over its previous generation production tools.
Our technology permits the development of virtual worlds which have broad applications. These applications include but are not
limited to:
o a virtual meeting place (such as a
fan club);
o a 3D e-commerce store (where merchandise
can be viewed in 3D and purchased online); and
o a virtual classroom (where content
can be viewed via video streaming and then discussed in real time).
Our core technology has substantial
elements written in Sun Microsystem's programming language, Java, including WorldsBrowser and WorldsShaper, so we expect that it
can be made portable across Windows and UNIX Platforms because of Java's platform independence.
Our core technology includes:
o |
WorldsShaper: WorldsShaper is the visual authoring component of our platform. It allows for quick assembly of pieces to create multi-user, shared state, virtual worlds. The WorldsShaper is an advanced compositing 3D building tool that integrates pre-existing or custom content, such as 3D models, textures or images created in Adobe's Photoshop, or midi or wave sound files, with architectural geometry and interactive behaviors and actions written in Java. The architectural building blocks for creating 3D worlds, the flexibility and power of integrating professional modeling and imaging tools, and the extensibility via Java make the WorldsShaper a tool well-suited for rapid creation of 3D environments. |
o |
WorldsServer: WorldsServer is the scalable software that we use to control and operate our on-line virtual communities. WorldsServer manages the registration and authentication of users, the locations of users within the 3D environment, the physical structure of the 3D environment, all information regarding objects that are "shared" by the participants and any of the interactions between the users such as text chat. This platform also integrates an HTTP server for the delivery of other content such as audio and video streaming and secure e-commerce applications. |
o |
WorldsBrowser: WorldsBrowser is used to access the 3D environments. The browser is optimized for speed, delivering relatively fast frame rates per second in highly textured virtual 3D worlds. |
o |
WorldsPlayer™: The WorldsPlayer allows users to view and experience our multi-user, interactive technology. Any world created with the WorldsShaper will be viewable and navigable with the WorldsPlayer. The WorldsPlayer has a high frame rate for fast, quality graphics, an easy-to-use graphic user interface, 2D web browser integration, automatic upgrade capability over the internet and a complete communication tool set including text chat, voice-to-voice chat, e-mail and animation. |
o |
Worlds Gamma Libraries: The Worlds Gamma Libraries are composed of sample worlds, textures, models, avatars, actions, sensors, sounds, motion sequences, and other behaviors. |
Our Strategy
Worlds Inc. will be focused solely on
expanding our patent portfolio and to enforce our rights where it believes parties are infringing on its IP portfolio.
We have contracted to Worlds Online
Inc. a perpetual world-wide license to our patented technology. Pursuant to the license, Worlds Online has the right to issue unlimited
sublicenses to the licensed technology, subject to our reasonable consent. The sublicenses are subject to a revenue share negotiated
between the two Companies.
Competition
Since all operations were transferred
to Worlds Online and our business is now the expansion of our patented technology, the Company does not have any direct competition
as it did in the past. However, inasmuch as we believe that multi-user, interactive 3D is becoming a “hot” area, we
expect other companies, many with far more resources than us, to move into this space.
Currently, there are many companies
collaborating to establish standardization of 3D usage on the Internet, the adoption of which may require changes to our technology.
Intellectual Property
U.S. Patents: Worlds has been granted
U.S patent 6,219,045, 7,181,690, 7,493,558, 7,945,856, 8,082,501, 8,145,998, 8,161,385, 8,407,592 and 8,640,028 for multi-server
technology for 3D applications, which is our core technology. We are now looking into the implications and breadth of
the patent in order to maximize its benefits. The description of the initial patent is as follows:
"The present invention provides
a highly scalable architecture for a three dimensional, multi-user, interactive virtual world system. In a preferred
embodiment a plurality of users interact in the three-dimensional, computer-generated graphical space where each user executes
a client process to view a virtual world from the perspective of that user. The virtual world shows Avatars representing
the other users who are neighbors of the user viewing the virtual world. In order that the view can be updated to reflect
the motion of the remote user's Avatar, motion information is transmitted to a central server process that provides position updates
to client processes for neighbors of the user at that client process. The client process also uses an environment database
to determine which background objects to render as well as to limit the number of displayable Avatars to a maximum number of Avatars
displayable by that client."
Trademark: Worldsplayer - The WorldsPlayer
is especially designed to allow users to view and experience the multi-user, interactive Worlds Gamma technology. Any world created
with the WorldsShaper will be viewable and navigable with WorldsPlayer. Utilizing the WorldsPlayer, a user assumes a
persona (via a digital actor, or Avatars), and can then move, view, chat, play, express one's self via gestures and animations,
voice chat, send email, join discussion groups, listen to music, shop at Worlds 3D stores, and watch videos, all in the company
of users from around the world, within the 3D environment. The WorldsPlayer boasts high frame rate for fast, high quality
graphics, an easy to use graphic user interface, seamless 2D Web browser integration, auto-upgrade capability over the Internet,
and a complete communication tool set including chat, voice-to-voice chat, email and animation. The WorldsPlayer offers users the
unique and creative experience of customizing their Avatars, while maintaining the ability to animate and activate their Avatars.
In addition to our patents and trademark,
we intend to enter into confidentiality agreements with key employees and consultants to protect our IP and general know-how.
Employees
As of December 31, 2014, we had one
full time employee, our president, Thomas Kidrin, who divided his time between us and Worlds Online.
Corporate History
We were formed as a result of the contemporaneous
mergers on December 3, 1997 of Worlds Inc., a Delaware corporation formed on April 26, 1994 with and into Worlds Acquisition Corp.,
a Delaware corporation formed on April 8, 1997 and of Worlds Acquisition Corp. with and into Academic Computer Systems, Inc., a
New Jersey corporation formed on May 20, 1968 (the "Mergers"). Academic Computer Systems changed its name to Worlds Inc.
after the Mergers. In December 1999, we changed our name from Worlds Inc. to Worlds.com Inc. in order to better reflect our business
as a consumer Internet web site that offers virtual "worlds" in which consumers interact, conduct e-commerce and receive
entertainment.
The Company created a wholly-owned subsidiary
named Worlds Online Inc. on January 25, 2011. On May 16, 2011, Worlds Inc. transferred to Worlds Online Inc. the majority of its
operations and related operational assets, except for its patent portfolio.
ITEM 1A. RISK FACTORS
Our business is subject to numerous
risks, including but not limited to those set forth below. Our operations and performance could also be subject to risks that do
not exist as of the date of this report but emerge thereafter as well as risks that we do not currently deem material.
Risks related to our operations
Our auditors have expressed doubt
about our ability to continue as a going concern. If we do not generate substantial revenue from our patent litigation and are
also unable to obtain capital from other resources, we will significantly curtail our operations or halt them entirely.
Our capital requirements have been and
will continue to be significant. Historically, we have been dependent on financings to fund our development and working capital
needs. As of December 31, 2014, we had only limited cash or cash equivalents. Accordingly, if we do not develop sources of revenues
from our patent portfolio, we would have to severely diminish our operations or halt them entirely. The opinion of our auditors
contains an explanatory paragraph regarding our ability to continue as a going concern.
We have experienced relatively
large losses during our development and, without significant increases in the market penetration of our services and improvements
to our operating margins, we will not achieve profitability.
Since inception we have incurred significant
net losses as set forth in the financial information included herein. We anticipate that we will continue to incur significant
losses for at least the short-term. We will not achieve profitable operations until we successfully develop sources of revenues
from our patent portfolio or generate revenues from other sources that are sufficient to offset our operating costs. We may never
be able to accomplish these objectives.
It will be difficult for you to
evaluate us based on our past performance because we have a relatively new business strategy with a limited operating history.
We have been actively engaged in the
business of being an IP company for a relatively short period of time and, accordingly, have only limited financial results on
which you can evaluate our company and its new operations. We are subject to, and have not been successful in addressing, the risks
typically encountered by new enterprises and companies operating in the rapidly evolving Internet marketplace, including those
risks relating to:
• the
failure to develop brand name recognition and reputation;
• the failure to achieve
market acceptance of our services; and
• an inability to grow and adapt
our business and technology to evolving consumer demand.
Our
limited resources may restrict our ability to manage any growth we may experience.
Growth of our business may place a significant
strain on our management systems and resources and may require us to implement new operating and financial systems, procedures
and controls. Our failure to manage our growth and expansion could adversely affect our business, results of operations and financial
condition. Failure to implement new systems effectively or within a reasonable period of time could adversely affect our business,
results of operations and financial condition.
If we are unable to protect our
intellectual property rights, competitors may be able to use our technology or trademarks, which could weaken our competitive position.
In addition to our patents, we rely
on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property
rights. We also intend to enter into confidentiality or license agreements with our employees, consultants and customers, and control
access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology, particularly
in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.
We cannot guarantee that the patents
issued to us will be broad enough to provide any meaningful protection nor can we assure you that one of our competitors may not
develop more effective technologies, designs or methods without infringing our intellectual property rights or that one of our
competitors might not design around our proprietary technologies.
If we are not able to protect our proprietary
technology, trade secrets and know-how, our competitors may use our inventions to develop competing products. We own certain patents
relating to the multi-user 3D technology. However, these patents may not protect us against our competitors, and patent litigation
is very expensive. We may not have sufficient cash available to pursue any patent litigation to its conclusion because currently
we do not generate revenues.
We cannot rely solely on our current
patents to be successful. The standards that the U.S. Patent and Trademark Office and foreign patent office's use to grant patents,
and the standards that U.S. and foreign courts use to interpret patents, are not the same and are not always applied predictably
or uniformly and can change, particularly as new technologies develop. As such, the degree of patent protection obtained in the
U.S. may differ substantially from that obtained in various foreign countries. In some instances, patents have been issued in the
U.S. while substantially less or no protection has been obtained in Europe or other countries.
We cannot be certain of the level of
protection, if any that will be provided by our patents if we attempt to enforce them and they are challenged in court where our
competitors may raise defenses such as invalidity, unenforceability or possession of a valid license. In addition, the type and
extent of any patent claims that may be issued to us in the future are uncertain. Any patents which are issued may not contain
claims that will permit us to stop competitors from using similar technology.
We may incur substantial costs
as a result of litigation or other proceedings relating to patent and other intellectual property rights.
Third parties have, and others may,
challenge the validity of our patents and other intellectual property rights, resulting in costly litigation or other time-consuming
and expensive proceedings, which could deprive us of valuable rights. If we become involved in any intellectual property litigation,
interference or other judicial or administrative proceedings, we may incur substantial expenses and the diversion of financial
resources and technical and management personnel. An adverse determination may subject us to significant liabilities or require
us to seek licenses that may not be available from third parties on commercially favorable terms, if at all. Further, if such claims
are proven valid, through litigation or otherwise, we may be required to pay substantial financial damages, which can be tripled
if the infringement is deemed willful, or be required to discontinue or significantly delay development, marketing, selling and
licensing of the affected products and intellectual property rights.
Our competitors may have filed, and
may in the future file, patent applications covering technology similar to ours. There may be third-party patents, patent applications
and other intellectual property relevant to our potential products that may block or compete with our products or processes. If
another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference
proceeding declared by the United States Patent and Trademark Office to determine priority of invention in the United States. The
costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss
of our United States patent position with respect to such inventions. In addition, we cannot assure you that we would prevail in
any of these suits or that the damages or other remedies if any, awarded against us would not be substantial. Claims of intellectual
property infringement may require us to enter into royalty or license agreements with third parties that may not be available on
acceptable terms, if at all. We may also become subject to injunctions against the further development and use of our technology,
which would have a material adverse effect on our business, financial condition and results of operations.
Some of our competitors may be able
to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect
on our ability to raise the funds necessary to continue our operations.
If we lose any of our key personnel
or fail to hire and retain other talented employees, our operations could be harmed.
Our success is currently dependent,
in large part, on the personal efforts of Thomas Kidrin, our president and chief executive officer. The loss of Mr.
Kidrin's services could have a material adverse effect on our business and prospects. Our success is also dependent upon our ability
to hire and retain additional qualified management, marketing, technical, financial, and other personnel, if and when our business
grows. Competition for qualified personnel is intense and we may not be able to hire or retain additional qualified personnel.
Any inability to attract and retain qualified management and other personnel would have a material adverse effect on our ability
to grow our business and operations.
We may not be able to economically
comply with any new government regulation that may be adopted with respect to the Internet.
New Internet legislation or regulation,
or the application of existing laws and regulations to the Internet and e-commerce could add additional costs and risks to doing
business on the Internet. We are subject to regulations applicable to businesses generally and laws or regulations directly applicable
to communications over the Internet and access to e-commerce. Although there are currently few laws and regulations directly applicable
to e-commerce, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues
such as user privacy, pricing, content, copyrights, distribution, antitrust, taxation and characteristics and quality of products
and services.
Risks related to our common stock
Possible issuances
of our capital stock would cause dilution to our existing shareholders.
While we currently have approximately
105,460,637 shares of common stock outstanding, we are authorized to issue up to 150,000,000 shares of common stock. Therefore,
we will be able to issue a substantial number of additional shares without obtaining shareholder approval. In the event we elect
to issue additional shares of common stock in connection with any financing, acquisition or otherwise, current shareholders could
find their holdings substantially diluted, which means they will own a smaller percentage of our company. There are also 5 million
shares of preferred stock that the board can issue under any terms it wants and without any shareholder approval.
Certain shareholders control a
substantial portion of our outstanding common stock.
Our chief executive officer owns a significant
portion of the outstanding shares of our common stock and Mr. Kidrin may be issued an additional 7.5 million shares of our common
stock upon the exercise of outstanding stock options. Accordingly, he will be able to influence the election of our directors and
thereby influence or direct our policies.
No dividends have been paid on
our common stock.
To date, we have not paid any cash dividends
on our common stock and we do not expect to declare or pay dividends on the common stock in the foreseeable future. In addition,
the payment of cash dividends may be limited or prohibited by the terms of any future loan agreements.
We are subject to "penny
stock" regulations which may adversely impact the liquidity and price of our common stock.
Our common stock is currently deemed
a "penny stock." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges). The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information
on penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction,
and if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market, and monthly account statements showing the market value of each penny stock held in the customer's account. In
addition, broker-dealers who sell such securities to persons other than established customers and accredited investors (generally,
those persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse),
the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and
receive the purchaser's written agreement to the transaction.
These requirements could reduce the
level of trading activity, if any, in the secondary market for our common stock. As a result of the foregoing, our shareholders
may find it more difficult to sell their shares.
The exercise or conversion of
outstanding options into common stock will dilute the percentage ownership of our other shareholders. The sale of such common stock
or other common stock in the open market could adversely affect the market price of our common stock.
As of March 5, 2015, there are outstanding
options and warrants to purchase an aggregate of 13,135,714 shares of our common stock and more options and warrants
will likely be granted in the future to our officers, directors, employees and consultants. The exercise of outstanding stock options
and warrants and conversion of notes will dilute the percentage ownership of our other shareholders. Sales, or the expectation
of sales, of a substantial number of shares of our common stock in the public market, including shares of our common stock issuable
upon exercise of our stock options, could adversely affect the prevailing market price of our common stock
ITEM 2. DESCRIPTION OF PROPERTIES.
We do not own any property nor do we
have any contracts or options to acquire any property in the future. Presently, we are operating out of offices in our president's
residence at 11 Royal Road, Brookline, Massachusetts 02445, where we occupy approximately 800 square feet. This space
is adequate for our present and our planned future operations. We currently pay no rent to our president for use of this space,
although when funds are available we may do so in the future. In addition we have no written agreement or formal arrangement with
our president pertaining to the use of this space. We have no current plans to occupy other or additional office space.
ITEM 3. LEGAL PROCEEDINGS.
A Federal District Court issued a ruling
on March 13, 2014 on the Motion for Summary Judgment hearing that allows the company to proceed with its patent infringement suit
against Activision Blizzard, Inc., Blizzard Entertainment, Inc. and Activision Publishing, Inc.'s (Activision). The MSJ hearing
held October 17, 2013 addressed Activision's dispute of Worlds Inc.'s November 1995 patent priority date. The court did not dismiss
the case as requested by Activision. The Court’s ruling does prevent the company from pursuing damages for the period prior
to the U.S. Patent and Trademark Office's (USPTO) issuance of Certificates of Correction on September 24, 2013 that amended the
Company’s 6,219,045 and 7,181,790 patents to include comprehensive priority information, which specifically references Worlds
November 1995 provisional patent application and confirms Worlds 1995 priority date. A Markman hearing was held October 3, 2014
to address various aspects of the infringement suit claims and how the words in the 11 disputed “constructions” in
the claims should be construed for jury consideration. The additional purpose is for the court to determine the meaning and intent
of the language used in the claims. The court gave no indication of when it would issue the ruling.
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.
In Cosmo Communications v. Worlds Inc.
(our former name) in the Superior Court Of New Jersey Law Division, Bergen County, the court rendered a decision in favor of the
plaintiff, Cosmo Communications on February 13, 2001. The judgment amount entered in April 2001, is approximately $205,000, of
which the full amount is accrued. The judgment related to a consulting agreement for raising capital. The court ruled
that the terms of the contract are binding on successors of the company and that Worlds.com is a successor company .
ITEM 4. MINE SAFETY DISCLOSURES.
N/A
PART II
ITEM 5. MARKET FOR COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock began trading on the
OTC Bulletin Board on October 20, 1998 under the symbol "WLDI." On February 11, 2000, in connection with the change in
our name from Worlds Inc. to Worlds.com Inc., our symbol was changed to "WDDD." During 2001, our stock was no longer
quoted on the OTC Bulletin Board and was quoted on the Pink Sheets, but returned to the Bulletin Board in the third quarter of
2008. The following table sets forth, for the periods indicated, the high and low bids for our common stock as reported on the
OTC Bulletin Board or the Pink Sheets (representing interdealer quotations, without retail mark-ups, mark-downs or commissions,
and may not necessarily represent actual transactions):
Year Ended December 31, 2013: |
|
High |
|
Low |
First quarter |
|
$ |
0.46 |
|
|
$ |
0.19 |
|
Second quarter |
|
$ |
0.54 |
|
|
$ |
0.30 |
|
Third quarter |
|
$ |
0.36 |
|
|
$ |
0.18 |
|
Fourth quarter |
|
$ |
0.22 |
|
|
$ |
0.13 |
|
Year Ended December 31, 2014: |
|
High |
|
Low |
First quarter |
|
$ |
0.26 |
|
|
$ |
0.13 |
|
Second quarter |
|
$ |
0.21 |
|
|
$ |
0.13 |
|
Third quarter |
|
$ |
0.26 |
|
|
$ |
0.15 |
|
Fourth quarter |
|
$ |
0.21 |
|
|
$ |
0.14 |
|
Holders
As of December 31, 2014, we had 620
shareholders of record of our common stock.
Dividends
We have never paid a cash dividend on
our common stock and do not anticipate paying any dividends in the near future.
Recent Sales of Unregistered Securities
The Company
issued promissory notes in the amount of $100,000 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
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 Company issued an aggregate of $2,400,000
of convertible notes payable but then redeemed the Series A and B and returned $1,950,000. In the year ended December 31, 2013
the company raised $97,500 from a private placement of common stock at a price of $0.10 per share and one warrant for each two
shares purchased at a price of $0.15 per share. In the year ended December 31, 2013 company raised $120,000 from the exercising
of warrants for common stock and $11,000 from the exercise of options in the year ended December 31, 2013.
The Company
issued promissory notes in the amount of $225,000 during the year ended December 31, 2013. One of the Promissory Notes in the amount
$50,000 was in lieu of payment of cash for an outstanding balance due to a consultant of the Company. The promissory notes carry
a 6% annual interest rate and 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).
All of these issuances were exempt from
registration in as much as they were all sold to accredited investors in private offerings without the use of advertising.
Company Equity Compensation Plans
The following table sets forth information
as of December 31, 2014 with respect to compensation plans (including individual compensation arrangements) under which equity
securities of the Company are authorized for issuance.
Plan Category |
|
Number of securities to be
issued upon exercise of
outstanding options, warrants and rights
|
|
Weighted-average exercise price of outstanding options, warrants and rights |
|
Number of securities remaining available for future issuance under equity compensation plans |
Equity compensation plans approved by stockholders |
|
|
13,873,214 |
|
|
|
$ |
0.40 |
|
|
|
11,126,786 |
|
|
Equity compensation plans not approved by stockholders |
|
|
0 |
|
|
|
$ |
N/A |
|
|
|
— |
|
|
Total |
|
|
13,873,214 |
|
|
|
$ |
0.40 |
|
|
|
11,126,786 |
|
|
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward Looking Statements
When used in this form 10-K and in future
filings by the Company with the Commission, The words or phrases such as "anticipate," "believe," "could,"
"would," “should,” "estimate," "expect," "intend," "may," "plan,"
"predict," "project," "will" or similar expressions are intended to identify “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result
of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
These forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors
include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing
levels that we can charge for our services or which we pay to our suppliers and business partners; changes in political, social
and economic conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes
in technology that render our technology relatively inferior, obsolete or more expensive compared to others; foreign currency fluctuations;
changes in the business prospects of our business partners and customers; increased competition, including from our business partners;
delays in the delivery of broadband capacity to the homes and offices of persons who use our services; general disruptions to Internet
service; and the loss of customer faith in the Internet as a means of commerce.
The following discussion should be read
in conjunction with the financial statements and related notes which are included in this report under Item 8.
We do not undertake to update our forward-looking
statements or risk factors to reflect future events or circumstances.
Overview
General
Starting in mid-2001 we were not able
to generate enough revenue to sustain full operations and other sources of capital were not available. As a result, we have had
to significantly curtail our operations since that time and at times almost halt them all together. Since mid-2007, as more funds
became available from our financings, we were able to increase operations and become more active operationally.
On May 16, 2011, we transferred, through
a spin-off to our then wholly owned subsidiary, Worlds Online Inc., the majority of our operations and related operational assets.
We retained our patent portfolio which we intend to continue to increase and to more aggressively enforce against alleged infringers.
We also entered into a License Agreement with Worlds Online Inc. to sublicense patented technologies.
The Company’s sources of
revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated
from enforcing its patents in litigation or otherwise.
Revenues
The Company’s sources of
revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated
from enforcing its patents in litigation or otherwise.
Prior to the spin-off we generated only
modest revenue from VIP subscriptions to the Worlds Ultimate 3-D Chat service.
Expenses
We classify our expenses into two broad
groups:
• |
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
years ended December 31, 2014 and 2013 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.
Year ended December 31, 2014 compared
to year ended December 31, 2013
Revenue was $0 for the years ended December
31, 2014 and 2013. 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 years
ended December 31, 2014 and 2013.
Selling general and administrative (S,
G & A) expenses decreased by $142,206, from $597,818 to $455,613 for the year ended December 31, 2014. Expenses
are primarily professional fees and business consulting including broker fees. Expenses decreased during the year due to the financings
and all the activity surrounding those financings in 2013 which inflated SG&A expenses.
Salaries and related expenses increased
by $30,490 to $215,872 from $185,382 for the year ended December 31, 2014. Increase is primarily due to the CEO working under an
employment agreement whereby he is to receive a 10% increase each year.
Common stock issued for services rendered
decreased by $3,075,806 to $75,908 in 2014 compared to $3,151,714 in 2013. Decrease is due to limited consulting and marketing
activity in 2014, in 2013 the Company converting the Series A and B convertible notes into 7 million shares and returning the face
value of the notes to the investors, and signing strategic business consulting, marketing and advice agreements.
Other expenses include options expense
of $66,451 for Director’s options for the year ended December 31, 2014 and $34,691 for the year ended December 31, 2013. Increase
is due to an additional Director in 2014 and the additional options new Directors receive when joining the Board.
For the year ended December 31, 2014,
the Company had a gain on change in fair value of derivative liability of $199,102 and interest expense of $358,835. The derivative
liability is in connection with the issuance of the senior secured convertible notes of $450,000 and 4,535,714 warrants as part
of the offering of notes, both of which are required to be recorded as a derivative liability. For the year ended December 31,
2013, the Company had a loss on change in fair value of derivative liability of $371,545 and interest expense of $546,790.
As a result of the foregoing, we realized
a net loss of $982,577 for the year ended December 31, 2014 compared to a loss of $4,886,510 in the year ended December 31, 2013,
a decrease in net losses of $3,903,934.
Liquidity and Capital Resources
Our cash and cash equivalents were $27,661
at December 31, 2014. We raised an aggregate of $100,000 from issuing notes payable during the year ended December 31, 2014.
We raised an aggregate of $2,400,000
from issuing the convertible notes payable but then redeemed the Series A and B and returned $1,950,000; we raised $97,500 from
a private placement of common stock; we raised $120,000 from the exercising of warrants for common stock; we raised $11,000 from
the exercise of options; and we raised $175,000 from issuing notes payables in the year ended December 31, 2013.
No capital expenditures were made in
2014 or 2013.
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 connection with the exploration of new business lines.
The funds raised in our 2014 and 2013 financings
were and will be used to enhance our patent portfolio, pay salaries to management and pay professional fees to our attorneys and
auditors to prepare and file reports with the Securities and Exchange Commission. We hope to raise additional funds
to be used for further developing our portfolio of patents and to document our technology in order to enforce our patents where
there is infringement. No assurances can be given that we will be able to raise any additional funds.
Subsequent Events
On 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.
Recent Accounting Pronouncements
Recently issued accounting standards
The Company has reviewed all
recently issued, but not yet effective, accounting pronouncements up to ASU 2014-05, 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.
CONTENTS |
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
13 |
|
|
CONSOLIDATED BALANCE
SHEETS |
14 |
|
|
CONSOLIDATED STATEMENTS OF
OPERATIONS |
15 |
|
|
CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ DEFICIT |
16 |
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
17 |
|
|
CONSOLIDATED NOTES TO FINANCIAL
STATEMENTS |
18 |
|
|
Bongiovanni &
Associates, PA
FL Office
7951 SW 6th St., Suite. 216
Plantation, FL 33324
Tel: 954-424-2345
Fax: 954-424-2230 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Worlds Inc.
We have audited the accompanying balance sheets
of Worlds Inc. (the “Company”) as of December 31, 2014 and 2013 and related statements of operations, stockholders’
deficit, and cash flows for the two years then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of Worlds Inc. (a Delaware corporation) as of December
31, 2014 and 2013 and the results of its operations and its cash flows for two years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have
been prepared assuming the Company will continue as a going concern. The Company has suffered recurring operating losses, has an
accumulated stockholders’ deficit, has negative working capital, has had minimal revenues from operations, and has yet to
generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 3. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Bongiovanni & Associates, PA
Bongiovanni & Associates, PA
Certified Public Accountants
Plantation, Florida
The United States of America
April 15, 2015
www.ba-cpa.net
Worlds Inc. |
|
|
|
|
Balance Sheets |
|
|
|
|
December 31, 2014 and December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
December 31, 2013
Restated |
|
|
|
|
|
ASSETS: |
|
|
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
27,661 |
|
|
$ |
22,132 |
|
Due from related party |
|
|
— |
|
|
|
295,912 |
|
Promissory note |
|
|
— |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
27,661 |
|
|
|
321,044 |
|
|
|
|
|
|
|
|
|
|
Patents |
|
|
— |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
27,661 |
|
|
$ |
328,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT: |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
797,908 |
|
|
$ |
797,908 |
|
Accrued expenses |
|
|
2,287,977 |
|
|
|
1,986,726 |
|
Due to related party |
|
|
9,416 |
|
|
|
— |
|
Derivative liability |
|
|
426,591 |
|
|
|
1,187,600 |
|
Notes payable |
|
|
773,279 |
|
|
|
773,279 |
|
Notes Payables |
|
|
325,000 |
|
|
|
225,000 |
|
Convertible notes payable (net of $13,822 discount) |
|
|
11,803 |
|
|
|
117,534 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
4,631,973 |
|
|
|
5,088,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (Par value $0.001 authorized 100,000,000 shares, issued and outstanding 96,851,941 and 93,209,823 at December 31, 2014 and December 31, 2013, respectively) |
|
|
96,852 |
|
|
|
93,210 |
|
Additional paid in capital |
|
|
31,409,427 |
|
|
|
30,287,412 |
|
Common stock-warrants |
|
|
97,869 |
|
|
|
97,869 |
|
Deferred compensation |
|
|
— |
|
|
|
(12,609 |
) |
Accumulated deficit |
|
|
(36,208,461 |
) |
|
|
(35,225,884 |
) |
Total stockholders deficit |
|
|
(4,604,312 |
) |
|
|
(4,760,002 |
) |
|
|
|
|
|
|
|
|
|
Total Liabilities and stockholders' deficit |
|
$ |
27,661 |
|
|
$ |
328,044 |
|
The Report of Independent Registered
Public Accounting Firm and accompanying notes are an integral part of these financial statements.
Worlds Inc. |
|
|
|
|
Statements of Operations |
|
|
For the Years Ended December 31, 2014 and 2013 |
|
|
|
|
For the Years Ended |
|
|
December 31, |
|
|
2014 |
|
2013 |
|
|
|
|
Restated |
Revenues |
|
|
|
|
Revenue |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Gross Profit/(Loss) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Expense |
|
|
66,451 |
|
|
|
34,691 |
|
Bad debt expense |
|
|
2,000 |
|
|
|
|
|
Common Stock issued for services renderred |
|
|
75,908 |
|
|
|
3,151,714 |
|
Selling, General & Admin. |
|
|
455,613 |
|
|
|
597,818 |
|
Salaries and related |
|
|
215,872 |
|
|
|
185,382 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(815,844 |
) |
|
|
(3,969,606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
Gain (Loss) on change in fair value of derivative liability |
|
|
199,102 |
|
|
|
(371,545 |
) |
Impariment loss on intangible asset |
|
|
(7,000 |
) |
|
|
— |
|
Interest Expense |
|
|
(358,835 |
) |
|
|
(546,790 |
) |
Interest Income |
|
|
— |
|
|
|
1,430 |
|
Net Income/(Loss) |
|
$ |
(982,577 |
) |
|
$ |
(4,886,510 |
) |
|
|
|
|
|
|
|
|
|
Weighted Average Loss per share |
|
$ |
(0.01 |
) |
|
$ |
(0.06 |
) |
Weighted Average Common Shares Outstanding |
|
|
95,756,447 |
|
|
|
87,029,777 |
|
The Report of Independent Registered
Public Accounting Firm and accompanying notes are an integral part of these financial statements.
Worlds Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Stockholders' Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, 2014 and 2013 (Restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Stock |
|
|
|
|
|
Total |
|
|
|
|
|
|
Additional |
|
|
|
|
|
Subscribed |
|
Subscribed |
|
|
|
Accumulated |
|
stockholders' |
|
|
Common stock |
|
Common stock |
|
Paid-in |
|
Common stock |
|
Subscription |
|
but not |
|
but not |
|
Deferred |
|
Deficit |
|
equity |
|
|
Shares |
|
Amount |
|
capital |
|
Warrants |
|
Receivable |
|
Issued |
|
Issued |
|
compensation |
|
|
|
(deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2012 |
|
|
79,813,071 |
|
|
|
79,813 |
|
|
|
26,788,926 |
|
|
|
203,237 |
|
|
|
(10,000 |
) |
|
|
1,500,000 |
|
|
|
1,500 |
|
|
|
(12,500 |
) |
|
|
(30,339,373 |
) |
|
|
(3,288,397 |
) |
Issuance of common stock for services rendered |
|
|
9,482,146 |
|
|
|
9,482 |
|
|
|
3,142,341 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(109 |
) |
|
|
— |
|
|
|
3,151,714 |
|
Issuance of common stock for cash investment |
|
|
2,375,000 |
|
|
|
2,375 |
|
|
|
86,625 |
|
|
|
— |
|
|
|
10,000 |
|
|
|
(1,500,000 |
) |
|
|
(1,500 |
) |
|
|
— |
|
|
|
— |
|
|
|
97,500 |
|
Issuance of stock options |
|
|
— |
|
|
|
— |
|
|
|
34,691 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,691 |
|
Exercise of stock options |
|
|
100,000 |
|
|
|
100 |
|
|
|
10,900 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,000 |
|
Cashless exercise of sock options |
|
|
639,606 |
|
|
|
640 |
|
|
|
(640 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of warrants |
|
|
800,000 |
|
|
|
800 |
|
|
|
224,568 |
|
|
|
(105,368 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120,000 |
|
Warrants issued with PPM |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net Loss for the year ended December 31, 2013 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,886,510 |
) |
|
|
(4,886,510 |
) |
Balances, December 31, 2013 |
|
|
93,209,823 |
|
|
$ |
93,210 |
|
|
$ |
30,287,412 |
|
|
$ |
97,869 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(12,609 |
) |
|
$ |
(35,225,884 |
) |
|
$ |
(4,760,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion of note payable to common stock |
|
|
3,128,592 |
|
|
|
3,129 |
|
|
|
421,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,375 |
|
Issuance of common stock for services rendered |
|
|
450,000 |
|
|
|
450 |
|
|
|
62,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,300 |
|
stock issued for accrued expense |
|
|
63,526 |
|
|
|
64 |
|
|
|
9,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,625 |
|
Adjustment to derivative liability for value of converion |
|
|
|
|
|
|
|
|
|
|
561,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561,907 |
|
Amortization of Deferred Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,609 |
|
|
|
|
|
|
|
12,609 |
|
Issuance of stock options |
|
|
— |
|
|
|
— |
|
|
|
66,451 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
66,451 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(982,577 |
) |
|
|
(982,577 |
) |
Balances, December 31, 2014 |
|
|
96,851,941 |
|
|
$ |
96,852 |
|
|
$ |
31,409,428 |
|
|
$ |
97,869 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(36,208,461 |
) |
|
$ |
(4604,312 |
) |
The Report of Independent Registered
Public Accounting Firm and accompanying notes are an integral part of these financial statements.
Worlds Inc. |
|
|
|
|
Statements of Cash Flows |
|
|
|
|
Years Ended December 31, 2014 and 2013 |
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
2014 |
|
2013 |
|
|
|
|
Restated |
Cash flows from operating activities: |
|
|
|
|
Net (loss) |
|
$ |
(982,577 |
) |
|
$ |
(4,886,510 |
) |
Adjustments to reconcile net loss to net cash (used in) operating activities |
|
|
|
|
|
|
|
|
Fair value of stock options issued |
|
|
66,451 |
|
|
|
34,691 |
|
Common stock issued for services renderred |
|
|
75,908 |
|
|
|
3,151,714 |
|
Amortization of discount to note payable |
|
|
318,642 |
|
|
|
308,588 |
|
Bad debt expense |
|
|
2,000 |
|
|
|
|
|
Derivative expenses |
|
|
— |
|
|
|
— |
|
Impariment loss on intangible expense |
|
|
7,000 |
|
|
|
|
|
Changes in fair value of derivative liabilities |
|
|
(199,102 |
) |
|
|
371,545 |
|
Promissory note payable |
|
|
— |
|
|
|
(3,000 |
) |
Accounts payable and accrued expenses |
|
|
310,876 |
|
|
|
82,792 |
|
Due from/to related party |
|
|
305,328 |
|
|
|
(161,258 |
) |
Net cash (used in) operating activities: |
|
|
(95,473 |
) |
|
|
(1,101,438 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Patent |
|
|
— |
|
|
|
— |
|
Net cash (used in) investing activities: |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
— |
|
|
|
97,500 |
|
Proceeds from exercise of options |
|
|
— |
|
|
|
11,000 |
|
Proceeds from exercise of warrants |
|
|
— |
|
|
|
120,000 |
|
Proceeds from issuance of convertible note payable |
|
|
— |
|
|
|
2,400,000 |
|
Proceeds from issuance of note payable |
|
|
100,000 |
|
|
|
175,000 |
|
Redemption of notes payable |
|
|
— |
|
|
|
(1,950,000 |
) |
Cash contribution |
|
|
1,000 |
|
|
|
|
|
Proceeds from note payable |
|
|
— |
|
|
|
175,000 |
|
Net cash provided by financing activities |
|
|
101,000 |
|
|
|
1,028,500 |
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
5,527 |
|
|
|
(72,938 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including restricted, beginning of year |
|
|
22,132 |
|
|
|
95,069 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including restricted, end of period |
|
$ |
27,661 |
|
|
$ |
22,132 |
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities |
|
|
|
|
|
|
|
|
Payment of expenses through issuance of notes payable |
|
|
— |
|
|
|
50,000 |
|
Common stock issued to retired accrued expense |
|
|
9,625 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
— |
|
|
$ |
— |
|
Income taxes |
|
$ |
— |
|
|
$ |
— |
|
The Report of Independent Registered
Public Accounting Firm and accompanying notes are an integral part of these financial statements.
Worlds Inc.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2014 and
2013
NOTE 1 – DESCRIPTION OF BUSINESS
AND SUMMARY OF ACCOUNTING POLICIES
Description of Business
On May 16, 2011, the Company transferred,
through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational
assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against
alleged infringers. The Company also entered into a License Agreement with Worlds Online Inc. to sublicense its patented technologies.
Basis of Presentation
The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"),
which contemplates continuation of the Company as a going concern. The Company has always been considered a developmental stage
business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require
substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company
will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating
to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient
financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors
raise substantial doubt about the Company's ability to continue as a going concern. For the past year the Company has been operating
at a significantly reduced capacity, with only one full time employee, performing primarily consulting services and licensing software
and using consultants to perform any additional work that may be required.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid
money market instruments, which have original maturities of three months or less at the time of purchase.
Due from Related Party
Due from related party is comprised
of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses.
Revenue Recognition
Effective for the second quarter of
2011, the Company spun off its online businesses to Worlds Online Inc. The Company’s sources of revenue after the spin off
will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents.
Prior to the spin-off, the Company had the following sources of revenue: (1) consulting/licensing revenue from the performance
of development work performed on behalf of the Company, licensing revenue or from the sale of certain software to third parties;
and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. The Company recognizes revenue when all of the following criteria
are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable,
and collectability is reasonable assured. This will usually be in the form of a receipt of a customer’s acceptance indicating
the product has been completed to their satisfaction except for development work and service revenue which is recognized when the
services have been performed. Deferred revenue represents cash payments received in advance to be recorded as revenue when earned.
The corresponding cost associated with those contracts is also deferred as deferred costs until the revenue is ultimately recognized.
Research and Development Costs
Research and development costs are charged
to operations as incurred.
Property and Equipment
Property and equipment are stated at
cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets ranging from three to five
years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting
gains or losses are included in income. Maintenance and repairs are charged to expense in the period incurred.
Impairment of Long Lived Assets
The Company evaluates the recoverability
of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures
about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to
fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement
on inception. No impairments of these types of assets were recognized during 2014 and 2013.
Stock-Based Compensation
The Company accounts for stock-based
compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification
for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the
requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees
do not render the requisite service.
Income Taxes
The Company accounts for income taxes
under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined
based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the consolidated statements of operations in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
Notes Payable
The Company has $773,279 in short term
notes outstanding at December 31, 2014 and 2013. These are old notes payable which the statute of limitations has passed.
The company has an additional $325,000
and $225,000 in notes, and $11,803 and $117,534 in convertible notes outstanding at December 31, 2014 and 2013, 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 December 31, 2014, there were 8,600,000 options and 5,273,214
warrants whose effect is anti-dilutive and not included in diluted net loss per share for December 31, 2014. 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 December 31, 2014, and 2013 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued
expenses in the accompanying balance sheets.
Risk and Uncertainties
The Company is subject to risks common
to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations
and dependence on key personnel.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Uncertain Tax Positions
The Company did not take any uncertain
tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25
for the years ended December 31, 2014 or 2013.
Subsequent Events
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.
Recent Accounting Pronouncements
The Company has reviewed all
recently issued, but not yet effective, accounting pronouncements up to ASU 2014-18, 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 RESTATEMENT OF FINANCIAL STATEMENTS
The Company identified errors related
to understatement of option expense for the year ended December 31, 2012. The facts underlying the Company’s original conclusion
is that 7.5 million stock options granted to President and CEO of the Company, Thom Kidrin, were only 18 month options and were
expiring on March 31, 2014. In fact they were five (5) year options expiring in September 2017. Accordingly, all the financial
statements for the year ended December 31, 2012 are restated.
In addition, the Company identified
errors related to understatement of derivative liabilities as of December 31, 2013, and loss on change in the fair value of the
derivative liability for the year ended December 31, 2013. The facts underlying the Company’s original conclusion is that
there were no derivative liabilities incurred when 4,535,714 warrants were granted to the investors in connection with the strategic
financing agreements entered into in March of 2013. In fact such warrants’ ratchet features triggered derivative liabilities
of the Company.
The following table sets forth
all the accounts in the original amounts and restated amounts, respectively.
As of December 31, 2013
|
|
|
Original |
|
|
|
Adjustment |
|
|
|
Restated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability |
|
$ |
429,296 |
|
|
$ |
758,304 |
|
|
$ |
1,187,600 |
|
For the year ended December 31, 2013
|
|
Original |
|
Adjustment |
|
Restated |
|
|
|
|
|
|
|
Gain (loss) on change in fair value of derivative liability |
|
$ |
386,759 |
|
|
$ |
(758,304 |
) |
|
$ |
(371,545 |
) |
Net (loss) |
|
|
(4,128,206 |
) |
|
|
(758,304 |
) |
|
|
(4,886,510 |
) |
Weighted average loss per share |
|
$ |
(0.05 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.06 |
) |
Statement of Equity as of January 1, 2013
|
|
Original |
|
Adjustment |
|
Restated |
|
|
|
|
|
|
|
Additional paid in capital |
|
$ |
26,580,244 |
|
|
$ |
208,682 |
|
|
$ |
26,788,926 |
|
Accumulated deficit |
|
$ |
(30,130,692 |
) |
|
$ |
(208,682 |
) |
|
$ |
(30,339,374 |
) |
NOTE 3 - GOING CONCERN
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had periods
where it had only minimal revenues from operations. There can be no assurance that the Company will be able to obtain the additional
capital resources to fully implement its business plan or that any assumptions relating to its business plan will prove to be accurate.
The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available
to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material
adverse effect on the Company, including possibly requiring the Company to reduce and/or cease operations.
These factors raise substantial doubt
about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 4 - PRIVATE PLACEMENTS OF EQUITY
During the year ended December 31, 2014,
the Company issued 3,128,592 common shares by converting $424,375 of the convertible notes payable and accrued interest into common
stock.
During the year ended December 31, 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 year ended December 31, 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.
During the year ended December 31, 2013,
the Company sold 875,000 common shares for a cash investment of $87,500. The company received $10,000 for stock issued in 2012
and recorded as subscription receivable.
During the year ended December
30, 2013, the Company issued 1,500,000 common shares for a cash investment of $150,000 which was received in 2012. The shares were
not issued as of December 31, 2012, and were recorded as common stock subscribed but not yet issued at December 31, 2012.
During the year ended December 31, 2013,
the Company raised $120,000 with the exercise of warrants covering 800,000 shares of its common stock at a price of $0.15 per share.
During the year ended December 31, 2013,
100,000 stock options were exercised at a price of $0.11 per share for cash proceeds of $11,000.
During the year ended December 31, 2013,
the Company issued an aggregate of 9,482,146 shares of common stock as payment for services rendered with an aggregate value of
$3,151,714, of which $12,609 was recorded as deferred compensation as of December 31, 2013.
NOTE 5 - NOTES PAYABLE
We issued an aggregate of $2.4 million
face amount of Senior Secured Convertible Notes (the “Notes”). The Notes are divided into Series A, Series B and Series
C with the Series A and B Notes aggregating to $1.95 million and the Series C Notes aggregating to $450,000. The Series A and Series
B Notes were exchanged by the return of the face amount of the Notes and for 7 million shares of common stock of the Company. The
remaining Series C Note carries a 14% annual interest rate upon default and is payable on March 13, 2016. The Company has determined
that the conversion feature of the Notes represent an embedded derivative since the Notes are convertible into a variable number
of shares upon conversion. The Notes are classified as a derivative liability and not a note payable, see Note 11 below.
Notes payable at December 31, 2014 consist
of the following: |
|
|
|
|
|
Unsecured note payable to a shareholder bearing 8% interest. |
|
|
|
|
Entire balance of principal and unpaid interest due on demand |
|
$ |
124,230 |
|
|
|
|
|
|
Unsecured note payable to a shareholder bearing 10% interest |
|
|
|
|
Entire balance of principal and unpaid interest due on demand |
|
$ |
649,049 |
|
|
|
|
|
|
Total current |
|
$ |
773,279 |
|
|
|
|
|
|
2014 |
|
$ |
773,279 |
|
2015 |
|
$ |
325,000 |
|
2016 |
|
$ |
-0- |
|
2017 |
|
$ |
-0- |
|
2018 |
|
$ |
-0- |
|
|
|
$ |
1,098,279 |
|
We issued
promissory notes in the amount of $100,000 during the year ended December 31, 2014.We issued promissory notes in the amount of
$225,000 during the year ended December 31, 2013. One of the Promissory Notes in the amount $50,000 was in lieu of payment of cash
for an outstanding balance due to a consultant of the Company. The promissory notes carry a 6% annual interest rate and 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.
NOTE 6 – STOCK OPTIONS
We previously reported that in January
2014 we extended the term of 7.5 million stock options granted to our President and CEO, Thom Kidrin, from March 31, 2014 to March
31, 2016. We have now learned that this disclosure was incorrect inasmuch as the approval of the extension was premised on the
erroneous supposition that Mr. Kidrin’s options were only 18 month options and were expiring on March 31, 2014, when in fact
they were five (5) year options expiring in September 2017. The options in question were granted pursuant to the terms of Mr. Kidrin’s
Employment Agreement dated as of August 30, 2012, which was filed as Exhibit 10.2 to our Annual Report on Form 10-K for the year
ended December 31, 2012, which clearly states that the options had a term of five (5) years.
We reported in the Form 10-K for the
year ended December 31, 2012 and in subsequent periods that Mr. Kidrin’s options were for an eighteen-month period, which
was predicated on the execution of an option agreement of similar term. We inadvertently executed two versions of an option agreement
in March 2013, one having a five-year term and one having an eighteen month term without realizing that there were two versions.
The five-year version was maintained in our files, but we erroneously provided only the eighteen-month version to our independent
auditor and prepared our financial statements and disclosures based upon an eighteen-month option term for Mr. Kidrin. We continued
to erroneously rely on the wrong document until September 2014.
Accordingly, to the extent that the
Board extended the options in January 2014, such extension was premised upon a mistake of fact and the Board action was taken in
error. Indeed, because even the purported extension would, if effective, shorten the five year term of Mr. Kidrin’s options,
such action would have been contrary to the Board’s intent. However, in the Annual Report for 2012 and in each periodic report
since that date, the options were erroneously described as 18 month options expiring in March 2014 and our two most recent quarterly
reports reported the erroneous extension. The disclosure came to light as we reviewed our disclosures as a result of the lawsuit
described below, and located the March 2013 version of the option agreement. Inasmuch as disclosing the options as 18 months versus
five years did not impact in any way our assets or retained earnings, it had an impact of approximately 10% on our income statement,
(an overstatement of net income by approximately $169,330 for 2012; no impact on net income for 2013; and an understatement of
net income by approximately $1,119,860 for each of the first two quarters of 2014). Management believes that this is non-cash book
entry is not indicative in any way as to the health of the company.
During the year ended December 31, 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.
No stock options or warrants were exercised
during the year ended December 31, 2014.
During the year ended December 31, 2013,
the Company issued 4,535,714 warrants as part of the offering of the senior secured convertible notes. Such warrants triggered
derivative liabilities of the Company due to their ratchet features (see Note 11 below). The Company issued 100,000 options to
each of the Company’s directors, Bernard Stolar and Robert Fireman. The stock options allow each director to purchase 100,000
shares of the Company’s common stock at $0.19 per share per each individual option. The options expire on December 31, 2017.
The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the options.
During the year ended December 31, 2013,
800,000 warrants were exercised for cash proceeds of $120,000. During the year ended December 31, 2013, 100,000 stock options were
exercised for cash proceeds of $11,000 and 900,000 stock options were exercised through a cashless exercise of options resulting
in the issuance of 639,606 shares of common stock.
During the year ended December 31, 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 1.71% risk-free interest,
0% dividend yield, 309% volatility, and expected life of 5 years for the Director’s options.
During the year ended December 31, 2013,
the Company recorded an option expense of $34,691, 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 0.71% risk-free interest,
0% dividend yield, 232% volatility, and expected life of 5 years.
Stock Warrants and Options |
|
Stock warrants/options outstanding and exercisable on December 31, 2014 are as follows: |
|
|
|
|
|
Exercise Price per Share |
Shares Under Option/warrant |
Remaining Life in Years |
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
$ |
1.00 |
|
|
4,535,714 |
|
|
3.21 |
|
$ |
0.19 |
|
|
200,000 |
|
|
3.00 |
|
$ |
0.155 |
|
|
200,000 |
|
|
4.00 |
|
$ |
0.14 |
|
|
250,000 |
|
|
4.00 |
|
$ |
0.115 |
|
|
300,000 |
|
|
2.75 |
|
$ |
0.11 |
|
|
150,000 |
|
|
0.375 |
|
$ |
0.070 |
|
|
7,500,000 |
|
|
2.75 |
|
$ |
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
|
|
$ |
1.00 |
|
|
4,535,714 |
|
|
3.21 |
|
$ |
0.19 |
|
|
200,000 |
|
|
3.00 |
|
$ |
0.155 |
|
|
200,000 |
|
|
4.00 |
|
$ |
0.14 |
|
|
250,000 |
|
|
4.00 |
|
$ |
0.115 |
|
|
300,000 |
|
|
2.75 |
|
$ |
0.11 |
|
|
150,000 |
|
|
0.375 |
|
$ |
0.070 |
|
|
7,500,000 |
|
|
2.75 |
|
NOTE 7 - INCOME TAXES
At December 31, 2014, the Company had
federal and state net operating loss carry forwards of approximately $36,000,000 that expire in various years through the
year 2034.
Due to operating losses, there is no
provision for current federal or state income taxes for the year ended December 31, 2014 and 2013.
Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.
The Company’s deferred tax asset
at December 31, 2014 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating
to approximately $14,121,000 less a valuation allowance in the amount of approximately $14,121,000. Because of the Company’s
lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased
by approximately $383,000 and $1,950,000 for the years ended December 31, 2014 and 2013, respectively.
The Company’s total deferred tax
asset as of December 31, 2014 is as follows:
Net operating loss carry forwards |
|
$ |
14,121,000 |
|
Valuation allowance |
|
|
(14,121,000 |
) |
|
|
|
|
|
Net deferred tax asset |
|
$ |
— |
|
The reconciliation of income taxes computed at the federal
and state statutory income tax rate to total income taxes for the years ended December 31, 2014 and 2013 is as follows:
|
|
2014 |
|
2013 |
Income tax computed at the federal statutory rate |
|
|
34 |
% |
|
|
34 |
% |
Income tax computed at the state statutory rate |
|
|
5 |
% |
|
|
5 |
% |
Valuation allowance |
|
|
(39 |
%) |
|
|
(39 |
%) |
Total deferred tax asset |
|
|
0 |
% |
|
|
0 |
% |
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is committed to an employment
agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 30, 2012, is for five years with a one-year
renewal option held by Mr. Kidrin. The agreement provides for a base salary of $175,000, which increases 10% on September
1 of each year; a monthly car allowance of $500; an annual bonus equal to 2.5% of Pre-Tax Income (as defined in the agreement);
an additional bonus as follows: $75,000, if Pre-Tax Income for the year is between 150% and 200% of the prior fiscal year’s
Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year is between 201% and 250% of the prior fiscal year’s Pre-Tax
Income or (C) $200,000, if Pre-Tax Income for the year is 251% or greater than the prior fiscal year’s Pre-Tax Income, but
in no event shall this additional bonus exceed five (5%) percent of Pre-Tax Income for such year; payment of up to $10,000 in life
insurance premiums; options to purchase 7.5 million shares of Worlds Inc. common stock at an exercise price of $0.070 per
share, all of which vested on October 1, 2012; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times
his base amount (as defined in the agreement) in the event of a Change of Control (as defined in the agreement). The agreement
also provides that Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants
for 12 months after termination.
The Company is committed to a consulting
agreement with an unrelated business consultant. The contract is dated January 1, 2012, calls for monthly payments in the amounts
of $5,000 for the 24 month term of the contract and expired on December 31, 2013.
NOTE 9 - RELATED PARTY TRANSACTIONS
On May 16, 2011, the Company transferred,
through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational
assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against
alleged infringers. The Company also entered into a License Agreement with Worlds Online Inc. to sublicense its patented technologies.
Due to related party is comprised of
cash payments for operating expenses made by worlds Online Inc. on behalf of Worlds Inc. The balance at December 31, 2014 and 2013
is $9,416 and $0 respectively.
Due from related party is comprised
of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for operating expenses. The balance due at December 31, 2014
and 2013 is $0 and $295,912 respectively.
NOTE 10 - 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.
NOTE
11 – DERIVATIVE LIABILITIES
|
1) |
Derivative liabilities due to variable conversion ratio |
On March 20, 2013 the Company entered
into strategic financing agreements with several institutional investors that could provide the Company with up to $2.3 million
of debt financing based upon the amount of conversions and redemptions. The transaction documents provide, among other things,
that (i) the investors will receive five year warrants in an amount equal to 100% of the number of shares of our common stock the
investors would receive if the Notes (defined below) were converted on March 13, 2013, at an exercise price of $0.50 per share,
(ii) $1.950 million of the funds will deposited in one of our bank accounts but will be subject to a control account agreement
which will provide that the Company can only withdraw funds from the account as the investors convert or redeem the Notes, (iii)
the investors have demand and piggy-back registration rights for the shares of common stock underlying the warrants and Notes,
(iv) the Notes will be secured by a first priority security interest in all of our assets, other than our patents, (v) each investor
may not convert any Note or exercise any warrants if doing so will cause the investor to own more than 4.99% of our outstanding
common stock at any time, although under certain circumstances they can each own up to 9.99% of our outstanding common stock, (vi)
we paid $40,000 of the investors’ legal fees incurred with respect to this transaction, and (vii) for the next three years
the investors have a right to participate in up to 50% of any of our future financings. The warrants and Notes contain standard
anti-dilution provisions and the Securities Purchase Agreements contains standard covenants for a financing of this nature. In
the event the Company acquires any subsidiaries while the Notes are outstanding, such subsidiaries will be obligated to guaranty
the Notes and any other obligations we owe to the investors pursuant to the transaction documents.
On July 15, 2013 we entered into Amendment
and Exchange Agreements with each of the existing holders of our Series A, B and C Senior Secured Convertible Notes and related
warrants to purchase our common stock, which securities were originally issued pursuant to that certain Securities Purchase Agreement
dated as of March 14, 2013 (“Securities Purchase Agreement”), by and among us and such holders.
Each Exchange Agreement provides for, among other things,
that:
|
(i) |
Various restrictive provisions of the Securities Purchase Agreement and the Class C Senior Secured Convertible Notes were either eliminated by amendment or waived; |
|
(ii) |
the related warrants, initially exercisable into an aggregate of 4,535,714 shares of Common Stock at an initial exercise price of $0.50, were exchanged for new warrants, initially exercisable into an aggregate of 4,535,714 shares of Common Stock at an initial exercise price of $1.00; and |
|
(iii) |
the Series A and B Senior Secured Convertible Notes, with an aggregate original principal amount of $1,950,000, were exchanged for an aggregate of 7 million shares of our common stock and the payment by the Company to such holders of an aggregate of approximately $1,951,400 (the remaining cash amount held in a control account pursuant to the terms and conditions of the Series A and B Senior Secured Convertible Notes) |
The Company has determined that the
conversion feature of the Note represent an embedded derivative since the Note is convertible into a variable number of shares
upon conversion. Accordingly, the Note is not considered to be conventional debt under EITF 00-19 and the embedded conversion feature
must be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of this derivative
instrument has been recorded as a liability on the balance sheet with the corresponding amount recorded as a discount to the Note.
Such discount will be accreted from the grant date to the maturity date of the Note. The change in the fair value of the derivative
liability will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset
to the derivative liability on the balance sheet. The beneficial conversion feature included in the Note resulted in an initial
debt discount of $450,000 and an initial loss on the valuation of derivative liabilities of $171,658 based on the initial fair
value of the derivative liability of $621,658. The fair value of the embedded derivative liability was calculated at grant date
utilizing the following assumptions:
Grant Date |
|
Fair Value |
|
Term
(Years) |
|
Assumed Conversion Price |
|
Market Price on Grant Date |
|
Volatility Percentage |
|
Risk-free
Rate |
3/20/13 |
|
$ |
621,658 |
|
|
|
3.0 |
|
|
$ |
0.326 |
|
|
$ |
0.465 |
|
|
|
238 |
% |
|
|
0.0038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014, the convertible
notes are $11,803, net of $13,822 discount, at December 31, 2014, the Company revalued the embedded derivative liability. For the
period from the grant date of December 31, 2014, the company increased the derivative liability of $514,883 by $64,152 and $561,907
are reclassified to additional paid in capital due to conversion, resulting in a derivative liability of $17,128 at December 31,
2014.
The fair value of the embedded derivative
liability was calculated at December 31, 2014 utilizing the following assumptions:
Date |
|
Fair Value |
|
Term
(Years) |
|
Assumed Conversion Price |
|
Market Price |
|
Volatility Percentage |
|
Risk-free
Rate |
|
12/31/14 |
|
|
$ |
17,128 |
|
|
|
1.22 |
|
|
$ |
0.132 |
|
|
$ |
0.145 |
|
|
|
153 |
% |
|
|
0.0067 |
|
|
2) |
Derivative liabilities due to ratchet features of the warrants |
On March 20, 2013, the Company issued
4,535,714 warrants (the “Warrants”) as part of the senior secured convertible notes. Pursuant to the warrants
agreements, if and whenever on or after the grant date of the Warrants, the Company issued or sold, or in accordance with the warrants
agreements is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding any Excluded Securities issued or sold or deemed to have been
issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Exercise
Price of the Warrants in effect immediately prior to such issue or sale or deemed issuance or sale (“Dilutive Issuance”),
then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price.
The Company has determined that the
ratchet features of the Warrants represent an embedded derivative since the Warrants are exercisable into a variable number of
shares upon exercise. Accordingly, the Warrants are not considered to be conventional warrants under EITF 00-19 and the embedded
ratchet feature must be accounted for as a derivative liability. Accordingly, the fair value of this derivative instrument has
been recorded as a liability on the balance sheet with the corresponding amount recorded as derivative expenses. The change in
the fair value of the derivative liability will be recorded in other income or expenses in the statement of operations at the end
of each period, with the offset to the derivative liability on the balance sheet. The ratchet feature included in the Warrants
resulted in an initial derivative expenses of $2,092,336 on the grant date based on the initial fair value of the derivative liability.
The fair value of the embedded derivative liability was calculated at grant date utilizing the following assumptions:
Grant Date |
Fair Value |
Term
(Years) |
Exercise Price |
Market Price on Grant Date |
Volatility Percentage |
Risk-free
Rate |
3/20/13 |
$2,092,336 |
5.0 |
$0.50 |
$0.465 |
238% |
0.0038 |
At December 31, 2014, the Company revalued
the embedded derivative liability, based on the new exercise price of $1.00 per share pursuant to the Amendment and Exchange Agreements
entered into on July 15, 2013. For the period from the grant date to December 31, 2014, the Company decreased the derivative liability
of $672,717 by $263,254 resulting in a derivative liability of $409,463 at December 31, 2014.
The fair value of the embedded derivative
liability was calculated at December 31, 2013 utilizing the following assumptions:
Fair Value |
Term
(Years) |
Exercise
Price |
Volatility Percentage |
Risk-free
Rate |
$409,463 |
3.22 |
$1.00 |
153% |
0.0172 |
NOTE 12 - SUBSEQUENT EVENT
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures
Under the supervision and with the participation
of our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures,
as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s
management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate
to allow timely decisions regarding required disclosure.
Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that as of December 31, 2014 our disclosure controls and procedures were
effective inasmuch as the previous weakness was identified and corrected. The above statement notwithstanding, you are cautioned
that no system is foolproof.
Management’s Annual Report on Internal Control over
Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange
Act. Our internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted
accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance
that transactions are recorded as necessary to permit the preparation of our consolidated financial statements in accordance with
U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and
(iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have
a material effect on the consolidated financial statements.
Management assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, management
used the criteria set forth in Internal Control Over Financial Reporting — Guidance for Smaller Public Companies issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
Subject to the inherent limitations
described in the following paragraph, our management has concluded that our internal controls over financial reporting was effective
at December 31, 2014 at the reasonable assurance level.
Inherent Limitations Over Internal Controls
Internal control over financial reporting
cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the
possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control
system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate. Accordingly, our internal controls and procedures are
designed to provide reasonable assurance of achieving their objectives.
Changes in Internal Control over Financial Reporting
We have made no change in our internal
control over financial reporting during the fourth quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting
Firm
This annual report does not include
an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only management’s report in this annual report on Form 10-K.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.
The following table sets forth the name,
age and position of our directors and executive officers. Our directors are elected annually and serve until the next annual meeting
of stockholders. Except for Mr. Kidrin, all of our directors are independent.
Name |
Age |
Position |
Thomas Kidrin |
62 |
President, Chief Executive Officer, Secretary, Treasurer, Director |
Christopher J. Ryan |
54 |
Vice President-Finance, Principal Accounting and Chief Financial Officer |
Bernard Stolar |
68 |
Director |
Robert Fireman |
66 |
Director |
Edward Gildea |
62 |
Director |
Thomas Kidrin became a director on October
1997 and has been president, secretary and treasurer from December 1997 through July 2007 then added the title chief executive
officer since August 2007. Mr. Kidrin was also president and a director of Worlds Acquisition Corp. from April 1997 to December
1997. He has been the chairman and president of Datastream Corporation, a designer and developer of interactive products and services,
since 1993. From December 1991 to June 1996, Mr. Kidrin was a founder, director, and President of UC Television Network Corp.,
a company engaged in the design and manufacture of interactive entertainment/advertising networks in the college market under the
brand name College Television Network, the largest private network on college campuses in the United States sold to MTV in 1996
now operating under MTVU. Mr. Kidrin has attended Drake University and the New School of Social Research.
Christopher J. Ryan has been Vice President-Finance
since May 2000 and principal accounting and finance officer since August 2000. From August 1991 through April 2000, Mr. Ryan held
a variety of financial management positions at Reuters America, an information services company. From 2001 through 2003,
Mr. Ryan was the founder and President of CJR Advisory Services, a personal corporation through which he provided financial consulting
services to various entities. From 2004 to 2010, Mr. Ryan was the CFO of Peminic, Inc. From 2008 to 2012
Mr. Ryan served as the CFO of Conversive Inc. and since 2012 Mr. Ryan has been the CFO of GlobalServe Inc. Mr. Ryan is an inactive
certified public accountant. He is a graduate of Montclair State University in New Jersey and received an M.B.A. degree from Fordham
University.
Bernard Stolar became a director on
September 11, 2007 and is noted for his expertise in both identifying and developing market-driving content and forging successful
business partnerships, brings to the board over twenty years of senior-level experience within the interactive entertainment industry
in all phases of company operations, including sales and marketing, product development, licensing, distribution, strategic planning
and management. Mr. Stolar has served in high profile leadership roles at publicly and privately held interactive entertainment
companies. Currently, Mr. Stolar is Dean of Games and Game Evangelist for Google, Inc. From February 2006 until its purchase by
Google, Inc. in February 2007, Mr. Stolar was the Chairman of the Board of Adscape Media. Prior to this, he was president and chief
operating office of BAM! Entertainment, where he transformed the company from a hand-held content company to a developer and marketer
of interactive entertainment for next generation video game consoles. In 2000, Mr. Stolar joined Mattel, Inc. as president of Mattel
Interactive, where he was responsible for directing and reorganizing the $1 billion Mattel Interactive division. From 1996 to 1999,
Mr. Stolar served as president and chief operating officer of Sega of America, Inc. where he helped increase sales from $200 million
to over $1 billion in three years, and orchestrated the launch of the Sega Dreamcast(TM), the fastest selling video game console
in US history at that time. Mr. Stolar also served as executive vice president of Sony Computer Entertainment of America, where
he was a key leader of the Sony Playstation® launch team, directing all third-party publishing in the U.S. Prior to that, Mr.
Stolar served as president of Atari America's game division.
Robert Fireman became a director on
September 11, 2007 and is a seasoned executive in the building of technology and consumer driven companies. He brings to Worlds
vast experience in the development of real time, loyalty based, stored value products and services. Mr. Fireman was a founder
and former Director and General Manager of SmartSource Direct, Inc., a subsidiary of News America Marketing (News Corp).
Mr. Fireman was responsible for the development, marketing and distribution of card-based loyalty, financial, and database products
& services in retail, grocery and drug store chains encompassing over 50,000 stores throughout the U.S. Mr. Fireman
has been a practicing attorney for over 25 years and is the managing attorney of Fireman & Associates LLP.
Mr. Gildea became a director on January
10, 2014 and contributes expertise in areas of mergers & acquisitions, strategic planning, funding, business development and
executive leadership. He has many years of experience as a board member. Mr. Gildea was the CEO, President, and Chairman of the
Board Of Directors of Converted Organics Inc., a publicly held company that manufactures organic fertilizer by recycling food waste,
from January 2006 until June 2013. He was also a lawyer for, and COO of, QualityMetric Inc. (healthcare) from 2000-2005 and
Grolier Incorporated (publishing) from1980-1989. He spent 10 years at the Kellogg Company (1990-2000) as their vice president of
legal where he managed and supervised a legal team responsible for executing mergers, acquisitions and divestitures. He is currently
a member of the board of directors of Finjan Holdings Inc. (Intellectual property security software) and WPCS International Inc.
(wireless communications and Bitcoin exchange). He received his undergraduate degree from The College of the Holy Cross and
his law degree from Suffolk University.
The board of directors did not meet
during 2014 but acted by written consent seven times during the year. The board does not have any standing committees
and when necessary, the entire board acts to perform such functions.
Family Relationships
None.
Legal Proceedings
None.
Audit Committee
We do not have a separately designated
standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit committee
for the purpose of overseeing the accounting and financial reporting processes, and audits of our financial statements. The Commission
recently adopted new regulations relating to audit committee composition and functions, including disclosure requirements relating
to the presence of an "audit committee financial expert" serving on its audit committee. We are not in a position
at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit
committee financial expert" or to so designate one of our current directors, but we intend to either retain an additional
director who will qualify as such an expert or designate one of our current directors as such an expert, as soon as reasonably
practicable. Our current directors, by virtue of their past employment experience, have considerable knowledge of financial statements,
finance, and accounting, and have significant employment experience involving financial oversight responsibilities. Accordingly,
we believe that our current directors capably fulfill the duties and responsibilities of an audit committee in the absence of such
a designated expert at this time.
Code of Ethics
We have adopted a code of ethic (the
"Code of Ethics") that applies to our principal chief executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. A copy of the Code of Ethics was filed as
Exhibit 14.1 to a previous annual report. The Code of Ethics is being designed with the intent to deter wrongdoing, and to promote
the following:
· |
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships |
· |
Full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the Commission and in other public communications we make |
· |
Compliance with applicable governmental laws, rules and regulations |
· |
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code |
· |
Accountability for adherence to the code |
Section 16(a) Beneficial Ownership
Reporting Compliance
Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than
10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the
ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report,
in this Form 10-K, any failure to comply therewith during the fiscal year ended December 31, 2013. Except as disclosed
below, we believe that all of these filing requirements were satisfied by its executive officers, directors and by the beneficial
owners of more than 10% of our common stock. In making this statement, we have relied solely on copies of any reporting forms received
by us, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial
Ownership) was required to be filed under applicable rules of the Commission. Each of our directors did not timely file
one Form 4.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation
paid by us during the fiscal periods ending December 31, 2014, and 2013, to our chief executive officer, chief financial officer
and to our other most highly compensated executive officers whose compensation exceeded $100,000 for those fiscal periods.
SUMMARY COMPENSATION TABLE (1)(2) |
Name and principal position
(a) |
|
|
Year
(b) |
|
|
|
Salary ($)
(c) |
|
|
Bonus ($)
(d) |
|
|
Stock Awards ($)
(e) |
|
|
|
Option Awards ($)
(f) |
|
|
Securities underlying options
(g) |
|
All Other Compensation ($)
(i) |
|
|
Total ($)
(j) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Kidrin
President and CEO |
|
|
2014 |
|
|
$ |
125,482 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
125,482 |
(3) |
|
|
|
2013 |
|
|
$ |
185,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
185,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Ryan, CFO |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
$ |
38,437 |
|
|
|
|
|
|
|
|
|
|
$ |
38,437 |
|
(1) The above compensation does not
include other personal benefits, the total value of which do not exceed $10,000.
(2) Pursuant to the regulations promulgated
by the SEC, the table omits columns reserved for types of compensation not applicable to us.
(3) Mr. Kidrin has an employment agreement
effective August 30, 2012 with a base annual salary of $175,000 with annual 10% increases every September 1. A portion
of his compensation has been deferred due to lack of funds.
Stock Option Grants
The following table sets forth information
as of December 31, 2014 concerning unexercised options, unvested stock and equity incentive plan awards for the executive
officers named in the Summary Compensation Table.
OUTSTANDING EQUITY AWARDS AT YEAR-ENDED
DECEMBER 31, 2014
Name |
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
|
Number of Securities Underlying Unexercised Options (#) Unexercisable |
|
Equity Incentive Plans Awards: Securities Underlying Unexercised Unearned Options (#) |
|
Option Exercise Price |
|
Option Expiration Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thom Kidrin |
|
|
7,500,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
0.070 |
|
|
09-30-17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher Ryan |
|
|
300,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
0.115 |
|
|
09-30-17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation of Directors
On September 5, 2007, the Board of Directors
adopted a compensation program for the directors whereby each director will receive compensation in the form of stock options for
serving on the board. Five-year non-qualified stock options to purchase 100,000 shares of the Corporation’s common stock
are to be granted annually on January 1 to each director then in office at an exercise price equal to the last reported trading
price of our common stock on that day, with such option to vest in 12 months, provided the director serves for at least six months,
following the date of grant. In addition, every director upon first joining our board receives 150,000 stock options
that vest immediately and are exercisable for five years at a price equal to the last reported trading price of our common stock
on that day.
The following table sets forth information
concerning the compensation paid to each of our non-employee directors during 2014 for their services rendered as directors.
DIRECTOR COMPENSATION
Name |
|
|
Fees Earned or Paid in Cash
($) |
|
|
|
Stock
Awards ($) |
|
|
|
Option
Awards ($) (1) |
|
|
All Other
Compensation ($) |
|
|
Total
($) |
|
Bernard Stolar |
|
|
0 |
|
|
|
0 |
|
|
|
15,485 |
|
|
|
|
|
15,485 |
|
Robert Fireman |
|
|
0 |
|
|
|
0 |
|
|
|
15,485 |
|
|
|
|
|
15,485 |
|
Edward Gildea |
|
|
0 |
|
|
|
0 |
|
|
|
35,481 |
|
|
|
|
|
35,481 |
|
(1) This column represents the dollar
amount recognized for financial statement reporting purposes with respect to the 2013 fiscal year for the fair value of stock options
granted to the named director in fiscal year 2013, in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude
the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for
these awards, and do not correspond to the actual value that will be recognized from these awards by the named director.
Employment Agreements
The Company is committed to an employment
agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 30, 2012, is for five years with a one-year
renewal option held by Mr. Kidrin. The agreement provides for a base salary of $175,000, which increases 10% on September
1 of each year; a monthly car allowance of $500; an annual bonus equal to 2.5% of Pre-Tax Income (as defined in the agreement);
an additional bonus as follows: $75,000, if Pre-Tax Income for the year is between 150% and 200% of the prior fiscal year’s
Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year is between 201% and 250% of the prior fiscal year’s Pre-Tax
Income or (C) $200,000, if Pre-Tax Income for the year is 251% or greater than the prior fiscal year’s Pre-Tax Income, but
in no event shall this additional bonus exceed five (5%) percent of Pre-Tax Income for such year; payment of up to $10,000 in life
insurance premiums; options to purchase 7.5 million shares of Worlds Inc. common stock at an exercise price of $0.070 per
share, all of which vested on October 1, 2012; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times
his base amount (as defined in the agreement) in the event of a Change of Control (as defined in the agreement). The agreement
also provides that Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants
for 12 months after termination.
Stock Option Plan
On September 4, 2007, our board of directors
adopted the 2007 Stock Option Plan which was presented to our shareholders for their approval at our next annual meeting. The
plan provides for the issuance of up to 25 million options of which not more than 22 million can be incentive stock options.
Compensation Committee Interlocks
and Insider Participation
All of our officers and directors currently
hold the same positions with our former subsidiary, Worlds Online Inc, although it is the intent that our current non-employee
directors will only serve during a transition period not to exceed 12 months that transition has extended longer than initially
anticipated. We do not have a compensation committee and all of our directors perform the function of a compensation committee,
except that Mr. Kidrin, our president and CEO, does not participate in any deliberations with respect to his compensation and physically
removes himself from the presence of the other directors while they deliberate over his compensation and bonuses. Accordingly,
Mr. Kidrin, who is both our president and CEO and of Worlds Online Inc. may be deemed to fall within the parameters of a compensation
committee interlock. To address this situation, as described above, Mr. Kidrin recuses himself from all deliberations of the board
with respect to his compensation.
SECURITIES AUTHORIZED FOR ISSUANCE
UNDER EQUITY COMPENSATION PLANS
Name |
|
Number of
Securities Underlying
Unexercised Options (#) Exercisable |
|
Number of
Securities
Underlying
Unexercised Options(#)
Unexercisable |
|
Equity Incentive Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options (#) |
|
Option
Exercise Price
($) |
|
Option
Expiration Date |
Thom Kidrin |
|
|
7,500,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
0.070 |
|
|
09-30-17 |
Christopher Ryan |
|
|
300,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
0.115 |
|
|
09-30-17 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth as of
February 20, 2015, certain information with respect to the beneficial ownership of Common Stock by (i) each Director, nominee and
executive officer of us; (ii) each person who owns beneficially more than 5% of the common stock; and (iii) all Directors, nominees
and executive officers as a group. The percentage of shares beneficially owned is based on there having been 105,460,637 shares
of common stock outstanding as of February 20, 2015.
OFFICERS, DIRECTORS AND BENEFICIAL OWNERS,
AS OF FEBRUARY 20, 2015
Name & Address of Beneficial Owner(1) |
Amount & Nature of Beneficial Owner |
% of Class(2) |
Thomas Kidrin |
12,990,000(3) |
12.3% |
Christopher Ryan |
1,050,303(4) |
1.0% |
Robert Fireman |
564,484(5) |
* |
Bernard Stolar |
200,000(6) |
* |
Edward Gildea |
250,000(7) |
* |
Steven Chrust |
6,023,661 |
5.7% |
All directors and executive officers as a group (one person) |
10,854,787(8 ) |
10.4% |
* less than 1%
(1) Unless stated otherwise, the business
address for each person named is Worlds Inc., 11 Royal Road, Brookline, MA 02445.
(2) Calculated pursuant to Rule 13d-3(d)
(1) of the Securities Exchange Act of 1934. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and
percentage owned by a person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person
listed. We believe that each individual or entity named has sole investment and voting power with respect to the shares of common
stock indicated as beneficially owned by them (subject to community property laws where applicable) and except where otherwise
noted.
(3) Includes 7.5 million currently exercisable
stock options.
(4) Includes 300,000 currently exercisable
stock options.
(5) Includes common shares and 200,000
options directly and indirectly owned. 100,000 options do not vest until January 1, 2015.
(6) Consists of 100,000 options which
are currently exercisable and 100,000 options which do not vest until January 1, 2015.
(7) Consists of stock options, 150,000
of which are currently exercisable and 100,000 options which do not vest until January 1, 2015.
(8) Includes 8,150,000 currently exercisable
stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
We are not currently subject to the
requirements of any stock exchange or inter-dealer quotation system with respect to having a majority of “independent directors”
although we believe that we meet that standard inasmuch as Messrs. Stolar, Fireman and Gildea are “independent” and
only Mr. Kidrin, by virtue of being our president and CEO, is not independent. Although we are not currently subject to such rule,
the independence of our directors meets the definition of such term as contained in NASDAQ Rule 5605(a)(2).
We currently own 9.5% of the outstanding
common stock of our former wholly-owned subsidiary, Worlds Online Inc., and it has officers and directors which mirror ours, although
it is the intent that our current non-employee directors will only serve during a transition period.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees Billed For Audit and Non-Audit
Services
The following table represents the aggregate
fees billed for professional audit services rendered to the independent auditor, Bongiovanni & Associates, P.A. (“Bongiovanni”),
for our audit of the annual financial statements for the years ended December 31, 2013 and 2012. Bongiovanni was retained as our
auditor in 2007. Audit fees and other fees of auditors are listed as follows:
Year Ended December 31 |
|
2014 |
|
2013 |
|
|
|
Bongiovanni |
|
|
|
Bongiovanni |
|
|
|
|
|
|
|
|
|
|
Audit Fees (1) |
|
$ |
26,500 |
(2) |
|
$ |
26,500 |
|
Audit-Related Fees (3) |
|
|
15,000 |
|
|
|
15,000 |
|
Tax Fees (4) |
|
$ |
1,500 |
|
|
$ |
1,500 |
|
All Other Fees (5) |
|
|
— |
|
|
|
— |
|
Total Accounting Fees and Services |
|
$ |
43,000 |
|
|
$ |
43,000 |
|
|
(1) |
Audit Fees. These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-QSB, and for services that are normally provided in connection with statutory and regulatory filings or engagements. |
|
(2) |
The amounts shown for Bongiovanni in 2014 and 2013 relate to (i) the audit of our annual financial statements for the years ended December 31, 2014 and 2013, and (ii) the review of the financial statements included in our filings on Form 10-Q for the first, second and third quarters of 2014 and 2013. |
|
(3) |
Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements. |
|
(4) |
Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning. |
|
(5) |
All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees. |
Pre-Approval Policy For Audit and
Non-Audit Services
We do not have a standing audit committee,
and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services
before we engage an accountant. All of the services rendered to us by Bongiovanni & Associates, P.A. were pre-approved by our
Board of Directors.
We are presently working with our legal
counsel to establish formal pre-approval policies and procedures for future engagements of our accountants. The new policies and
procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed
of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that
our new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit
services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement
letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements
that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller,
for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy
and procedures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve
certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount
(to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case
may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct
of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor
no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.
ITEM 15. EXHIBITS .
|
3.1 |
|
Certificate of Incorporation (a) |
|
|
|
|
|
3.2 |
|
By-Laws- Restated as Amended (a) |
|
|
|
|
|
4.1 |
|
2007 Stock Option Plan (c) |
|
|
|
|
|
10.1 |
|
Consulting Agreement between the Registrant and SGC Advisory, Inc. (b) |
|
|
|
|
|
10.2 |
|
Employment Agreement between the Registrant and Thom Kidrin (d) |
|
|
|
|
|
10.3 |
|
License Agreement between Worlds Online Inc. and Registrant date as of May 16, 2011 (e) |
|
|
|
|
|
10.4 |
|
Securities Purchase Agreement dated as of March 14, 2013 between the registrant and the Buyers listed thereon. (f) |
|
|
|
|
|
10.5 |
|
Form of Security and Pledge Agreement between the registrant the Collaleral Agent . (f) |
|
|
|
|
|
10.6 |
|
Form of Registration Rights Agreements between the registrant and the Buyers listed thereon. (f) |
|
|
|
|
|
10.7 |
|
Form of Warrant dated March 20, 2013 (f) |
|
|
|
|
|
10.8 |
|
Form of Series A Note dated March 20, 2013 (f) |
|
|
|
|
|
10.9 |
|
Form of Series B Note dated March 20, 2013 (f) |
|
|
|
|
|
10.10 |
|
Form of Series C Note dated March 20, 2013 (f) |
|
|
|
|
|
14.1 |
|
Code of Ethics (d) |
|
|
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer ** |
|
|
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer ** |
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32.1. |
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Section 1350 Certifications of Chief Executive Officer ** |
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32.2. |
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Section 1350 Certifications of Chief Financial Officer ** |
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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 |
(a) |
Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, and incorporated herein by reference. |
(b) |
Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on March 30, 2000, and incorporated herein by reference. |
(c) |
Filed previously as an exhibit to Registrant's Current Report on Form 8-K filed on September 7, 2007, and incorporated herein by reference. |
(d) |
Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on April 3, 2008, and incorporated herein by reference. |
(e) |
Incorporated by reference from Registration statement on form 10-12G (File No. 000-54433), Amendment No. 2 of Worlds Online Inc. filed on October 7, 2011 |
(f) |
Filed previously as an exhibit to regisrtant current report on from 8K filed on March 15, 2013 and in coporated herein by referenced. |
** Filed herewith
SIGNATURES
In accordance with Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April , 2015 WORLDS
INC.
(Registrant)
By: /s/ Thomas
Kidrin
Name: Thomas Kidrin
Title: President and
Chief Executive Officer |
In accordance with the Securities Exchange
Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signatures |
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Title |
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Date |
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/s/ Thomas Kidrin
Thomas Kidrin |
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President, Chief Exectutive Officer and Director |
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April 15, 2015 |
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/s/ Christopher J. Ryan
Christopher J. Ryan |
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Vice President - Finance and Principal Accounting and Financial Officer |
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April 15, 2015 |
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/s/ Bernard Stolar
Bernard Stolar |
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Director |
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April 15, 2015 |
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/s/ Robert Fireman
Robert Fireman |
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Director |
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April 15, 2015 |
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/s/ Edward Gildea
Edward Gildea |
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Director |
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April 15, 2015 |
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EXHIBIT TO INDEX
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Exhibit No. |
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Description |
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3.1 |
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Certificate of Incorporation (a) |
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3.2 |
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By-Laws- Restated as Amended (a) |
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4.1 |
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2007 Stock Option Plan (c) |
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10.1 |
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Consulting Agreement between the Registrant and SGC Advisory, Inc. (b) |
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10.2 |
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Employment Agreement between the Registrant and Thom Kidrin (d) |
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10.3 |
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License Agreement between Worlds Online Inc. and Registrant dated as of May 16, 2011 (e) |
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10.4 |
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Securities Purchase Agreement dated as of March 14, 2013 between the registrant and the Buyers listed thereon. (f) |
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10.5 |
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Form of Security and Pledge Agreement between the registrant the Collaleral Agent . (f) |
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10.6 |
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Form of Registration Rights Agreements between the registrant and the Buyers listed thereon. (f) |
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10.7 |
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Form of Warrant dated March 20, 2013 (f) |
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10.8 |
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Form of Series A Note dated March 20, 2013 (f) |
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10.9 |
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Form of Series B Note dated March 20, 2013 (f) |
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10.10 |
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Form of Series C Note dated March 20, 2013 (f) |
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14.1 |
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Code of Ethics (d) |
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31.1. |
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Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer ** |
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31.2. |
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Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer ** |
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32.1. |
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Section 1350 Certifications of Chief Executive Officer ** |
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32.2. |
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Section 1350 Certifications of Chief Financial Officer ** |
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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 |
(a) |
Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, and incorporated herein by reference. |
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(b) |
Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on March 30, 2000, and incorporated herein by reference. |
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(c) |
Filed previously as an exhibit to Registrant's Current Report on Form 8-K filed on September 7, 2007, and incorporated herein by reference. |
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(d) |
Filed previously as an exhibit to Registrant's Annual Report on Form 10-KSB filed on April 3, 2008, and incorporated herein by reference. |
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(e) |
Incorporated by reference from Registration statement on form 10-12G (File No. 000-54433), Amendment No. 2 of Worlds Online Inc. filed on October 7, 2011 |
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(f) |
Filed previously as an exhibit to registrant current report on form 8K filed on March 15, 2013 and incorporated herein by referenced |
** Filed herewith
EXHIBIT 31.1
Certifications
I,
Thomas Kidrin, certify that:
1.
I have reviewed this Amendment to annual report on Form 10-K/A of Worlds Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date:
April , 2015
/s/
Thomas Kidrin
Thomas
Kidrin
Chief
Executive Officer
EXHIBIT
31.2
Certifications
I,
Christopher J. Ryan, Principal Accounting and Financial Officer, certify that:
1.
I have reviewed this Amendment to annual report on Form 10-K/A of Worlds Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date:
April 15, 2015
/s/
Christopher J. Ryan
Christopher
J. Ryan
Principal
Accounting and Financial Officer
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the amendment to Annual Report of Worlds Inc. (the "Company") on Form 10-K/A for the year ended December
31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas Kidrin, Chief
Executive Officer of the Company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to §906 of the Sarbanes-Oxley
Act of 2002, that, based on my knowledge:
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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: April 15, 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 Annual Report of Worlds Inc. (the "Company") on Form 10-K/A for the year ended December
31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher J. Ryan,
Principal Accounting and Financial Officer of the Company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to §906
of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
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(1) |
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) |
April 15, 2015 |
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By:
/s/ Christopher J. Ryan |
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Christopher J. Ryan |
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Prinicipal Accounting and Financial Officer |
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