Company Quick10K Filing
Quick10K
Worlds
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-02-21 Officers, Exhibits
8-K 2018-12-13 Accountant, Exhibits
8-K 2018-08-28 Enter Agreement, Officers, Exhibits
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LKM Link Motion 0
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WORLD 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Description of Business and Summary of Accounting Policies
Note 2 - Notes Payable
Note 3 - Equity
Note 4 - Commitments and Contingencies
Note 5 - Related Party Transactions
Note 6 - Patents
Note 7 - Sale of Marketable Securities
Note 8 - Accrued Expenses
Note 9 - Subsequent Events
Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosure
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Worlds Earnings 2019-06-30

WORLD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 wdddq22019.htm

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

FORM 10-Q

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

For the Quarterly Period ended June 30, 2019

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File number 000-24115

WORLDS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware 22-1848316
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)

11 Royal Road
Brookline, MA 02445
(Address of Principal Executive Offices)


(617) 725-8900
(Registrant's Telephone Number, Including Area Code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

 

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

(Check One):

Large Accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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

 

As of July 22, 2019, 56,814,833 shares of the Issuer's Common Stock were outstanding.

 

 

 

 

 

 

  

Worlds Inc.

 

Table of Contents 

  Page
Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 (audited)   2 
Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)   3 
Statements of Stockholders’ Deficit for the six months ended June 30,  2018 and 2019 (unaudited)   4 
Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)   5 
Notes to Financial Statements   6 

 

 

 (1) 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Worlds Inc.      
Balance Sheets      
June 30, 2019 and December 31, 2018      
   Unaudited  Audited
   June 30, 2019  December 31, 2018
       
ASSETS:          
Current Assets          
Cash and cash equivalents  $2,265,002   $3,846,120 
Total Current Assets   2,265,002    3,846,120 
           
Total assets  $2,265,002   $3,846,120 
LIABILITIES AND STOCKHOLDERS' DEFICIT:          
Current Liabilities          
Accounts payable  $797,908   $797,908 
Accrued expenses   1,571,409    1,790,451 
Accrued expenses related party   174,500    329,624 
Notes payable exceeding statute of limitations   773,279    773,279 
Notes payable   —      600,000 
Notes Payable related party   —      150,000 
           
Total Current Liabilities   3,317,096    4,441,262 
           
           
Total Liabilities   3,317,096    4,441,262 
           
Stockholders' Deficit          
Common stock (Par value $0.001 authorized 250,000,000 shares, issued and outstanding 56,814,833 at June 30, 2019 and December 31, 2018, respectively)   56,815    56,815 
Additional paid in capital   40,566,987    40,512,516 
Common stock-warrants   1,206,913    1,206,913 
Accumulated deficit   (42,882,809)   (42,371,386)
Total stockholders deficit   (1,052,094)   (595,142)
           
Total Liabilities and Stockholders' Deficit  $2,265,002   $3,846,120 
           
           
The accompanying notes are an integral part of these financial statements

 

 

 

 (2) 

 

 

Worlds Inc.            
Statements of Operations            
For the Six and Three Months Ended June 30, 2019 and 2018              
               
   Unaudited  Unaudited
   Six Months Ended June 30  Three Months Ended June 30
   2019  2018  2019  2018
Revenues                    
Revenue  $—      —     $—      —   
                     
Total Revenue   —      —      —      —   
                     
Cost and Expenses                    
                     
Cost of Revenue   —      —      —      —   
                     
Gross Profit/(Loss)   —      —      —      —   
                     
Warrant expense   —      1,339,420    —      —   
Option expense   54,471    —      35,298    —   
Selling, General & Admin.   346,672    447,771    161,073    240,841 
Salaries and related   102,265    140,920    50,908    70,460 
                     
Operating loss   (503,408)   (1,928,111)   (247,279)   (311,301)
                     
Other Income (Expense)                    
Gain on sale of marketable securities   —      1,339,502    —      435,448 
Warrant Expense   —      —      —      —   
Interest Expense   (8,015)   (22,315)   —      (11,219)
Net Income/(Loss)  $(511,423)   (610,924)  $(247,279)   112,928 
                     
Weighted Average Loss per share  $(0.01)   (0.01)   $ **      **  
Weighted Average Common Shares Outstanding (reflecting the reverse stock split)   56,814,833    49,562,568    56,814,833    49,768,020 
                     
**=less than $0.01                    
                     
The accompanying notes are an integral part of these financial statements

 

 

 (3) 

  

 

Worlds Inc.                        
Statement of Stockholders' Deficit                        
For the Six Months Ended June 30, 2018 and 2019                        
               Common  Common      
               Shares  Stock     Total
         Additional     Subscribed  Subscribed  Accumulated  stockholders'
   Common stock  Common stock  Paid-in  Common stock  but not  but not  Deficit  equity
   Shares  Amount  capital  Warrants  Issued  Issued     (deficit)
                         
 Balances, December 31, 2017   49,354,666    49,355    37,918,817    1,206,913    —      —      (44,125,701)   (4,950,614)
                                         
 Exercise of warrants to common stock   —      —      2,207,420    —      7,000,000    7,000    —      2,214,420 
 Issuance of shares previously subscribed for   7,000,000    7,000    —      —      (7,000,000)   (7,000)   —      —   
 Issuance of shares for AP   200,000    200    52,800    —      —      —      —      53,000 
 Misc. additional shares due to reverse split rounding   167    —      —      —      —      —      —      —   
 Net Income/(loss)   —      —      —      —      —      —      (610,924)   (610,924)
                                         
 Balances, June 30, 2018   56,554,833    56,555    40,179,037    1,206,913    —      —      (44,736,625)   3,294,118 
                                         
                                         
                                         
 Balances, December 31, 2018   56,814,833    56,815    40,512,516    1,206,913    —      —      (42,371,386)   (595,142)
                                         
Fair value of stock options   —      —      54,471    —      —      —      —      54,471 
 Net Income/(Loss)   —      —      —      —      —      —      (511,423)   (511,423)
                                         
 Balances, June 30, 2019   56,814,833    56,815    40,566,987    1,206,913    —      —      (42,882,809)   (1,052,094)
                                         
The accompanying notes are an integral part of these financial statements

 

 

 

 

 

 

 (4) 

 

 

 

Worlds Inc.      
Statements of Cash Flows      
Six Months Ended June 30, 2019 and 2018      
    
   Unaudited  Unaudited
   6/30/19  6/30/18
Cash flows from operating activities:          
Net gain/(loss)  $(511,423)  $(610,924)
Adjustments to reconcile net loss to net cash (used in) operating activities          
Realized gain on sale of marketable securities   —      1,339,502 
Fair value of warrants issued   —      1,339,420 
Fair value of stock options issued   54,471    —   
Accounts payable and accrued expenses   (374,166)   (544,693)
Due from/to related party   —      (5,000)
Net cash (used in) operating activities:   (831,118)   1,518,305 
           
Cash flows from investing activities:          
Cash received from sale of marketable securities   —      (1,339,502)
Net cash (used in) investing activities:   —      (1,339,502)
           
Cash flows from financing activities          
Repayment of notes payable   (600,000)   —   
Repayent of notes payable related party   (150,000)   —   
Proceeds from exercise of warrants   —      875,000 
Issuance of common stock as payment for account payable   —      53,000 
Net cash provided by financing activities   (750,000)   928,000 
           
Net increase/(decrease) in cash and cash equivalents   (1,581,118)   1,106,803 
           
Cash and cash equivalents, including restricted, beginning of year   3,846,120    168,229 
           
Cash and cash equivalents, including restricted, end of period  $2,265,002   $1,275,032 
           
Non-cash financing activities          
           
           
Supplemental disclosure of cash flow information:          
Cash paid during the year for:          
Interest  $189,118   $—   
Income taxes  $—     $—   
           
 The accompanying notes are an integral part of these financial statements


 

 

 

 

 (5) 

 

 

 

Worlds Inc.

NOTES TO FINANCIAL STATEMENTS

Six Months Ended June 30, 2019

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

 

Description of Business

 

On May 16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, Worlds Online Inc. (currently called MariMed 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.

 

Basis of Presentation

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). The Company has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. As the Company has focused its attention on increasing its patent portfolio and enforcing it, the Company has been operating at a reduced capacity, with only one full time employee and using consultants to perform any additional work that may be required.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents includes highly liquid money market instruments, which have original maturities of three months or less at the time of purchase. 

 

Revenue Recognition

 

Effective June 1, 2018, the Company adopted ASC 606. There was no impact in adopting ASC 606 as the Company has no revenue at this time. In the second quarter of 2011, the Company spun off its online businesses to MariMed Inc. The Company’s sources of revenue after the spinoff was expected to be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents. The Company recognizes revenue by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

Research and Development Costs

 

Research and development costs are charged to operations as incurred.

 

 

 (6) 

 

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets ranging from three to five years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Maintenance and repairs are charged to expense in the period incurred.

 

Impairment of Long Lived Assets

 

The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during 2019 and 2018.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

 

Income Taxes

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.

 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

 

 (7) 

 

 

 

 

Notes Payable

 

The Company has $773,279 in short term notes outstanding at June 30, 2019 and December 31, 2018. These are old notes payable for which the statute of limitations has passed and therefore the Company does not expect it will ever have to repay those notes.

 

The Company had an additional $750,000 in short term notes outstanding at December 31, 2018. The Company paid off these notes during the first quarter and the balance is $0 at June 30, 2019.

 

Comprehensive Income (Loss)

 

The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.

 

Loss Per Share

 

Net loss per common share is computed pursuant to section 260-10-45 of the FASB ASC. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. As of June 30, 2019 and December 31, 2018, there were 11,140,000 options and 4,480,000 warrants outstanding, whose effect is anti-dilutive and not included in diluted net loss per share for June 30, 2019 or for December 31, 2018. The options and warrants may dilute future earnings per share.

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of June 30, 2019, and December 31, 2018 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets.

 

 (8) 

 

 

 

Risk and Uncertainties

 

The Company is subject to risks common to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.

 

Off Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the year ended December 31, 2018.

 

Fair Value of Financial Instruments

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

•   Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

 

•   Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

•   Level 3 - Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, other receivables, accounts payable & accrued expenses, due to related party, notes payable and notes payables, approximate their fair values because of the short maturity of these instruments. The Company's convertible notes payable are measured at amortized cost.

 

Warrant and option expense was measured by using level 3 valuation.

 

 (9) 

  

 

Embedded Conversion Features 

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. 

 

 

Recent Accounting Pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted the new lease guidance effective January 1, 2019. The Company is not a party to any leases and therefore is not showing any asset or liability related to leases in the current period or prior periods.  

 

 

 (10) 

 

   

NOTE 2 - NOTES PAYABLE 

 

Notes payable at June 30, 2019 consist of the following:   
Unsecured note payable bearing 8% interest.     
Entire balance of principal and unpaid interest due on demand  $124,230 
Unsecured note payable bearing 10% interest     
Entire balance of principal and unpaid interest due on demand  $649,049 
Total notes  $773,279 
2019  $773,279 
2020  $-0- 
2021  $-0- 
2022  $-0- 
2023  $-0- 
   $773,279 

 

The Company repaid the $600,000 in notes payable and $150,000 in notes payable related party with accrued interest totaling $189,118 during the first quarter of 2019.

 

NOTE 3 - EQUITY 

 

All common stock numbers and exercise prices in this Note are reflected on a post reverse split (5 to 1) basis. As a result of the reverse split on February 9, 2018, the Company had to issue an additional 167 shares due to rounding.

 

During the six months ended June 30, 2019, the Company recorded an option expense of $54,471 representing the amortization of the value of the options issued in 2018 that have not yet vested.

 

During the year ended December 31, 2018 the Company received an additional $875,000 upon the exercise of 7,000,000 warrants to purchase 7,000,000 shares of the Company’s common stock at $0.0125 per share.

 

During the year ended December 31, 2018 the Company issued 460,000 shares of the Company’s common stock as payment for services rendered, an aggregate value of $99,372.

 

During the year ended December 31, 2018, the Company issued 5,500,000 options. 5,000,000 options were issued to Thom Kidrin, the Chief Executive Officer and President of the Company and 500,000 options were issued to Directors of the Company.  The Company recorded an option expense of $368,728 in 2018 and $19,173 in the 1st quarter of 2019 equal to the estimated fair value of the options at the date of grants. The fair market value was calculated using the Black Scholes method assuming approximately 2.73% risk-free interest, 0% dividend yield, 104% volatility, an exercise price of $0.25 per share for Thom Kidrin’s options and $0.24 per share for the Directors options with a current market price of $0.24 and an expected life of 5 years. Mr. Kidrin’s options vest 2,000,000 on the date of grant, August 28, 2018, 1,500,000 on August 28, 2019 and 1,500,000 on August 28, 2020. The Director’s options vest one year from the date of grant.

 

During the year ended December 31, 2018, the Company issued 3,400,000 warrants as part of the subscription agreement that included the sale of 7,000,000 shares of common stock. Each warrant entitles the holder to purchase one share of common stock at a price of $0.325. The warrants expire in five years. The warrants can be exercised at any time within those five years.  The Company recorded a warrant expense of $1,211,403 equal to the estimated fair value of the warrants at the date of issuance. The fair market value was calculated using the Black Scholes method assuming approximately 2.52% risk-free interest, 0% dividend yield, 153% volatility, exercise price of $0.325 per share with a current market price of $0.385 and an expected life of 5 years.

 

For the six months ended June 30, 2019, the Company recorded an option expense of $54,471, equal to the increase in estimated fair value of the unvested options at June 30, 2019. 

 

Stock Warrants and Options
Stock warrants/options outstanding and exercisable on June 30, 2019 are as follows:
 
Exercise Price per Share   Shares Under Option/warrant   Remaining Life in Years
Outstanding        
$ 0.325       3,500,000       4.58  
$ 0.15       5,220,000       3.25  
$ 0.15       580,000       1.70  
$ 0.05       200,000       3.45  
$ 0.30       200,000       3.45  
$ 0.55       60,000       1.00  
$ 0.65       60,000       1.00  
$ 0.25       5,000,000       4.17  
$ 0.24       800,000       4.17  
Exercisable                    
$ 0.325       3,500,000       4.58  
$ 0.15       5,220,000       3.25  
$ 0.15       580,000       1.70  
$ 0.05       200,000       3.45  
$ 0.30       200,000       3.45  
$ 0.55       60,000       1.00  
$ 0.65       60,000       1.00  
$ 0.25       2,000,000       4.17  
$ 0.24       800,000       4.17  

 

 

 

 (11) 

 

 

 

NOTE 4 - COMMITMENTS AND CONTINGENCIES

 

The Company is committed to an employment agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 28, 2018, is for five years with a one-year renewal option held by Mr. Kidrin.  The agreement provides for a base salary of $200,000, 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 5 million shares of Worlds Inc. common stock at an exercise price of  $0.25 per share, 2 million of which vested on August 28, 2018, 1.5 million shall vest on August 28, 2019 and the remaining 1.5 million shall vest on August 28, 2020 ; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times his base amount (as defined in the agreement) in the event of a Change of Control (as defined in the agreement).  The agreement also provides that Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12 months after termination.   

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

The Company repaid $150,000 in notes payables with accrued interest to related parties during the first quarter of 2019. 

 

The balance in the accrued expense attributable to related parties is $174,500 and $329,624 at June 30, 2019 and December 31, 2018, respectively. 

 

NOTE 6 - PATENTS

Worlds Inc. currently has nine patents, 6,219,045 - 7,181,690 - 7,493,558 – 7,945,856, - 8,082,501, – 8,145,998 – 8,161,383, – 8,407,592 and 8,640,028. On March 30, 2012, the Company filed a patent infringement lawsuit against Activision Bizzard Inc., Blizzard Entertainment Inc. and Activision Publishing Inc. in the United States District Court for the District of Massachusetts. Susman Godfrey LLP is lead counsel for the Company. The costs to prosecute those parties that the Company and our legal counsel believe to be infringing on said patents were capitalized under patents until a resolution is reached.

 

There can be no assurance that the Company will be successful in its ability to prosecute its IP portfolio or that we will be able to acquire additional patents. 

 

NOTE 7 – SALE OF MARKETABLE SECURITIES

 

When Worlds Inc. spun off Worlds Online Inc. in January 2011, the Company retained 5,936,115 shares of common stock in Worlds Online Inc. (now named MariMed Inc.). Those shares were retained on the books of the Company with a book value of $0. During the six months ended June 30, 2018, the Company sold 1,257,213 shares at an average price of $1.07 per share raising $1,339,502. The proceeds from the sale are treated as a gain on sale of marketable securities in the financial statements. No shares were sold in the six months ended June 30, 2019.  

NOTE 8 – ACCRUED EXPENSES

 

Accrued expenses is comprised of $174,500 owed to related parties. $205,000 is related to a judgment against the Company relating to unpaid consulting services dating back to April of 2001. $1,305,009 is related to old accruals for which the statute of limitations has passed and therefore the Company does not expect it will ever have to repay those amounts. The balance of $61,400 is related to accruals for recurring operating expenses.

 

NOTE 9 – SUBSEQUENT EVENTS

 

The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.

 

 (12) 

 

 

 

Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

 

When used in this Form 10-Q and in other filings by the Company with the Commission, the words or phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," “hope”, "may," "plan," "predict," "project," "will" or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

 

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in political, social and economic conditions in the jurisdictions in which we operate and changes to regulations that pertain to our operations.

 

The following discussion should be read in conjunction with the unaudited financial statements and related notes which are included under Item 1.

 

We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.

 

Overview

 

General

 

On May 16, 2011, we transferred, through a spin-off to our then wholly owned subsidiary, Worlds Online Inc. (currently named MariMed Inc.), the majority of our operations and related operational assets. We retained our patent portfolio which we intend to continue to increase and to more aggressively enforce against alleged infringers. We also entered into a License Agreement with MariMed Inc. to sublicense patented technologies, which agreement has since expired.

 

At present, the Company’s business is the enforcement and expansion of its patent portfolio and its anticipated sources of revenue will be from any revenue that may be generated from enforcing its patents.

 

 (13) 

  

 

Revenues

 

We generated no revenue during the year because we did not receive any court awards or settlements during the quarter.

 

Expenses

 

We classify our expenses into two broad groups:

 

 •  Cost of revenues; and

 

 •  selling, general and administration.

  

 

Liquidity and Capital Resources

 

We have had to limit our operations since mid 2001 due to a lack of liquidity.  However, we were able to issue equity and convertible debt in the last few years and raise small amounts of capital from time to time that, prior to the spinoff, was used to enable us to begin upgrading our technology, develop new products and actively solicit additional business, and more recently to protect, increase and enforce our patent portfolio.  Although we have been able to generate funds through our sale of shares of MariMed Inc., we continue to pursue additional sources of capital though we have no current arrangements with respect to, or sources of, additional financing at this time and there can be no assurance that any such financing will become available. If we cannot raise additional capital, form an alliance of some nature with another entity, raise more funds through the sale of shares of MariMed Inc., or start to generate sufficient revenues, we may be unable to purchase additional patents or otherwise expand operations through acquisition or otherwise. 

  

RESULTS OF OPERATIONS

 

Our net revenues for each of the three months ended June 30, 2019 and 2018 were $0.  All the operations were transferred over to Worlds Online Inc. in the spin off. The Company’s sources of revenue are anticipated to be from enforcing our patents in litigation or otherwise. 

Three months ended June 30, 2019 compared to three months ended June 30, 2018

 

Revenue is $0 for the three months ended June 30, 2019 and 2018. All the operations were transferred over to Worlds Online Inc. in the spin off. The business up to the spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to provide the resources required that would enable us to expand our business.

 

Cost of revenues is $0 in the three months ended June 30, 2019 and 2018.

 

Selling general and administrative (SG&A) expenses decreased by $79,768 from $240,841 to $161,073 for the three months ended June 30, 2018 and 2019, respectively. Decrease is due to less activity related to exploring new business opportunities and a reduction in legal costs related to the patent infringement litigation.

Salaries and related decreased by $19,552 to $50,908 from $70,460 for the three months ended June 30, 2019 and 2018, respectively. The decrease is due to the decrease in the CEO’s salary based on the terms of his 2018 employment agreement.

  

For the three months ended June 30, 2019, the Company recorded an option expense of $35,298, equal to the increase in estimated fair value of the unvested options at June 30, 2019. For the three months ended June 30, 2018, there was $0 of option expense. 

 

For the three months ended June 30, 2018 Company had an interest expense of $11,219. The notes were paid off in the first quarter resulting in $0 in interest expense for the three months ended June 30, 2019.

 

For the three months ended June 30, 2018 we had a gain on sale of marketable securities of $435,448. The Company sold shares in the spin-off company MariMed Inc. For the three months ended June 30, 2019 we had $0. No shares were sold during the period. 

 

As a result of the foregoing, we realized a net loss of $247,279 for the three months ended June 30, 2019 compared to a net income of $112,928 for the three months ended June 30, 2018. 

 

Six months ended June 30, 2019 compared to six months ended June 30, 2018

 

Revenue is $0 for the six months ended June 30, 2019 and 2018. All the operations were transferred over to Worlds Online Inc. in the spin off. The business up to the spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to provide the resources required that would enable us to continue running the business.

 

Cost of revenues is $0 in the six months ended June 30, 2019 and 2018.

 

Selling general and administrative (SG&A) expenses decreased by $101,099 from $447,771 to $346,672 for the six months ended June 30, 2018 and 2019, respectively. The decrease is due to less activity related to exploring new business opportunities and a reduction in legal costs related to the patent infringement litigation.  

Salaries and related decreased by $38,655 to $102,265 from $140,920 for the six months ended June 30, 2019 and 2018, respectively. The decrease is due to the decrease in the CEO’s salary based on the terms of his 2018 employment agreement.

 

For the six months ended June 30, 2018, the Company recorded a warrant expense of $1,339,420, equal to the estimated fair value of the warrants at the date of grants. The warrant expense was due to 3,500,000 (post reverse split) warrants granted to investors of the company. For the six months ended June 30, 2019, there was no warrant expense.

 

For the six months ended June 30, 2019, the Company recorded an option expense of $54,471, equal to the increase in estimated fair value of the unvested options at June 30, 2019. For the six months ended June 30, 2018, there was $0 of option expense. 

 

For the six months ended June 30, 2019 The Company had interest expense of $8,015. For the six months ended June 30, 2018, the Company had interest expense of $22,315. The notes with interest were paid off in the first quarter of 2019.

 

For the six months ended June 30, 2018 we had a gain on sale of marketable securities of $1,339,502. The Company sold shares in the spin-off company MariMed Inc. The Company did not sell any shares for the six months ended June 30, 2019 and therefore we had $0. 

 

As a result of the foregoing, we realized a net loss of $511,423 for the six months ended June 30, 2019 compared to a net loss of $610,924 in the six months ended June 30, 2018.

 

 (14) 

 

  

Liquidity and Capital Resources

 

At June 30, 2019, our cash and cash equivalents were $2,265,002. The Company did not raise any funds or sell any shares of stock that the Company retained in the spin off company MariMed Inc. during the six months ended June 30, 2019. The Company repaid $750,000 in notes payable and notes payable related party plus accrued interest of $189,118. The Company used approximately $831,118 in cash to pay for operating expenses during the six months ended June 30, 2019.

 

At June 30, 2018, our cash and cash equivalents were $1,275,032. During the six months ended June 30, 2018, we raised an aggregate of $875,000 from warrants being exercised for common stock. We raised an additional $1,339,502 through the sale of shares of stock that the Company retained in the spin off company MariMed Inc.

 

Our primary cash requirements have been used to fund the cost of operations and lawsuits, and patent enforcement, with additional funds having been used in connection with the exploration of new business lines.

 

The funds raised in our 2018 financings were and will be used to enhance our patent portfolio, pay salaries to management and pay professional fees to our attorneys and auditors to prepare and file reports with the Securities and Exchange Commission.  We hope to raise additional funds to be used for further developing our portfolio of patents and to document our technology in order to enforce our patents where there is infringement.  No assurances can be given that we will be able to raise any additional funds.  

 

Item 4. Controls And Procedures

 

As of June 30, 2019, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019. The above statement notwithstanding, you are cautioned that no system is foolproof.

 

Changes in Internal Control Over Financial Reporting

 

During the quarter covered by this report there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 (15) 

 

 

 

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The Federal case before Judge Denise Casper has been stayed pending the rename of the IPR appeal from the United States Court of Appeals for the Federal Circuit (“CAFC”) to the Patent Trial and Appeal Board (“PTAB”).

 

On May 26, 2015, Bungie, Inc. filed three Petitions for Inter Partes Review with the U.S. Patent & Trademark Office (“USPTO”), and specifically, the PTAB. These Petitions for Inter Partes Review, Case Nos. IPR2015-01264, -01268, and -01269 respectively contained validity challenges of three U.S. patents assigned to the Company.  On June 1, 2015, Bungie, Inc. filed three additional Petitions for Inter Partes Review with the USPTO, and specifically the PTAB. The Petition for Inter Partes Review, Case No. IPR201501319 contained validity challenges of one additional U.S. patent assigned to the Company. The Petitions for Inter Partes Review, Case Nos. IPR2015-01321 and 01325 contained validity challenges of one additional U.S. patent assigned to the Company. In each Inter Partes Review, Bungie, Inc. was asking the PTAB to cancel issued claims from the Company’s patents.

 

The Company’s legal counsel represented the Company before the USPTO with regard to these six Petitions for Inter Partes Review, Case Nos. IPR2015-01264, -01268, -01269, -01319, -01321, and -01325, instituted against the five U.S. patents assigned to the Company.  The Company vigorously contested each Inter Partes Review. 

 

On November 10, 2016, the PTAB issued its final written decision in IPR2015-01264, canceling claim 1 of Company’s U.S. Patent No. 7,945,856.

 

On November 30, 2016, the PTAB issued its final written decision in IPR2015-01268, canceling claims 1-3, 5-7, 10-12, 14, 15, 17, and 19 of Company’s U.S. Patent No. 7,181,690.  Of the claims reviewed, the PTAB did not cancel claims 4, 8, 13, and 16. 

 

On November 28, 2016, the PTAB issued its final written decision in IPR2015-01269, canceling claims 4, 6, 8, and 9 of Company’s U.S. Patent No. 7,493,558. Of the claims reviewed, the PTAB did not cancel claims 5 and 7. 

 

On December 6, 2016, the PTAB issued its final written decision in IPR2015-01319, canceling claims 1-8, 10, 12, and 14-16 of Company’s U.S. Patent No. 8,082,501.

 

On November 28, 2016, the PTAB issued its final written decision in IPR2015-01321, canceling claims 1-3, 7, 8, 12-18, and 20 of Company’s U.S. Patent No. 8,145,998.

 

On November 28, 2016, the PTAB issued its final written decision in IPR2015-01325, canceling claims 1 and 20 of Company’s U.S. Patent No. 8,145,998.  Of the claims reviewed, the PTAB did not cancel claims 2-3, 7, 8, and 11-18 in this proceeding.

 

The Company did not appeal the final written decisions in IPR2015-01268, IPR2015-01269, and IPR2015-01325. 

 

On January 12, 2017, February 7, 2017, and January 30, 2017, respectively, Company appealed the outcomes in IPR2015-01264, IPR2015-01319, and IPR2015-01321 to the United States Court of Appeals for the Federal Circuit (“CAFC”).  These three cases have been consolidated.

 The company filed formal appeal briefs with the United States Court of Appeals for the Federal Circuit (“CAFC”) on June 26, 2017.

On June 19, 2017 Appellee, Bungie Inc., filed an extension request to respond which the CAFC granted on June 27, 2017.

On August 25, 2017, Appellee Bungie Inc. filed its Response Brief with CAFC.

On September 22, Appellant Worlds Inc. filed its Reply Brief with CAFC.

On January 22, 2018, the United States Court of Appeals for the Federal Circuit scheduled the oral argument for Worlds’ appeal of the U.S. Patent & Trademark Office Patent Trial & Appeal Board (USPTO PTAB) Inter Partes Review (IPR) decisions that issued in November and December, 2016. The oral argument took place before a panel of three judges of the Federal Circuit on March 9, 2018. 

On September 7, 2018, the United States Court of Appeals for the Federal Circuit issued a favorable ruling on Worlds’ behalf.  The ruling, written by the Chief Judge of the CAFC, vacated the USPTO’s Patent and Trial Board’s (PTAB) invalidity rulings against three of Worlds’ patents, and remanded these cases back to the PTAB with instructions to re-evaluate whether Bungie was permitted to even file its petitions for inter partes review (IPR) of Worlds’ patents.

On remand at the PTAB, the panel of judges issued an Order on November 29, 2018, setting forth the briefing schedule, and ordering that the evidentiary record in the appealed IPRs remains closed with the limited exception of formal records from the unappealed IPRs and a joint stipulation of facts agreed upon by Bungie, Inc. and Worlds Inc. On January 4, 2019, Bungie, Inc. filed its opening brief on remand. On February 4, 2019, Worlds Inc. filed its response brief on remand. On February 19, 2019, Bungie, Inc. filed its reply brief on remand in response to Worlds Inc.’s response brief. No oral hearing was scheduled by the PTAB in conjunction with the briefing on remand.

With briefing now complete, Worlds Inc. is awaiting the PTAB’s decision on remand.

 

 (16) 

 

 

Item 1A. Risk Factors

We are not obligated to disclose our risk factors in this report, however, limited information regarding our risk factors appears in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in “Item 1A. RISK FACTORS” of our 2018 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2018 Annual Report on Form 10-K.

 

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

During the six months ended June 30, 2019 we did not raise any funds through the sale of equity securities. 

During the six months ended June 30, 2018 we raised an aggregate of $875,000 from warrants being exercised for common stock.  

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable. 

Item 5. Other Information 

None.

 

 (17) 

 

 

Item 6. Exhibits

 

  3.1   Certificate of Incorporation (a)
       
  3.2   By-Laws Restated as Amended (b)
       
  31.1   Certification of Chief Executive Officer
       
  31.2   Certification of Chief Financial Officer
       
  32.1   Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
       
  32.2   Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
       
   101.INS* XBRL    Instance Document
       
  101.SCH*XBRL    Taxonomy Extension Schema
       
  101.CAL*XBRL    Taxonomy Extension Calculation Linkbase
       
  101.DEF*XBRL    Taxonomy Extension Definition Linkbase
       
  101.LAB*XBRL    Taxonomy Extension Label Linkbase
       
  101.PRE*XBRL    Taxonomy Extension Presentation Linkbase

 

(a) Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, as amended as described in Proxy Statements on Form DEF 14A filed on June 7, 2013 and May 17, 2016, and incorporated herein by reference.
(b) Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, and incorporated herein by reference.

 

 

 

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereto duly authorized.

Date: August 9, 2019

WORLDS INC.

 

By: /s/Thomas Kidrin

Thomas Kidrin

President and CEO

 

By: /s/Christopher Ryan

Christopher Ryan

Chief Financial Officer 

 

 (19) 

 

 

 INDEX TO EXHIBITS

 

  Exhibit No.     Description
  3.1     Certificate of Incorporation (a)
         
  3.2     By - Laws Restated as Amended (b)
         
  31.1     Certification of Chief Executive Officer
         
  31.2     Certification of Chief Financial Officer
         
  32.1     Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
         
  32.2     Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
         
   101.INS* XBRL      Instance Document
         
   101.SCH* XBRL      Taxonomy Extension Schema
         
   101.CAL* XBRL      Taxonomy Extension Calculation Linkbase
         
   101.DEF* XBRL      Taxonomy Extension Definition Linkbase
         
   101.LAB* XBRL      Taxonomy Extension Label Linkbase
         
   101.PRE* XBRL      Taxonomy Extension Presentation Linkbase

 

(a) Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, as amended as described in Proxy Statements on Form DEF 14A filed on June 7, 2013 and May 17, 2016, and incorporated herein by reference.
(b) Filed previously with the Proxy Statement Form DEF 14A on May, 19, 2010, and incorporated herein by reference.

 

 

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