World Moto 10Q 2014 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, 2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the transition period from__________to __________

Commission file number:000-54694

WORLD MOTO, INC.
(Exact name of registrant as specified in its charter)

Nevada	77-0716386
(State or other jurisdiction of Incorporation or organization)	(IRS Employer Identification No.)

131 Thailand Science Park INC-1 #214
Phahonyothin Road Klong1,
Klong Luang
Pathumthani 12120
Thailand
(Address of principal executive offices and zip code)

(646) 840-8781
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] 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 (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ X ] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

[ ] Large accelerated filer	[ ] Accelerated filer	[ ] Non-accelerated filer	[ X ] Smaller Reporting company
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [ X ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at August 19, 2014
Common stock, $.0001 par value		378,033,149

World Moto, Inc.

Form 10-Q

For the Three Months Ended June 30, 2014

INDEX

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs, and the risk factors set forth in our Annual Report on Form 10-K filed on April 15, 2014

As used in this Form 10-Q, “we,” “us,” and “our” refer to World Moto, Inc., which is also sometimes referred to as the “Company.”

YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS

The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we expect or hope.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

World Moto, Inc.
Consolidated Balance Sheets
(Unaudited)

		June 30, 2014			December 31, 2013
ASSETS
Current assets:
Cash	$	54,576		$	179,132
Prepaid expenses and other current assets		23,951			17,424
Inventory		23,123			-
Total current assets		101,650			196,556
Property and equipment, net		27,899			31,273
Intangible assets, net		171,978			191,615
Deferred financing cost, net of amortization		65,281			-
Other assets		11,136			1,704

TOTAL ASSETS	$	377,944		$	421,148

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	112,131		$	27,482
Unearned revenues		59,528			35,000
Convertible note payable, net of discount of 464,892 and 0, respectively		78,587			-
Derivative liability		499,767			-
Stock payable		46,584			-
Total current liabilities		796,597			62,482

Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $0.0001 par value, 500,000,000 shares authorized; 378,033,149 and 378,033,149 shares issued and outstanding respectively		37,802			37,802
Additional paid-in capital		1,568,745			1,568,745
Accumulated other comprehensive income (loss)		(1,742	)		1,899
Accumulated deficit		(2,023,458	)		(1,249,780	)
Total stockholders' equity (deficit)		(418,653	)		358,666

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	377,944		$	421,148

The accompanying notes are an integral part of these financial statements.

World Moto, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)

		For the three months ended						For the six months ended
		June 30,						June 30,
		2014			2013			2014			2013

Revenues	$	-		$	-		$	-		$	-

Operating expenses:
Research & development		126,590			-			247,696			-
General and administrative		243,596			196,543			392,371			404,421
Total operating expense		370,186			196,543			640,067			404,421
Loss from operations		370,186			196,543			640,067			404,421

Other Income and expense:
Interest expense		86,341			-			86,737			-
Interest income		-			(273	)		(6	)		(4,546	)
Foreign currency transaction loss		74			-			(182	)		-
Change in fair value of derivative liability		47,062			-			47,062			-
Total other income		133,477			273			133,611			4,546

Net loss	$	(503,663	)	$	(196,270	)	$	(773,678	)	$	(399,875	)

Other comprehensive income (loss):
Foreign currency translation gain (loss)		(769	)		2,635			(1,742	)		2,635
Comprehensive loss	$	(504,432	)	$	(193,635	)	$	(775,420	)	$	(397,240	)


Net loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding - basic and diluted		378,033,149			378,033,149			378,033,149			377,809,299

The accompanying notes are an integral part of these financial statements.

World Moto, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

		For the six months ended,
		June 30,
		2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(773,678	)	$	(399,875	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		23,498			19,724
Amortization of debt discount and deferred financing cost		70,095			-
Change in fair value of derivative liability		47,062			-
Changes in operating assets and liabilities:
Inventory		(23,123	)
Prepaid expenses and other current assets		(15,959	)		(19,897	)
Unearned revenues		24,528			-
Accounts payable and accrued expenses		84,649			11,420
Net cash used in operating activities		(562,928	)		(388,628	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(487	)		(3,322	)
Refundable deposit paid		-			(1,759	)

Net cash used in investing activities		(487	)		(5,081	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from convertible notes payable		442,500			-
Proceeds from shares issued for cash		-			1,000,000
Net cash provided by financing activities		442,500			1,000,000

EFFECT OF FOREIGN CURRENCY TRANSLATIONS		(3,641	)		2635

Net increase (decrease)		(124,556	)		608,926
Cash at beginning of period		179,132			75774

Cash at end of period	$	54,576		$	684,700


SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for:
Income tax	$	-		$	-

Interest	$	-		$	-
NONCASH INVESTING AND FINANCING ACTIVITIES:
Debt discount	$	452,702			-

The accompanying notes are an integral part of these financial statements.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

World Moto, Inc. (the “Company”) was incorporated in the State of Nevada on March 24, 2008 under the name Net Profits Ten Inc. The original purpose of the Company was to market and distribute user-friendly interactive yearbook software for the military. The Company was reclassified as a shell company until the completion of its acquisition of the World Moto Assets, which was consummated on November 14, 2012, and discussed in Note 3. Effective November 12, 2012, the Company amended its Articles of Incorporation to change its name from “Net Profits Ten Inc.” to “World Moto, Inc.”

On January 30, 2013, World Moto, Inc. established two wholly owned subsidiaries that were incorporated in the State of Nevada. World Moto Technologies, Inc. and World Moto Holdings, Inc. were both established, but have no activity to report to date. On February 4, 2013, World Moto Technologies Ltd, a wholly owned subsidiary of the Company, was organized under the laws of the Kingdom of Thailand and the name of this company was later changed to World Moto Co., Ltd. World Moto Co., Ltd. is owned in its entirety by World Moto, Inc., World Moto Technologies, Inc. and World Moto Holdings, Inc. and it is an operating entity of the Company in Thailand for the purposes of research and development in the Southeast Asia region.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information in accordance with Securities and Exchange Commission ("SEC") Regulation S-X rule 8-03 and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's last Annual Report filed with the SEC on Form 10-K for the year ended December 31, 2013. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2014 and the results of operations and cash flows for the periods then ended. The financial data and other information disclosed in these notes to the interim consolidated financial statements related to the period are unaudited. The results for the three-month period ended June 30, 2014, are not necessarily indicative of the results to be expected for any subsequent quarters or for the entire year ending December 31, 2014. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Form 10-K have been omitted.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

Foreign Currency Translation

The functional currency of our subsidiary is the Thai Baht. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.

For financial reporting purposes, the financial statements of the subsidiary are translated into the Company’s reporting currency, United States Dollars (“USD”). Asset and liability accounts are translated using the closing exchange rate in effect at the balance sheet date, equity account and dividend are translated using historical exchange rates and income and expense accounts are translated using the average exchange rate prevailing during the reporting period.

Adjustments resulting from the translation, if any, are included in accumulated other comprehensive income (loss) in stockholder’s equity (deficit).

Long-Lived Assets

Property and equipment

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method of 3 years for financial statement purposes.

Software

The Company capitalizes software acquisition and development costs incurred during the software application development stage. The software application development stage is characterized by software design and configuration activities, coding, testing and installation. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Capitalized software acquisition and development costs, once placed in service, are amortized using the straight-line method over the estimated useful life of 3 to 10 years. Capitalized software acquisition and development costs subject to amortization are carried at cost less accumulated amortization.

Patents

Patents are initially measured based on their fair values. Patents are being amortized on the straight-line method over the estimated useful life of 10 to 20 years.

Management evaluates the recoverability of the Company’s property and equipment including patent development costs when events or circumstances indicate a potential impairment exists. The Company considers certain events and circumstances in determining whether the carrying value of identifiable property and equipment may not be recoverable including, but not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Income Taxes

The Company uses the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax carrying amounts 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. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized. A valuation allowance, if necessary, is provided against deferred tax assets, based upon management’s assessment as to their realization.

Fair Value Measurement

The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The Company uses Level 3 to value its derivative instruments.

The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on June 30, 2014.

		Level 1		Level 2		Level 3		Level 4
Liabilities
Derivative liability	$	-	$	-	$	499,767	$	499,767

Revenue Recognition

The Company recognizes revenue only when all of the following criteria have been met:

	Persuasive evidence of an arrangement exists;
	Delivery has occurred or services have been rendered;
	The fee for the arrangement is fixed or determinable; and
	Collectibility is reasonably assured.

Persuasive Evidence of an Arrangement –The Company documents all terms of an arrangement in a written contract signed by the customer prior to recognizing revenue.

Delivery Has Occurred or Services Have Been Performed – The Company performs all services or delivers all products prior to recognizing revenue. Monthly services are considered to be performed ratably over the term of the arrangement. Professional consulting services are considered to be performed when the services are complete. Equipment is considered delivered upon delivery to a customer’s designated location.

The Fee for the Arrangement Is Fixed or Determinable – Prior to recognizing revenue, a customer’s fee is either fixed or determinable under the terms of the written contract. Fees for most monthly services, professional consulting services, and equipment sales and rentals are fixed under the terms of the written contract. Fees for certain monthly services, including certain portions of networking, storage, and content distribution and caching services, are variable based on an objectively determinable factor such as usage. Those factors are included in the written contract such that the customer’s fee is determinable. The customer’s fee is negotiated at the outset of the arrangement and is not subject to refund or adjustment during the initial term of the arrangement.

Collectibility Is Reasonably Assured – The Company determines that collectibility is reasonably assured prior to recognizing revenue. Collectibility is assessed on a customer by customer basis based on criteria outlined by management. New customers are subject to a credit review process, which evaluates the customer’s financial position and ultimately its ability to pay. The Company does not enter into arrangements unless collectibility is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectibility is not reasonably assured, revenue is recognized on a cash basis.

Franchise Fee Revenue

Revenues from licensees include a royalty based on a percent of sales, and may include initial fees. Continuing royalties are recognized in the period earned. Initial fees are recognized upon granting of a new franchise term, which is when the Company has performed substantially all initial services required by the franchise arrangement. Additionally, the first twelve months of operations are royalty free for the franchisee.

Stock-based Compensation

The Company expenses the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the service period.

Equity instruments issued to parties other than employees for acquiring goods or services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable.

Subsequent Events

The Company evaluated subsequent events through the date when financial statements are issued for disclosure consideration.

Recent Accounting Pronouncements

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders’ equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 for the reporting period ended June 30, 2014.

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has an accumulated deficit of $2,023,458 as of June 30, 2014, has limited liquidity, and has not established a reliable source of revenues sufficient to cover operating costs over an extended period of time. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 – UNEARNED REVENUES

On December 2, 2013, WM Co. Thailand entered into a Purchase and Licensing Agreement (the “PL Agreement”) with Mobile Advertising Ventures Ltd. (“MAV”). Pursuant to the terms of the PL Agreement, MAV will purchase 10 initial “Wheelies” from WM Co. Thailand at a purchase price of $35,000, and will have an option to purchase an additional 190 Wheelies at a purchase price of $3,500 per unit. WM Co. Thailand also grants a non-exclusive license to MAV for the use of its software in connection with the operation of the Wheelies in consideration for a fee based on net revenue per quarter from advertising sales relating to the use of the Wheelies. The Company received $35,000 from MAV before December 31, 2013 and recorded unearned revenue at the yearend.

On March 10, 2014, the Company entered into a Fleet Franchise Agreement (“the Franchise Agreement”) with Mobile Advertising Ventures, Ltd. (“MAV”). MAV paid the Company $24,980 for the right to utilize the Yes software and all other trademarks of the Company, including but not limited to “Yes”, “World Moto” and “Wheelies” (collectively, the “Marks”) in the Federal Territory of Kuala Lumpur, Malaysia. Initial training has been completed for the Franchisee; however, the Franchisee has not begun operations. This revenue will be reclassified as earned when MAV completes its first sale using the Yes software.

NOTE 4 – CONVERTIBLE NOTE PAYABLE

On April 4, 2014, the Company entered into the Initial Debentures with the Investors in the aggregate principal amount of $543,479 for a purchase price of $500,000 (8% original issue discount). The holder is guaranteed interest at the rate of 12% and the notes have a maturity date of April 4, 2015. The Company is obligated to make amortization payments beginning on the six month anniversary of the issuance date of the Debentures and continuing monthly thereafter. The Debentures are convertible into shares of common stock of the Company at any time at the discretion of the Investors at a conversion price equal to the lesser of: (i) $0.10 per share or (ii) 70% of the lowest traded price per share of the common stock during the twenty five (25) trading days prior to the date of conversion.

For the six months ended June 30, 2014, the Company recorded a debt discount of $452,702, as result of the embedded conversion feature being a financial derivative, for proceeds received. The company also recorded a debt discount of $63,482, $43,479 as result of the 8% original issue discount and $20,000 in fees related to fees paid to the investors.

The discounts on the Debentures are amortized by the Company through interest expense over the life of the notes. During the six months ended June 30, 2014, the Company recorded $51,292 amortization of the debt discount on the notes.

As summary of value changes to the notes for the period ended from April 4, 2014 to June 30, 2014 is as follows:

Carrying Value at April 4, 2014	$	543,479
Less: repayment of principle		-
Less: discount related to fair value of the embedded conversion feature		(452,702	)
Less: discount related to 8% original issue discount and financing cost		(63,482	)
Add: Amortization of discount		51,292
Carrying value at June 30, 2014	$	78,587

In connection with the sale of the Debentures, the Company issued 520,000 shares of common stock valued at $46,584 and cash in the amount of $37,500 to its placement agent. The fees have been recorded to deferred financing cost. The deferred financing cost are amortized by the Company through interest expense over the life of the notes. During the six months ended June 30, 2014, the Company recorded $18,803 amortization of the deferred financing cost.

NOTE 5 – DERIVATIVE LIABILITY

The Company has determined that the variable conversion price under its convertible notes causes the embedded conversation feature to by a financial derivative. The Company may not have enough authorized common stock to settle its obligation if the note holder elects to convert the note into common shares when the trading price is lower than a certain threshold.

The derivative instruments were valued at April 4, 2014 and at June 30, 2014. The following assumptions were used for the valuation of the derivative liability related to the Notes as of April 4, 2014 and June 30, 2014:

The underlying stock price was used as the fair value of the common stock;
The initial notes cash amount total $500,000 plus an 8% OID plus a guaranteed 12% interest is converted at 70% of the lowest trading price during 25 days preceding conversion.
The projected volatility for each valuation period was based on the volatility of the Company based on a 6 month average of annualized rates: April 4, 2014: 219% and June 30, 2014: 104%
The note conversions effectively convert at discounts rates of 33.56% and 24.75% as of 4/41/14 and 6/30/14.
An event of default would occur 0% of the time, increasing 1.00% per month to a maximum of 10%; the Maturity date is 12 months from the valuation date;
Capital raising events would occur annually with full resets for the Notes;
The Holder would redeem based on availability of alternative financing, 0% of the time increasing 1.0% monthly to a maximum of 10%;
The Holder would automatically convert the note starting after 180 days and at maturity if the registration was effective and the company was not in default.

The fair values of the derivative liabilities related to the Convertible notes are summarized as:

Fair value at April 4, 2014	$	452,702
Change in Notes due to issuances		47,062
Fair value at June 30, 2014		499,767

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements.

Overview

World Moto, Inc. was incorporated on March 24, 2008, in the State of Nevada under the name Net Profits Ten Inc. On November 8, 2012, we amended our Articles of Incorporation to increase our authorized shares of common stock from 100,000,000 to 500,000,000 and our board of directors approved a stock dividend of 180 shares of common stock of the Company for each share of common stock issued and outstanding. Additionally, on November 12, 2012, we amended our Articles of Incorporation to change our name from “Net Profits Ten Inc.” to “World Moto, Inc.”, which name change became effective on November 15, 2012, upon approval from the Financial Industry Regulatory Authority (“FINRA”).

On September 1, 2012, we entered in an Asset Purchase Agreement (“Agreement”) with World Moto (Thailand) Co., Ltd., a corporation established under the laws of the Kingdom of Thailand (“Old WM”), Chris Ziomkowski, the Chief Technical Officer of Old WM and Paul Giles, the Chief Executive Officer of Old WM. The Agreement was consummated on November 14, 2012. We purchased from Old WM substantially all of the intellectual property and certain other specific intellectual property assets related to Old WM’s initial product, the Moto-Meter (the “Assets”), which includes three United States patent applications, the data related to the patent applications, certain software related to the operation of the Moto-Meter, several URLs and trade-names and associated names related to the Moto-Meter and Old WM.

On January 30, 2013, we established two wholly owned subsidiaries that were incorporated in the State of Nevada. World Moto Technologies, Inc. and World Moto Holdings, Inc. were both established, but have no activity to report to date. On February 4, 2013, World Moto Technologies Ltd. was organized under the laws of the Kingdom of Thailand. The name was later changed to World Moto Co., Ltd. (“WM Co. Thailand”). WM Co. Thailand is owned in its entirety by World Moto, Inc., World Moto Technologies, Inc. and World Moto Holdings, Inc. and represents our operating entity for the purposes of research and development in the Southeast Asia region.

We are a company that designs, manufactures, markets and sells the Moto-Meter products, which are devices that provide moto-taxi fare metering and other communication capabilities.

The Moto-Meter is in the verification build stage and has been initially introduced to motorcycle taxi-operators in Thailand, and we anticipate expanding to Indonesia, Vietnam by the end of the third quarter of 2014 and in Brazil within the next 12 months. We will be outsourcing mass production for the Moto-Meter to a third party manufacturer in the coming weeks.

As an element of mobile commerce, we have introduced “Yes,” a concierge service where persons can order products and have the products delivered to their address by motor scooter. The Yes service has been going through testing and is now being launched with our first customer, Mobile Advertising Ventures, Ltd. in Kuala Lumpur, Malaysia. We expect Yes to go live in in the third quarter of 2014 in Kuala Lumpur, Malaysia. We also intend to launch Yes™ over the next 12 months in Thailand and Cambodia.

We have procured our first customer for Wheelies in Thailand. We are focused on the development of Wheelies as a unique advertising product, which displays static and streaming media on the wheels of motorcycles and automobiles, providing a new mobile medium for advertising, broadcasting, self-expression and publishing. We have successfully completed a pre-production version of Wheelies and have successfully completed testing. We anticipate the limited production and optimization stage for Wheelies to last approximately 6 months, after which full commercial production will commence by the fourth quarter of 2014 in Thailand.

As of June 30, 2014, WM Co. Thailand had 12 employees.

Results of Operations

Comparison of three-month periods ended June 30, 2014 and 2013 and the six-month periods ended June 30,2014 and 2013

Revenue

We have generated no revenues for the three months and six months ended June 30, 2014, and for the three months and six months ended June 30, 2013.

Net Loss

For the three-month period ended June 30, 2014, we incurred a net loss of $503,663 compared to a net loss of $196,270 for the three-month period ended June 30, 2013. For the six-month period ended June 30, 2014, we incurred a net loss of $773,678 compared to a net loss of $399,875 for the six-month period ended June 30, 2013.

Expenses

General and administration expenses for the three-month period ended June 30, 2014, amounted to $243,596 compared to $196,543 during the three-month period ended June 30, 2013. General and administration expenses for the six-month period ended June 30, 2014, amounted to $392,371 compared to $404,421 during the six-month period ended June 30, 2013.

R&D expenses for the three-month period ended June 30, 2014 amounted to $126,590 compared to $0 during the three-month period ended June 30, 2013. R&D expenses for the six-month period ended June 30, 2014 amounted to $247,696 compared to $0 during the six-month period ended June 30, 2013.

The increase in expenses is due to growth of the Company in Thailand, continued R&D associated with our products and ongoing legal expenses for items such as patent acquisition in various countries.

Liquidity and Capital Resources

As of June 30, 2014, we have $101,650 in current assets and $796,597 in current liabilities. Our total assets were $377,944 and our total liabilities were $796,597. We had $54,576 in cash and our working capital deficit was $694,947.

Cash Flows:

		For the six months ended
		June 30,
		2014			2013
Cash Flows from Operating Activities	$	(562,928	)	$	(388,628	)
Cash Flows from Investing Activities		(487	)		(5,081	)
Cash Flows from Financing Activities		442,500			1,000,000
Effects of Currency Translations		(3,641	)		2,635
Net increase(decrease) in cash	$	(124,556	)	$	608,926

On April 4, 2014, we entered into a securities purchase agreement with certain institutional investors pursuant to which we issued convertible debentures in the aggregate principal amount of $543,378 for a purchase price of $500,000 (8% original issue discount). Upon the effectiveness of a registration statement that was filed with the Securities and Exchange Commission on May 6, 2014 in connection with such financing (the “Registration Statement”), such investors will purchase additional debentures in the aggregate principal amount of $543,378 for a purchase price of $500,000 (8% original issue discount), for a total aggregate principal amount of $1,086,756 for the aggregate purchase price of $1,000,000 (8% original issue discount). The debentures have a maturity date of 12 months with 12% interest paid at maturity or upon conversion of the amounts owed under the debentures. The number of shares to be registered under the Registration Statement is 27,173,913 shares.

We have incurred an accumulated loss of $2,023,458 since inception. Our independent auditors have issued an audit opinion for our financial statements for the periods ended December 31, 2013 and 2012, which includes a statement expressing substantial doubt as to our ability to continue as a going concern due to our limited liquidity and our lack of revenues.

Our current cash requirements are significant due to planned development and marketing of our current products, and we anticipate generating losses. While obtaining $556,000 will allow us to execute on our business strategy over the next 12 months, commensurate with the goals for our planned marketing, development and distribution efforts, we are actually targeting an additional $1,000,000 over the next 12 months in additional working capital in order to increase our growth plans on an expedited basis. Our management believes that we should be able to raise at least $556,000 through the debenture financing, however, our ability to raise additional capital may be limited due to the grant of a security interest on all of the assets of the Company to secure the obligations under the convertible debentures issued on April 4, 2014.

There are no assurances that we will be able to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed. Any failure to secure additional financing may force us to modify our business plan. In addition, we cannot be assured of profitability in the future.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles of the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The more significant areas requiring the use of estimates include asset impairment, stock-based compensation, and future income tax amounts. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.

We believe the following is among the most critical accounting policies that impact or consolidated financial statement. We suggest that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Foreign Currency Translation

The functional currency of our subsidiary is the Thai Baht. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.

For financial reporting purposes, the financial statements of the subsidiary are translated into the Company’s reporting currency, United States Dollars (“USD”). Asset and liability accounts are translated using the closing exchange rate in effect at the balance sheet date, equity account and dividend are translated using historical exchange rates and income and expense accounts are translated using the average exchange rate prevailing during the reporting period.

Adjustments resulting from the translation, if any, are included in accumulated other comprehensive income (loss) in stockholder’s equity (deficit).

Revenue Recognition

The Company recognizes revenue only when all of the following criteria have been met:

Persuasive evidence of an arrangement exists;

Delivery has occurred or services have been rendered;

The fee for the arrangement is fixed or determinable; and

Collectibility is reasonably assured.

Persuasive Evidence of an Arrangement –The Company documents all terms of an arrangement in a written contract signed by the customer prior to recognizing revenue.

During the three months ended June 30, 2014, we revised our revenue recognition policy for the franchise fee revenue as follows:

Franchise Fee Revenue

During the fiscal year December 31, 2014, management has decided not to recognize franchise fee revenues until the franchisee commences operations. The Company originally recorded $24,980 as revenue for payments collected from a franchisee, however the franchisee has not yet commences operations. Accordingly, the company removed the $24,980 from revenues and increased unearned revenues.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.

As of the quarterly period ended June 30, 2014, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of the quarterly period ended June 30, 2014 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.

In performing the above-referenced assessment, our management identified the following material weaknesses:

i)	We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

ii)	We do not have an audit committee. While not being legally obligated to have an audit committee, it is the management’s view that to have an audit committee, comprised of independent board members, is an important entity-level control over our financial statements.

iii)	We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud-related risks and the risks related to non-routine transactions, if any, on our internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and a functioning Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarterly period ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits.

Exhibit No.		Description
3.1(a)		Articles of Incorporation (filed as an exhibit to our Registration Statement on Form S-1, as filed with the SEC on June 25, 2010, and incorporated herein by reference).
		Certificate of Amendment to Articles of Incorporation of Net Profits Inc., a Nevada corporation, reflecting the increase in the authorized shares of common stock to 500,000,000 shares (filed as an exhibit to our Current Report Form 8-K as filed with the
3.1(b)		SEC on November 8, 2012, and incorporated herein by reference).
3.1(c)		Text of Amendment to Articles of Incorporation re Name Change (filed as an exhibit to our Current Report on Form 8-K as filed with the SEC on November 15, 2012, and incorporated herein by reference).
3.2		By-laws (filed as an exhibit to our Registration Statement on Form S-1, as filed with the SEC on June 25, 2010, and incorporated herein by reference).
10.1		Securities Purchase Agreement, dated April 4, 2014, between the Company and certain investors (incorporated by reference to our Current Report on Form 8-K, filed on April 7, 2014).
10.2		Form of Debenture (incorporated by reference to our Current Report on Form 8-K, filed on April 7, 2014).
10.3		Form of Registration Rights Agreement (incorporated by reference to our Current Report on Form 8-K, filed on April 7, 2014).
10.4		Form of Security Agreement (incorporated by reference to our Current Report on Form 8-K, filed on April 7, 2014).
10.5		Employment Agreement, dated April 1, 2014, between World Moto Co. Ltd. and Paul Giles (incorporated by reference to our Annual Report on Form 10-K filed on April 15, 2014).
10.6		Employment Agreement, dated April 1, 2014, between World Moto Co. Ltd. and Chris Ziomkowski (incorporated by reference to our Annual Report on Form 10-K filed on April 15, 2014).
10.7		Letter of Intent, dated June 11, 2014, by and among the Company, Mobile Advertising Ventures, Ltd., and Forever Network (incorporated by reference to our Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed on June 17, 2014).
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 *		Interactive Data Files

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WORLD MOTO, INC.

Dated: August 19, 2014	By:	/s/ Lisa Ziomkowski-Boten

		Lisa Ziomkowski-Boten
		Treasurer (Principal Financial Officer and Principal
		Accounting Officer)

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World Moto (FARE) Inactive 10-Q2014 Q2 Quarterly report

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