Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2013 | Nov. 15, 2013 | |
Document And Entity Information | ||
Entity Registrant Name | Worlds Inc. | |
Entity Central Index Key | 1961 | |
Document Type | 10-Q | |
Document Period End Date | 30-Sep-13 | |
Amendment Flag | TRUE | |
Amendment description | EXPLANATORY NOTE | |
This Amendment No. 1 to Quarterly Report on Form 10-Q/A (this “Amended Report”) is being filed with the Securities and Exchange Commission to amend the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 (the “Original 10-Q”) of WORLDS, INC. solely to correct the disclosure with respect to certain employee stock options and investor warrants. No other changes are being made and this Amended Report still speaks only as of the date it was initially filed. | ||
This Amended Report includes currently-dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. | ||
Current Fiscal Year End Date | -19 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 85,152,677 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2013 |
Balance_Sheets
Balance Sheets (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Current Liabilities | ||
Derivative liability | $3,800,341 | |
Stockholders (Deficit) | ||
Additional paid in capital | 27,603,804 | |
Accumulated deficit | -32,760,023 | |
Unaudited | ||
Current Assets | ||
Cash and cash equivalents | 63,836 | |
Due from related party | 266,196 | |
Total Current Assets | 330,032 | |
Patents | 7,000 | |
Total Assets | 337,032 | |
Current Liabilities | ||
Accounts payable | 797,908 | |
Accrued expenses | 1,949,651 | |
Derivative liability | 1,401,841 | |
Notes payable | 773,279 | |
Convertible notes payable, net | 79,726 | |
Total Current Liabilities | 5,002,405 | |
LONG-TERM LIABILITIES | ||
Promissory note payable | 50,000 | |
TOTAL LIABILITIES | 5,052,405 | |
Stockholders (Deficit) | ||
Common stock (Par value $0.001 authorized 100,000,000 shares, issued and outstanding 92,928,477 and 79,813,071 at September 30, 2013 and December 31, 2012, respectively) | 92,929 | |
Common stock subscribed but not yet issued (0 and 1,500,000 at September 30, 2013 and December 31, 2012, respectively) | 0 | |
Subscription receivable | 0 | |
Additional paid in capital | 30,091,015 | |
Common stock-warrants | 97,869 | |
Deferred compensation | -160,867 | |
Accumulated deficit | -34,836,319 | |
Total stockholders deficit | -4,715,373 | |
Total Liabilities and stockholders deficit | 337,032 | |
Audited | ||
Current Assets | ||
Cash and cash equivalents | 95,069 | |
Due from related party | 134,654 | |
Total Current Assets | 229,724 | |
Patents | 7,000 | |
Total Assets | 236,724 | |
Current Liabilities | ||
Accounts payable | 797,908 | |
Accrued expenses | 1,953,934 | |
Derivative liability | 0 | |
Notes payable | 773,279 | |
Convertible notes payable, net | 0 | |
Total Current Liabilities | 3,525,121 | |
LONG-TERM LIABILITIES | ||
Promissory note payable | 0 | |
TOTAL LIABILITIES | 3,525,121 | |
Stockholders (Deficit) | ||
Common stock (Par value $0.001 authorized 100,000,000 shares, issued and outstanding 92,928,477 and 79,813,071 at September 30, 2013 and December 31, 2012, respectively) | 79,813 | |
Common stock subscribed but not yet issued (0 and 1,500,000 at September 30, 2013 and December 31, 2012, respectively) | 1,500 | |
Subscription receivable | -10,000 | |
Additional paid in capital | 26,788,926 | |
Common stock-warrants | 203,237 | |
Deferred compensation | -12,500 | |
Accumulated deficit | -30,339,374 | |
Total stockholders deficit | -3,288,398 | |
Total Liabilities and stockholders deficit | $236,723 |
Balance_Sheets_Parenthetical
Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Unaudited | ||
Common Stock, par value | $0.00 | |
Common Stock, shares authorized | 100,000,000 | |
Common Stock, shares issued | 92,928,477 | |
Common Stock, shares outstanding | 92,928,477 | |
Common stock subscribed not yet issued | 0 | |
Audited | ||
Common Stock, par value | $0.00 | |
Common Stock, shares authorized | 100,000,000 | |
Common Stock, shares issued | 79,813,071 | |
Common Stock, shares outstanding | 79,813,071 | |
Common stock subscribed not yet issued | 1,500,000 |
Statements_of_Operations_Unaud
Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Revenues | ||||
Revenue | ||||
Total Revenue | ||||
Cost of Revenue | ||||
Gross Profit/(Loss) | ||||
Common Stock issued for services rendered | 2,723,399 | 65,297 | 2,955,915 | 299,333 |
Selling, General & Admin. | 66,775 | 53,077 | 431,856 | 211,614 |
Salaries and related taxes | 47,119 | 68,267 | 159,357 | 197,108 |
Operating (loss) | -2,837,293 | -186,641 | -3,547,128 | -708,055 |
Other Income Expense | ||||
Gain on change in fair value of derivative liability | 814,556 | -585,785 | ||
Interest Expense | -53,558 | -365,462 | ||
Interest income | 1,430 | |||
Net (Loss) | ($2,076,295) | ($186,641) | ($4,496,944) | ($708,055) |
Weighted Average (Loss) per share | ($0.02) | $0 | ($0.05) | ($0.01) |
Weighted Average Common Shares Outstanding | 89,243,523 | 77,132,854 | 84,998,810 | 76,194,707 |
Statements_of_Cash_Flows_Unaud
Statements of Cash Flows (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Cash flows from operating activities: | ||
Net (loss) | ($4,496,944) | ($708,055) |
Adjustments to reconcile net (loss) to net cash (used in) operating activities | ||
Common stock issued for services rendered | 2,955,915 | 299,333 |
Amortization of discount to note payable | 259,178 | |
Derivative expense | 3,007,846 | |
Changes in fair value of derivative liabilities | -2,422,061 | |
Accounts payable and accrued expenses | 69,275 | 33,571 |
Due from related party | -131,542 | -21,970 |
Net cash (used in) operating activities: | -758,334 | -397,121 |
Patent | -7,000 | |
Net cash (used in) investing activities: | -7,000 | |
Proceeds from issuance of common stock | 97,500 | 250,000 |
Proceeds from exercise of options | 7,500 | |
Proceeds from exercise of warrants | 131,000 | |
Proceeds from promissory note | 50,000 | |
Proceeds from issuance of note payable | 2,400,000 | |
Redemption of note payable | -1,951,400 | |
Net cash provided by financing activities | 727,100 | 257,500 |
Net increase/(decrease) in cash and cash equivalents | -31,234 | -146,621 |
Cash and cash equivalents, beginning of year | 95,069 | 152,526 |
Cash and cash equivalents, end of year | 63,836 | 5,905 |
Interest | ||
Income taxes |
NOTE_1_DESCRIPTION_OF_BUSINESS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCTING POLICIES | 9 Months Ended |
Sep. 30, 2013 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCTING POLICIES | 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 unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. | |
The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2012 and 2011 thereto contained in the Company’s Annual Report on Form 10-K/A, Amendment No. 1 for the year ended December 31, 2012. | |
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 and licensing revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. Following the spin-off we expect to receive revenue from royalties on licenses of our IP and from litigation settlements from infringers of our IP. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and collectability is reasonable assured. This will usually be in the form of a receipt of a 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 (“ASC”) for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during the six months ended June 30, 2013 and 2012. | |
Stock-Based Compensation | |
The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB ASC 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 ASC. 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 $823,279 in short term notes outstanding at September 30, 2013. | |
Comprehensive Income (Loss) | |
The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB ASC which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the consolidated financial statements. | |
Loss Per Share | |
Net loss per common share is computed pursuant to section 260-10-45 of the FASB ASC. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. As of September 30, 2013, there were 8,462,500 options and 5,273,214 warrants whose effect was anti-dilutive and not included in diluted net loss per share for the three and nine months ended September 30, 2013. The options and warrants may dilute future earnings per share. | |
Commitments and Contingencies | |
The Company follows subtopic 450-20 of the FASB ASC 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. | |
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 FASB ASC 740-10-25 for the six months ended September 30, 2013 and 2012. | |
Recent Accounting Pronouncements | |
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements up to ASU 2013-09, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations. |
NOTE_2_RESTATEMENT_OF_FINANCIA
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS | 9 Months Ended | |||
Sep. 30, 2013 | ||||
Notes to Financial Statements | ||||
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS | NOTE – 2 RESTATEMENT OF FINANCIAL STATEMENTS | |||
The Company identified errors related to understatement of option expense for the year ended December 31, 2012. The facts underlying the Company’s original conclusion is that 7.5 million stock options granted to President and CEO of the Company, Thom Kidrin, were only 18 month options and were expiring on March 31, 2014. In fact they were five (5) year options expiring in September 2017. Accordingly, all the financial statements for the year ended December 31, 2012 are restated. | ||||
In addition, the Company identified errors related to understatement of derivative liabilities as of September 30, 2013, and loss on change in the fair value of the derivative liability for the three and nine months ended September 30, 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 September 30, 2013 | ||||
Original | Adjustment | Restated | ||
Derivative liability | $ 359,127 | $ 1,042,714 | $ 1,401,841 | |
For the nine months ended September 30, 2013 | ||||
Original | Adjustment | Restated | ||
Gain (loss) on change in fair value of derivative liability | $ 456,929 | $ (1,042,714) | $ (585,785) | |
Net (loss) | -3,454,230 | -1,042,714 | -4,496,944 | |
Weighted average loss per share | $ (0.04) | $ (0.01) | $ (0.05) | |
For the three months ended June 30, 2013 | ||||
Original | Adjustment | Restated | ||
Gain on change in fair value of derivative liability | $ 6,399 | $808,157 | $ 814,556 | |
Net (loss) | -2,884,452 | 808,157 | -2,076,295 | |
Weighted average loss per share | $ (0.03) | $ 0.01 | $ (0.02) | |
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_CONCERNS
NOTE 3 - GOING CONCERNS | 9 Months Ended |
Sep. 30, 2013 | |
Loss Contingency [Abstract] | |
NOTE 3 - GOING CONCERNS | 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_PLACEMENT_OF_EQ
NOTE 4 - PRIVATE PLACEMENT OF EQUITY | 9 Months Ended |
Sep. 30, 2013 | |
Equity [Abstract] | |
NOTE 4 - PRIVATE PLACEMENT OF EQUITY | NOTE 4 - PRIVATE PLACEMENTS OF EQUITY |
During the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2013, 100,000 stock options were exercised at a price of $0.11 per share for cash proceeds of $11,000. | |
During the nine months ended September 30, 2013, the Company issued an aggregate of 7,675,800 shares of common stock as payment for services rendered with an aggregate value of $2,609,332, $160,867 of which was recorded as deferred compensation as of September 30, 2013. | |
During the nine months ended September 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 nine months ended September 30, 2012, the Company issued 1,000,000 common shares for a cash investment of $250,000. | |
During the nine months ended September 30, 2012, the Company issued an aggregate of 3,323,382 shares of common stock as payment for services rendered with an aggregate value of $299,333. | |
During the nine months ended September 30, 2012, the Company raised $7,500 with the exercise of options covering 150,000 shares of its common stock at a price of $0.05 per share. |
NOTE_5_NOTES_PAYABLE
NOTE 5 - NOTES PAYABLE | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
Debt Disclosure [Abstract] | |||||
NOTE 5 - NOTES PAYABLE | 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 redeemed 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 Note represent an embedded derivative since the Note is convertible into a variable number of shares upon conversion. This Notes is classified as a derivative liability and not a note payable, see Note 11 below. | |||||
Notes payable at September 30, 2013 consist of the following: | |||||
Unsecured note payable to a shareholder bearing 8% interest. | |||||
Entire balance of principal and unpaid interest due on demand | $ | 124,230 | |||
Unsecured note payable to a shareholder bearing 10% interest | |||||
Entire balance of principal and unpaid interest due on demand | $ | 649,049 | |||
Total current | $ | 773,279 | |||
2013 | $ | 773,279 | |||
2014 | $ | -0- | |||
2015 | $ | 50,000 | |||
2016 | $ | -0- | |||
2017 | $ | -0- | |||
$ | 823,279 | ||||
We issued a promissory note in the amount of $50,000 on September 30, 2013. The promissory note carries a 6% annual interest rate and is 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 holder of the promissory note 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
NOTE 6 - STOCK OPTIONS | 9 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||
NOTE 6 - STOCK OPTIONS | NOTE 6 – STOCK OPTIONS | ||||||||
During the nine months ended September 30, 2013, the Company issued 4,535,714 warrants as part of the offering of the senior secured convertible notes. During the nine months ended September 30, 2013, 800,000 warrants were exercised for cash proceeds of $120,000. During the nine months ended September 30, 2013, 100,000 stock options were exercised for cash proceeds of $11,000. During the nine months ended September 30, 2013, 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 nine months ended September 30, 2012, stock options representing 150,000 shares at $0.05 per share were exercised. No warrants were exercised. | |||||||||
Stock Warrants and Options | |||||||||
Stock warrants/options outstanding and exercisable on September 30, 2013 are as follows: | |||||||||
Exercise Price per Share | Shares Under Option/warrant | Remaining Life in Years | |||||||
Outstanding | |||||||||
$ | 1 | 4,535,714 | 4.46 | ||||||
$ | 0.35 | 212,500 | 0.25 | ||||||
$ | 0.2 | 100,000 | 0.25 | ||||||
$ | 0.19 | 200,000 | 4.25 | ||||||
$ | 0.15 | 737,500 | 1.25 | ||||||
$ | 0.115 | 300,000 | 4.08 | ||||||
$ | 0.11 | 150,000 | 1.55 | ||||||
$ | 0.07 | 7,500,000 | 4 | ||||||
$ | |||||||||
Exercisable | |||||||||
$ | 1 | 4,535,714 | 4.46 | ||||||
$ | 0.35 | 212,500 | 0.25 | ||||||
$ | 0.2 | 100,000 | 0.25 | ||||||
$ | 0.15 | 737,500 | 1.25 | ||||||
$ | 0.115 | 300,000 | 4.08 | ||||||
$ | 0.11 | 150,000 | 1.55 | ||||||
$ | 0.07 | 7,500,000 | 4 |
NOTE_7_INCOME_TAXES
NOTE 7 - INCOME TAXES | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
Income Tax Disclosure [Abstract] | |||||
NOTE 7 - INCOME TAXES | NOTE 7 - INCOME TAXES | ||||
At September 30, 2013, the Company had federal and state net operating loss carry forwards of approximately $35,000,000 that expire in various years through the year 2026. | |||||
Due to operating losses, there is no provision for current federal or state income taxes for the nine months ended September 30, 2013 and 2012. | |||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes. | |||||
The Company’s deferred tax asset at September 30, 2013 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $13,650,000 less a valuation allowance in the amount of approximately $13,650,000. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $1,950,000 and $200,000 for the nine months ended September 30, 2013 and 2012, respectively. | |||||
The Company’s total deferred tax asset as of September 30, 2013 is as follows: | |||||
Net operating loss carry forwards | $ | 13,650,000 | |||
Valuation allowance | -13,650,000 | ||||
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 nine months ended September 30, 2013 and 2012 is as follows: | |||||
Income tax computed at the federal statutory rate | 34% | ||||
Income tax computed at the state statutory rate | 5% | ||||
Valuation allowance | -39% | ||||
Total deferred tax asset | 0% |
NOTE_8_COMMITMENTS_AND_CONTING
NOTE 8 - COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2013 | |
Commitments and Contingencies Disclosure [Abstract] | |
NOTE 8 - COMMITMENTS AND CONTINGENCIES | 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 expires on December 31, 2013. |
NOTE_9_RELATED_PARTY_TRANSACTI
NOTE 9 - RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2013 | |
Related Party Transactions [Abstract] | |
NOTE 9 - RELATED PARTY TRANSACTIONS | 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 from related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses. The balance due at September 30, 2013 is $265,196. |
NOTE_10_PATENTS
NOTE 10 - PATENTS | 9 Months Ended |
Sep. 30, 2013 | |
Text Block [Abstract] | |
NOTE 10 - PATENTS | NOTE 10 - PATENTS |
Worlds Inc. currently has eight patents, 6,219,045 - 7,181,690 - 7,493,558 – 7,945,856, - 8,082,501, 8,145,998, 8,161,383 and 8,407,592. 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
NOTE 11 - DERIVATIVE LIABILITIES | 9 Months Ended | ||||||
Sep. 30, 2013 | |||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||
NOTE 11 - DERIVATIVE LIABILITIES | 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: | |||||||
Assumed Conversion Price | Market Price on Grant Date | ||||||
Grant Date | Term | Volatility Percentage | Risk-free | ||||
Fair Value | (Years) | Rate | |||||
3/20/13 | $621,658 | 3 | $0.33 | $0.47 | 238% | 0.0038 | |
At September 30, 2013, the Company revalued the embedded derivative liability. For the period from the grant date to September 30, 2013, the Company decreased the derivative liability of $621,658 by $190,541 resulting in a derivative liability of $431,117 at September 30, 2013. | |||||||
The fair value of the embedded derivative liability was calculated at September 30, 2013 utilizing the following assumptions: | |||||||
Assumed Conversion | |||||||
Fair Value | Term | Price | Volatility Percentage | Risk-free | |||
(Years) | Rate | ||||||
$431,117 | 2.47 | $0.21 | 212% | 0.0063 | |||
The carrying value of the Notes was $431,117 as of September 30, 2013. The Company recorded interest expense related to this note of $33,658 and amortization of the debt discount in the amount of $80,137 during the period ended September 30, 2013. | |||||||
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: | |||||||
Exercise Price | Market Price on Grant Date | ||||||
Grant Date | Term | Volatility Percentage | Risk-free | ||||
Fair Value | (Years) | Rate | |||||
3/20/13 | $2,092,336 | 5 | $0.50 | $0.47 | 238% | 0.0038 | |
At September 30, 2013, 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 September 30, 2013, the Company decreased the derivative liability of $2,092,336 by $1,121,612 resulting in a derivative liability of $970,724 at September 30, 2013. | |||||||
The fair value of the embedded derivative liability was calculated at September 30, 2013 utilizing the following assumptions: | |||||||
Fair Value | Term | Exercise | Volatility Percentage | Risk-free | |||
(Years) | Price | Rate | |||||
$970,724 | 4.47 | $1.00 | 212% | 0.0139 |
NOTE_12_SUBSEQUENT_EVENT
NOTE 12 - SUBSEQUENT EVENT | 9 Months Ended |
Sep. 30, 2013 | |
Subsequent Events [Abstract] | |
NOTE 12 - SUBSEQUENT EVENT | NOTE 12 - SUBSEQUENT EVENT |
On October 6th through October 27, 2013 we issued four Promissory Notes totaling $175,000. 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. |
NOTE_1_DESCRIPTION_OF_BUSINESS1
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2013 | |
Accounting Policies [Abstract] | |
Description of Business | 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 | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. | |
The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2012 and 2011 thereto contained in the Company’s Annual Report on Form 10-K/A, Amendment No. 1 for the year ended December 31, 2012. | |
Use of Estimates | 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 |
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 |
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 | 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 and licensing revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. Following the spin-off we expect to receive revenue from royalties on licenses of our IP and from litigation settlements from infringers of our IP. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and collectability is reasonable assured. This will usually be in the form of a receipt of a 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 |
Research and development costs are charged to operations as incurred. | |
Property and Equipment | 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 | 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 (“ASC”) for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during the six months ended June 30, 2013 and 2012. | |
Stock-Based Compensation | 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 ASC 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 | Income Taxes |
The Company accounts for income taxes under Section 740-10-30 of the FASB ASC. 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 | Notes Payable |
The Company has $823,279 in short term notes outstanding at September 30, 2013. | |
Comprehensive Income (Loss) | Comprehensive Income (Loss) |
The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB ASC which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the consolidated financial statements. | |
Loss Per Share | Loss Per Share |
Net loss per common share is computed pursuant to section 260-10-45 of the FASB ASC. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. As of September 30, 2013, there were 8,462,500 options and 5,273,214 warrants whose effect was anti-dilutive and not included in diluted net loss per share for the three and nine months ended September 30, 2013. The options and warrants may dilute future earnings per share. | |
Commitments and Contingencies | Commitments and Contingencies |
The Company follows subtopic 450-20 of the FASB ASC 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. | |
Risk and Uncertainties | 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 | Off Balance Sheet Arrangements |
The Company does not have any off-balance sheet arrangements. | |
Uncertain Tax Positions | 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 FASB ASC 740-10-25 for the six months ended September 30, 2013 and 2012. | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements |
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements up to ASU 2013-09, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations. |
NOTE_2_RESTATEMENT_OF_FINANCIA1
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS (Tables) | 9 Months Ended | |||
Sep. 30, 2013 | ||||
Notes to Financial Statements | ||||
Original amounts and restated amounts | As of September 30, 2013 | |||
Original | Adjustment | Restated | ||
Derivative liability | $ 359,127 | $ 1,042,714 | $ 1,401,841 | |
For the nine months ended September 30, 2013 | ||||
Original | Adjustment | Restated | ||
Gain (loss) on change in fair value of derivative liability | $ 456,929 | $ (1,042,714) | $ (585,785) | |
Net (loss) | -3,454,230 | -1,042,714 | -4,496,944 | |
Weighted average loss per share | $ (0.04) | $ (0.01) | $ (0.05) | |
For the three months ended June 30, 2013 | ||||
Original | Adjustment | Restated | ||
Gain on change in fair value of derivative liability | $ 6,399 | $808,157 | $ 814,556 | |
Net (loss) | -2,884,452 | 808,157 | -2,076,295 | |
Weighted average loss per share | $ (0.03) | $ 0.01 | $ (0.02) | |
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_5_NOTES_PAYABLE_Tables
NOTE 5 - NOTES PAYABLE (Tables) | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
Debt Disclosure [Abstract] | |||||
Notes payable | |||||
Notes payable at September 30, 2013 consist of the following: | |||||
Unsecured note payable to a shareholder bearing 8% interest. | |||||
Entire balance of principal and unpaid interest due on demand | $ | 124,230 | |||
Unsecured note payable to a shareholder bearing 10% interest | |||||
Entire balance of principal and unpaid interest due on demand | $ | 649,049 | |||
Total current | $ | 773,279 | |||
2013 | $ | 773,279 | |||
2014 | $ | -0- | |||
2015 | $ | 50,000 | |||
2016 | $ | -0- | |||
2017 | $ | -0- | |||
$ | 823,279 | ||||
NOTE_6_STOCK_OPTIONS_Tables
NOTE 6 - STOCK OPTIONS (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2012 | |||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||
Stock option table | |||||||||
Stock Warrants and Options | |||||||||
Stock warrants/options outstanding and exercisable on September 30, 2013 are as follows: | |||||||||
Exercise Price per Share | Shares Under Option/warrant | Remaining Life in Years | |||||||
Outstanding | |||||||||
$ | 1 | 4,535,714 | 4.46 | ||||||
$ | 0.35 | 212,500 | 0.25 | ||||||
$ | 0.2 | 100,000 | 0.25 | ||||||
$ | 0.19 | 200,000 | 4.25 | ||||||
$ | 0.15 | 737,500 | 1.25 | ||||||
$ | 0.115 | 300,000 | 4.08 | ||||||
$ | 0.11 | 150,000 | 1.55 | ||||||
$ | 0.07 | 7,500,000 | 4 | ||||||
$ | |||||||||
Exercisable | |||||||||
$ | 1 | 4,535,714 | 4.46 | ||||||
$ | 0.35 | 212,500 | 0.25 | ||||||
$ | 0.2 | 100,000 | 0.25 | ||||||
$ | 0.15 | 737,500 | 1.25 | ||||||
$ | 0.115 | 300,000 | 4.08 | ||||||
$ | 0.11 | 150,000 | 1.55 | ||||||
$ | 0.07 | 7,500,000 | 4 |
NOTE_7_INCOME_TAXES_Tables
NOTE 7 - INCOME TAXES (Tables) | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
Income Tax Disclosure [Abstract] | |||||
Company's deferred tax assets | |||||
Net operating loss carry forwards | $ | 13,650,000 | |||
Valuation allowance | -13,650,000 | ||||
Net deferred tax asset | $ | — | |||
Reconciliation of income taxes - Fedaral and state statutory rate | Income tax computed at the federal statutory rate | 34% | |||
Income tax computed at the state statutory rate | 5% | ||||
Valuation allowance | -39% | ||||
Total deferred tax asset | 0% |
NOTE_11_DERIVATIVE_LIABILITIES1
NOTE 11 - DERIVATIVE LIABILITIES (Tables) | 9 Months Ended | ||||||||||||||||||||||||||
Sep. 30, 2012 | |||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||
Fair value of the embedded derivative liability grant date | Grant Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Risk-free | ||||||||||||||||||||
(Years) | Rate | ||||||||||||||||||||||||||
3 | /20/13 | $ | 621,658 | 3 | $ | 0.326 | $ | 0.465 | 238 | % | 0.0038 | ||||||||||||||||
Exercise Price | Market Price on Grant Date | ||||||||||||||||||||||||||
Grant Date | Term | Volatility Percentage | Risk-free | ||||||||||||||||||||||||
Fair Value | (Years) | Rate | |||||||||||||||||||||||||
3 | /20/13 | $ | 2,092,336 | 5 | $ | 0.5 | $ | 0.465 | 238 | % | 0.0038 | ||||||||||||||||
Fair value of the derivative liabilites | Assumed Conversion | ||||||||||||||||||||||||||
Fair Value | Term | Price | Volatility Percentage | Risk-free | |||||||||||||||||||||||
(Years) | Rate | ||||||||||||||||||||||||||
$431,117 | 2.47 | $0.21 | 212% | 0.0063 | |||||||||||||||||||||||
Fair Value | Term | Exercise | Volatility Percentage | Risk-free | |||||||||||||||||||||||
(Years) | Price | Rate | |||||||||||||||||||||||||
$970,724 | 4.47 | $1.00 | 212% | 0.0139 |
NOTE_1_DESCRIPTION_OF_BUSINESS2
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCTING POLICIES (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Apr. 01, 2013 | |
Short term notes outstanding | $773,279 | |
Options shares | 8,462,500 | |
Unaudited | ||
Short term notes outstanding | 773,279 | |
Warrants | 5,273,214 |
NOTE_2_RESTATEMENT_OF_FINANCIA2
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS (Details Narrative) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2013 | Dec. 31, 2013 | |
Notes to Financial Statements | ||
Stock options granted to President and CEO of the Company | 7.5 | |
Warrants granted | 4,535,714 |
NOTE_4_PRIVATE_PLACEMENT_OF_EQ1
NOTE 4 - PRIVATE PLACEMENT OF EQUITY (Details Narrative) (USD $) | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 | Apr. 01, 2012 | |
Common shares sold | 875,000 | 1,000,000 | ||
Stock issued | 1,500,000 | |||
Proceeds from sales of stock | $87,500 | $250,000 | $150,000 | |
Proceeds from previous stock issued | 10,000 | |||
Cash proceeds from warrants exercised | 120,000 | 7,500 | ||
Number of warrants exercised | 800,000 | 150,000 | ||
Exercised price per share | $0.15 | $0.05 | ||
Aggregated shares of common stock issued for services rendered | 7,678,800 | 3,323,382 | ||
Aggregated value of common stock issued for services | 2,609,332 | 299,333 | ||
Stock options exercised | 100,000 | |||
Exercise price | $0.11 | |||
Cash proceeds | 7,500 | |||
Unaudited | ||||
Deferred compensation | $160,867 |
NOTE_5_NOTES_PAYABLE_Details_N
NOTE 5 - NOTES PAYABLE (Details Narrative) (USD $) | Jun. 30, 2013 |
Debt Disclosure [Abstract] | |
Senior secured convertible notes | $2,400,000 |
Total principal of series A and series B note | 1,950,000 |
Principal of series C note | $450,000 |
Annual interest rate on all notes | 0.14 |
NOTE_6_STOCK_OPTIONS_Details_N
NOTE 6 - STOCK OPTIONS (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Warrants issued as part of senior secured convertible notes | 4,535,714 | |
Number of warrants exercised | 800,000 | 150,000 |
Cash proceeds from warrants exercised | $120,000 | $7,500 |
Stock option exercised | 100,000 | |
Cash proceeds from stock options | $7,500 | |
Cashless stock option exercised | 900,000 | |
Shares of common stock issued | 639,606 | |
Stock options represents | 150,000 | |
Price per share - exercised | $0.05 |
NOTE_7_INCOME_TAXES_Details_Na
NOTE 7 - INCOME TAXES (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Valuation allowance increase | $1,283,000 | $200,000 |
Unaudited | ||
Federal and State net operating loss carry forwards | 44,469,000 | |
Deffered tax asset | 17,343,000 | |
Valuation allowance | $17,343,000 |
NOTE_8_COMMITMENTS_AND_CONTING1
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $) | Apr. 01, 2013 | Aug. 30, 2012 |
shareholders | shareholders | |
Term of employment agreement | 5 | |
Officer compensation | $175,000 | |
Yearly increase | 10.00% | |
Car allowance | 500 | |
Annual bonus | 0.025 | |
Additional bonus | 75,000 | |
Pre-tax income range | 1.5 | |
Pre-tax income range | 2 | |
Llife insurance premium | 10,000 | |
Option to purchase stock | 7,500,000 | |
Exercise price per share | $0.08 | |
Death benefit | 2,000,000 | |
Payment of base amount | 2.99 | |
Restrictive convenants time | 12 | |
Consulting agreement monthly payments | 5,000 | |
Term on consulting agreement | 24 | |
Additional bonus 1 | ||
Additional bonus | 100,000 | |
Pre-tax income range | 2.01 | |
Pre-tax income range | 2.5 | |
Additional bonus 2 | ||
Annual bonus | 0.05 | |
Additional bonus | $200,000 | |
Pre-tax income | 2.51 |
NOTE_9_RELATED_PARTY_TRANSACTI1
NOTE 9 - RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | Sep. 30, 2013 |
Related Party Transactions [Abstract] | |
Shared operating expenses due from related parties | $266,196 |
NOTE_10_PATENTS_Details_Narrat
NOTE 10 - PATENTS (Details Narrative) (Unaudited, USD $) | Sep. 30, 2013 |
Unaudited | |
Patent I | $6,219,045 |
Patent II | 7,181,690 |
Patent III | 7,493,558 |
Patent IV | 7,945,856 |
Patent V | 8,082,501 |
Patent VI | 8,145,998 |
Patent VII | $8,161,383 |
NOTE_11_DERIVATIVE_LIABILITIES2
NOTE 11 - DERIVATIVE LIABILITIES (Details Narrative) (USD $) | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Mar. 20, 2013 | |
shareholders | |||
Financing agreement | $2,300,000 | ||
Years on warrants | 5 | ||
Percent of number of shares received | 10000.00% | ||
Exercise price per share | $0.50 | ||
Fair value of derivative liability | 621,658 | ||
Decrease amount of derivative | -2,422,061 | ||
Interest expense related | 33,658 | ||
Amortization of debt discount | 80,137 | ||
Unaudited | |||
Beneficial conversion - debt discount | 2,400,000 | ||
Loss on valuation of derivative liability | 512,637 | ||
Fair value of derivative liability | $1,949,470 |
NOTE_12_SUBSEQUENT_EVENT_Detai
NOTE 12 - SUBSEQUENT EVENT (Details Narrative) (Unaudited, USD $) | Sep. 30, 2013 |
Unaudited | |
Four promissory notes | $175,000 |
Notes Payable/Officer Loan | $50,000 |
NOTE_2_RESTATEMENT_OF_FINANCIA3
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS - Original and restated amounts (Details) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Jan. 02, 2013 | |
Notes to Financial Statements | |||||
Derivative liability, Original | $1,949,470 | $1,949,470 | |||
Derivative liability, Adjustment | 1,850,871 | 1,850,871 | |||
Derivative liability, Restatement | 3,800,341 | 3,800,341 | |||
Gain (loss) on change in fair value of derivative liability, Original | 396,151 | 450,530 | |||
Gain (loss) on change in fair value of derivative liability, Adjustment | 384,816 | -1,850,871 | |||
Gain (loss) on change in fair value of derivative liability, Restated | 780,967 | -1,400,341 | |||
Net (loss), Original | -238,414 | -569,778 | |||
Net (loss), Adjustment | 384,816 | -1,850,871 | |||
Net (loss) | -2,076,295 | -186,641 | -4,496,944 | -708,055 | |
Weighted average loss per share, Original | ($0.01) | ||||
Weighted average loss per share, Adjustment | ($0.02) | ||||
Weighted average loss per share, Restated | ($0.02) | $0 | ($0.05) | ($0.01) | |
Additional paid in capital, Original | 26,580,244 | ||||
Additional paid in capital, Adjustment | 208,682 | ||||
Additional paid in capital, Restated | 27,603,804 | 27,603,804 | 26,788,926 | ||
Accumulated deficit, Original | -30,130,692 | ||||
Accumulated deficit, Adjustment | -208,682 | ||||
Accumulated deficit, Restated | ($32,760,023) | ($32,760,023) | ($30,339,374) |
NOTE_5_NOTES_PAYABLE_Details
NOTE 5 - NOTES PAYABLE (Details) (USD $) | Apr. 01, 2013 |
Debt Disclosure [Abstract] | |
Entire balance of principal and unpaid interest due on demand 1 | $124,230 |
Entire balance of principal and unpaid interest due on demand 2 | 649,049 |
Total current | 773,279 |
Notes payable due within 2013 | 773,279 |
Notes payable due within 2014 | 0 |
Notes payable due within 2015 | 50,000 |
Notes payable due within 2016 | 0 |
Notes payable due within 2017 | $0 |
NOTE_6_STOCK_OPTIONS_Stock_opt
NOTE 6 - STOCK OPTIONS - Stock option table (Details) (USD $) | Sep. 30, 2013 |
Outstanding (1) | |
Shares under options | 4,535,714 |
Price per shares | $1 |
Remaining life in years | 4.46 |
Exercisable (1) | |
Shares under options | 4,535,714 |
Price per shares | $1 |
Remaining life in years | 4.46 |
Outstanding (2) | |
Shares under options | 212,500 |
Price per shares | $0.35 |
Remaining life in years | 0.25 |
Exercisable (2) | |
Shares under options | 212,500 |
Price per shares | $0.35 |
Remaining life in years | 0.25 |
Outstanding (3) | |
Shares under options | 100,000 |
Price per shares | $0.20 |
Remaining life in years | 0.25 |
Exercisable (3) | |
Shares under options | 100,000 |
Price per shares | $0.20 |
Remaining life in years | 0.25 |
Outstanding (4) | |
Shares under options | 200,000 |
Price per shares | $0.19 |
Remaining life in years | 4.25 |
Exercisable (4) | |
Shares under options | 737,500 |
Price per shares | $0.15 |
Remaining life in years | 1.25 |
Outstanding (5) | |
Shares under options | 737,500 |
Price per shares | $0.15 |
Remaining life in years | 1.25 |
Exercisable (5) | |
Shares under options | 300,000 |
Price per shares | $0.12 |
Remaining life in years | 4.08 |
Outstanding (6) | |
Shares under options | 300,000 |
Price per shares | $0.12 |
Remaining life in years | 4.08 |
Exercisable (6) | |
Shares under options | 150,000 |
Price per shares | $0.11 |
Remaining life in years | 1.55 |
Outstanding (7) | |
Shares under options | 150,000 |
Price per shares | $0.11 |
Remaining life in years | 1.55 |
Exercisable (7) | |
Shares under options | 7,500,000 |
Price per shares | $0.07 |
Remaining life in years | 4 |
Outstanding (8) | |
Shares under options | 7,500,000 |
Price per shares | $0.07 |
Remaining life in years | 4 |
NOTE_7_INCOME_TAXES_Companys_t
NOTE 7 - INCOME TAXES - Company's total deferred tax (Details) (Unaudited, USD $) | Sep. 30, 2013 |
Unaudited | |
Deferred tax assets | $17,343,000 |
Valuation allowance | 17,343,000 |
Net deferred tax asset |
NOTE_7_INCOME_TAXES_Reconcilia
NOTE 7 - INCOME TAXES - Reconciliation of income taxes (Details) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Income Tax Disclosure [Abstract] | ||
Income tax computed at the federal statutory rate | 34.00% | 34.00% |
Income tax computed at the state statutory rate | 5.00% | 5.00% |
Valuation allowance | -0.39 | -0.39 |
Total deferred tax asset | $0 | $0 |
NOTE_11_DERIVATIVE_LIABILITIES3
NOTE 11 - DERIVATIVE LIABILITIES - Fair value of the embedded derivative liability grant date (Details) (USD $) | Mar. 20, 2013 |
Y | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Fair Value | $621,658 |
Term (Years) | 3 |
Assumed Conversion Price | 0.326 |
Market Price on Grant Date | 0.465 |
Volatility Percentage | 238.00% |
Risk-free Rate | 0.38% |
NOTE_11_DERIVATIVE_LIABILITIES4
NOTE 11 - DERIVATIVE LIABILITIES - Fair value of the derivative liabilites (Details) (USD $) | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Mar. 20, 2013 | |
Y | |||
Term (Years) | 3 | ||
Volatility Percentage | 238.00% | ||
Interest expense | $90,533 | ||
Amortization of debt | 259,178 | ||
Unaudited | |||
Fair Value | $431,117 | ||
Term (Years) | 2.47 | ||
Assumed Conversion Price | 0.213 | ||
Volatility Percentage | 21.20% | ||
Risk-free Rate | 0.36% |