UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2018
( ) 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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ (Do not check if a smaller reporting company) |
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 September 30, 2018, 56,814,833 shares of the Issuer's Common Stock were outstanding.
Worlds Inc.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
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NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 2018
(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. The Company also entered into a License Agreement with MariMed Inc. to sublicense its patented technologies.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. As the Company has focused its attention on increasing its patent portfolio and enforcing it, the Company has been operating at a significantly 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 for the second quarter of 2011, the Company spun off its online businesses to MariMed Inc. The Company’s current sources of revenue after the spin off are expected to be from any revenue that may be generated from enforcing its patents. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and 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.
Research and Development Costs
Research and development costs are charged to operations as incurred.
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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 2017 and thus far in 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.
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Notes Payable
The Company has $773,279 in short term notes outstanding at September 30, 2018 and December 31, 2017. 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 has an additional $750,000 in short term notes outstanding at September 30, 2018. As of December 31, 2017 $725,000 of such additional notes were categorized as long term notes and only $25,000 were categorized as short term notes.
Comprehensive Income (Loss)
The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.
Loss Per Share
Net loss per common share is computed pursuant to section 260-10-45 of the FASB ASC. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. As of September 30, 2018 there were 5,430,000 options and 4,480,000 warrants whose effect is anti-dilutive and not included in diluted net loss per share. As of December 31, 2017, there were 5,430,000 (post reverse split) options and 7,980,000 (post reverse split) warrants, whose effect is anti-dilutive and not included in diluted net loss per share for December 31, 2017. The options and warrants may dilute future earnings per share.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of September 30, 2018 and December 31, 2017, the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets.
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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, 2017.
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.
Warrant and option expense was measured by using level 3 valuation.
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Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Subsequent Events
The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, 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.
The Company has reviewed the new tax law recently enacted and determined that there will not be a material impact on the financial statements.
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NOTE 2 - EQUITY
On February 9, 2018 the Company implemented a 5 for 1 reverse split of the Company’s common stock.
During the nine months ended September 30, 2018 the Company received an additional $875,000 upon the exercise of 35,000,000 warrants (pre reverse split) to purchase 35,000,000 (pre reverse split) shares of the Company’s common stock at $0.025 per share.
During the nine months ended September 30, 2018, the Company issued 3,500,000 warrants as part of a subscription agreement. 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 Company recorded a warrant expense of $1,339,420 equal to the estimated fair value of the warrants at the date of issuance. The fair market value was calculated using the Binomial option price calculation method assuming approximately 2.52% risk-free interest, 0% dividend yield, 443% volatility, exercise price of $0.325 per share with a current market price of $0.385 and an expected life of 5 years.
During the nine months ended September 30, 2017 the Company received an additional $292,800 upon the exercise of 24,400,000 warrants (pre reverse split) to purchase 24,400,000 (pre reverse split) shares of the Company’s common stock at $0.012 per share.
NOTE 3 - NOTES PAYABLE
| Notes payable at September 30, 2018 consist of the following: | ||||
| Entire balance of principal and unpaid interest due on demand | $ | 124,230 | ||
| Entire balance of principal and unpaid interest due on demand | $ | 649,049 | ||
| Promissory notes | $ | 700,000 | ||
| Notes Payable - related party | $ | 50,000 | ||
| Total notes | $ | 1,523,279 | ||
| 2018 | $ | 773,279 | ||
| 2019 | $ | 750,000 | ||
| 2020 | $ | -0- | ||
| 2021 | $ | -0- | ||
| 2022 | $ | -0- | ||
| $ | 1,523,279 | |||
The promissory notes and note payable related party carry a 6% annual interest rate and are payable upon the earlier of (a) 24 months from the date of the promissory note or (b) the Company reaching a settlement(s) on a patent infringement claim(s) and receiving an aggregate of at least $2 million net proceeds from such settlement(s). The holders of the promissory notes shall receive repayment in the full face amount of the note from the initial $500,000 the Company actually receives from the net proceeds of its patent infringement claim(s) or from the net proceeds of a public offering. In addition the holder shall receive a preferred return (i) in an amount equal to up to 200% of the initial face amount of the note out of available cash by sharing with all other investors in this series of notes in the allocation of 50% of the available cash received by the Company from $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. All of the promissory notes had reached their maturity date and extension agreements have been signed for all of the $750,000 in notes.
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NOTE 4 – STOCK OPTIONS AND WARRANTS
Five million stock options were issued to the CEO as part of his employment agreement on August 28, 2018, see Note 5. An additional 300,000 options were issued to two new Directors on August 28, 2018. The options expire in five years. The Company recorded an option expense of $1,316,380 equal to the estimated fair value of the options at the date of issuance. The fair market value was calculated using the Binomial option price calculation method assuming approximately 2.52% risk-free interest, 0% dividend yield, 460% volatility, exercise price of $0.25 per share with a current market price of $0.25 and an expected life of 5 years. No stock options were exercised during the nine months ended September 30, 2018.
During the nine months ended September 30, 2018, the Company issued 3,500,000 warrants as part of a subscription agreement. 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 Company recorded a warrant expense of $1,339,420 equal to the estimated fair value of the warrants at the date of issuance. The fair market value was calculated using the Binomial option price calculation method assuming approximately 2.52% risk-free interest, 0% dividend yield, 443% volatility, exercise price of $0.325 per share with a current market price of $0.385 and an expected life of 5 years.
No stock options were issued or exercised during the nine months ended September 30, 2017.
| Stock Warrants and Options | ||||||||||
| Stock warrants/options outstanding and exercisable on a post reverse split basis on September 30, 2018 are as follows: | ||||||||||
| Exercise Price per Share | Shares Under Option/warrant | Remaining Life in Years | ||||||||
| Outstanding | ||||||||||
| $ | 0.325 | 3,500,000 | 4.33 | |||||||
| $ | 0.15 | 5,220,000 | 4.00 | |||||||
| $ | 0.15 | 580,000 | 2.20 | |||||||
| $ | 0.05 | 200,000 | 4.20 | |||||||
| $ | 0.30 | 200,000 | 4.20 | |||||||
| $ | 0.775 | 40,000 | 0.25 | |||||||
| $ | 0.70 | 50,000 | 0.25 | |||||||
| $ | 0.55 | 60,000 | 1.75 | |||||||
| $ | 0.65 | 60,000 | 1.75 | |||||||
| $ | 0.25 | 5,300,000 | 4.92 | |||||||
| Exercisable | ||||||||||
| $ | 0.325 | 3,500,000 | 4.33 | |||||||
| $ | 0.15 | 5,220,000 | 4.00 | |||||||
| $ | 0.15 | 580,000 | 2.20 | |||||||
| $ | 0.05 | 200,000 | 4.20 | |||||||
| $ | 0.30 | 200,000 | 4.20 | |||||||
| $ | 0.775 | 40,000 | 0.25 | |||||||
| $ | 0.70 | 50,000 | 0.25 | |||||||
| $ | 0.55 | 60,000 | 1.75 | |||||||
| $ | 0.65 | 60,000 | 1.75 | |||||||
| $ | 0.25 | 2,000,000 | 4.92 | |||||||
NOTE 5 - 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.
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NOTE 6 - RELATED PARTY TRANSACTIONS
On May 16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, 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.
Due from related party account is comprised of cash payments for operating expenses made by Worlds Inc on behalf of MariMed Inc. The balance at September 30, 2018 is a due from related party of $20,998 and the balance on December 31, 2017 is $15,998.
NOTE 7 - 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 are expensed as incurred.
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 8 – 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 nine months ended September 30, 2018, the Company sold 1,842,116 shares at an average price of $1.64 per share raising $3,017,790. The proceeds from the sale are treated as a gain on sale of marketable securities in the financial statements.
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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," "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
Starting in mid-2001 we were not able to generate enough revenue to sustain full operations and other sources of capital were not available. As a result, we have had to significantly curtail our operations since that time and at times almost halt them all together. Since mid-2007, as more funds became available from our financings, we were able to increase operations and become more active operationally.
On May 16, 2011, we transferred, through a spin-off to our then wholly owned subsidiary, Worlds Online Inc., the majority of our operations and related operational assets. We retained our patent portfolio which we intend to continue to increase and to more aggressively enforce against alleged infringers. We also entered into a License Agreement with MariMed Inc. to sublicense patented technologies.
At present, the Company’s anticipated sources of revenue after the spin off will be from revenue that may be generated from enforcing its patents.
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Revenues
We generated no revenue during the quarter because we transferred the operations of the Company to MariMed Inc. and our other anticipated revenue generation streams did not produce any income 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 September 30, 2018 and 2017 were $0. All the operations were transferred over to MariMed 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 September 30, 2018 compared to three months ended September 30, 2017
Revenue is $0 for the three months ended September 30, 2018 and 2017. All the operations were transferred over to Worlds Online (now called MariMed 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 $79,610 in the three months ended September 30, 2018 compared to $0 in the three months ended September 30, 2017. Increase is due to a modest investment by the Company exploring potential opportunities in the augmented reality space and crypto currencies. It is too soon to tell if the Company will continue investing in any of these areas.
Selling general and administrative (SG&A) expenses increased by $87,770 from $78,797 to $166,567 for the three months ended September 30, 2017 and 2018, respectively. Increase is due to activity related to the patent litigation and activity around exploring new business opportunities as mentioned above.
Salaries and related decreased by $414 to $63,640 from $64,054 for the three months ended September 30, 2018 and 2017, respectively. The slight decrease is due to the change in the CEO’s salary based on the terms of his new employment agreement.
For the three months ended September 30, 2018 the Company had an option expense of $1,316,380. For the three months ended September 30, 2017, there was no option expense.
For the three months ended June 30, 2018 and 2017 the Company had an interest expense of $11,342.
For the three months ended September 30, 2018 we had a gain on sale of marketable securities of $1,678,288 compared to $58,655 for the three months ended September 30, 2017. The Company sold shares in the spin-off company MariMed Inc.
As a result of the foregoing, we realized net income of $40,749 for the three months ended September 30, 2018 compared to a net loss of $95,540 in the three months ended September 30, 2017.
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Nine months ended September 30, 2018 compared to nine months ended September 30, 2017
Revenue is $0 for the nine months ended September 30, 2018 and 2017. All the operations were transferred over to MariMed 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 the business through acquisition or otherwise.
Cost of revenues is $189,500 in the nine months ended September 30, 2018 compared to $0 in the nine months ended September 30, 2017. Increase is due to a modest investment by the Company exploring potential opportunities in the augmented reality space and crypto currencies. It is too soon to tell if the Company will continue investing in any of these areas.
Selling general and administrative (SG&A) expenses increased by $172,282 from $332,166 to $504,448 for the nine months ended September 30, 2017 and 2018, respectively. The increase is due to an increase in professional service fees related to the patent infringement lawsuit and exploring new business opportunities as explained above.
Salaries and related increased by $12,397 to $204,560 from $192,163 for the nine months ended September 30, 2018 and 2017, respectively. The increase is due to changes in the CEO’s salary based on the terms of his new employment agreement.
For the nine months ended September 30, 2018 the Company had an option expense of $1,316,380. For the nine months ended September 30, 2017, there was no option expense.
For the nine months ended September 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 nine months ended September 30, 2017, there was no warrant expense.
For the nine months ended September 30, 2018 and 2017, the Company had interest expense of $33,658.
For the nine months ended September 30, 2018 we had a gain on sale of marketable securities of $3,017,790. The Company sold shares in the spin-off company MariMed Inc. For the nine months ended September 30, 2017 we had a gain of $58,655.
As a result of the foregoing, we realized a net loss of $570,175 for the nine months ended September 30, 2018 compared to a net loss of $504,726 in the nine months ended September 30, 2017.
| (15) |
Liquidity and Capital Resources
At September 30, 2018, our cash and cash equivalents were $2,646,672. During the nine months ended September 30, 2018, we raised an aggregate of $875,000 from warrants being exercised for common stock. We raised an additional $3,017,790 through the sale of shares of stock that the Company retained in the spin off company MariMed Inc.
During the nine months ended June 30, 2017, we raised an aggregate of $292,800 from warrants being exercised for common stock.
There were no capital expenditures in the nine months ended September 30, 2018 or in the nine months ended September 30, 2017.
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 and 2017 financings and from our sale of shares of common stock of MariMed Inc. 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 and to explore new business opportunities. 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 or implement any of these plans.
New Directors
On August 28, 2018, the board of directors of the Company appointed Peter Christos and Leonard Toboroff to be directors and to hold such office until the earlier of their resignation or until after the next annual meeting of shareholders and their successors have been duly elected and assumed office. Pursuant to the policy previously established by the Company, Messrs. Christos and Toboroff were each granted on the date of their appointment 150,000 options that vest immediately upon grant and are exercisable for five years from the date of grant at an exercise price equal to the closing price of the Company’s common stock on the grant date.
Item 4. Controls And Procedures
As of September 30, 2018, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2018. 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.
| (16) |
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Federal case before Judge Denise Casper has been stayed pending the outcome of the IPR appeal to the United States Court of Appeals for the Federal Circuit (“CAFC”).
On May 26, 2015, Bungie, Inc. filed three Petitions for Inter Partes Review with the U.S. Patent & Trademark Office (“USPTO”), and specifically, the Patent Trial and Appeal Board (“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 IPR201501264, 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 IPR201501268, 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 IPR201501269, 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 IPR201501319, 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 IPR201501321, 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 IPR201501325, 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, IPR201501269, and IPR2015-01325.
| (17) |
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 Appelle, 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.
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 2017 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2017 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended September 30, 2018 we raised an aggregate of $875,000 from warrants being exercised for common stock.
During the nine months ended September 30, 2017 we raised an aggregate of $292,800 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.
| (18) |
Item 6. Exhibits
| 3.1 | Certificate of Incorporation (a) | ||
| 3.2 | By-Laws Restated as Amended (a) | ||
| 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 9, 2010 and incorporated herein by reference. |
| (19) |
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereto duly authorized.
Date: November 14, 2018
WORLDS INC.
By: /s/Thomas Kidrin
Thomas Kidrin
President and CEO
By: /s/Christopher Ryan
Christopher Ryan
Chief Financial Officer
| (20) |
INDEX TO EXHIBITS
| Exhibit No. | Description | |||
| 3.1 | Certificate of Incorporation (a) | |||
| 3.2 | By - Laws Restated as Amended (a) | |||
| 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 9, 2010 and incorporated herein by reference. |
| (21) |
EXHIBIT 31.1
Certifications
I, Thomas Kidrin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Worlds Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 14, 2018
/s/ Thomas Kidrin
Thomas Kidrin
Chief Executive Officer
EXHIBIT 31.2
Certifications
I, Christopher J. Ryan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Worlds Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 14, 2018
/s/ Christopher J. Ryan
Christopher J. Ryan
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Worlds Inc. (the "Company") on Form 10-Q for the nine months ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas Kidrin, Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, our financial condition and result of operations. |
| WORLDS INC | |
| (Registrant) | |
| Date: November 14, 2018 | By:/s/ Thomas Kidrin |
| Thomas Kidrin | |
| Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Worlds Inc. (the "Company") on Form 10-Q for the nine months ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher J. Ryan, Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, our financial condition and result of operations. |
| WORLDS INC | |
| (Registrant) | |
| Date: November 14, 2018 | By:/s/ Christopher J. Ryan |
| Christopher J. Ryan | |
| Chief Financial Officer |
Document and Entity Information |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
shares
| |
| Document And Entity Information | |
| Entity Registrant Name | WORLDS INC |
| Entity Central Index Key | 0000001961 |
| Document Type | 10-Q |
| Document Period End Date | Sep. 30, 2018 |
| Amendment Flag | false |
| Current Fiscal Year End Date | --12-31 |
| Is Entity's Reporting Status Current? | Yes |
| Is Entity Emerging Growth Company? | false |
| Entity Filer Category | Non-accelerated Filer |
| Entity Small Business | true |
| Entity Common Stock, Shares Outstanding | 56,814,833 |
| Document Fiscal Period Focus | Q3 |
| Document Fiscal Year Focus | 2018 |
Balance Sheets - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Current Assets | ||
| Cash and cash equivalents | $ 2,646,672 | $ 168,229 |
| Due from related party | 20,998 | 15,998 |
| Total Current Assets | 2,667,670 | 184,227 |
| Total Assets | 2,667,670 | 184,227 |
| Current Liabilities | ||
| Accounts payable | 797,908 | 797,908 |
| Accrued expenses | 2,218,474 | 2,813,656 |
| Notes payable | 773,279 | 773,279 |
| Notes payables | 750,000 | 25,000 |
| Total Current Liabilities | 4,539,661 | 4,409,843 |
| Long Term Liabilities | ||
| Notes payable | 725,000 | |
| Total Long Term Liabilities | 725,000 | |
| Stockholders (Deficit) | ||
| Common stock (Par value $0.001 authorized 250,000,000 shares, issued and outstanding 56,554,833 at June 30, 2018 and 49,354,833 at December 31, 2017, reflecting the reverse split respectively) | 56,815 | 49,355 |
| Additional paid in capital | 41,560,157 | 37,918,817 |
| Common stock-warrants | 1,206,913 | 1,206,913 |
| Accumulated deficit | (44,695,876) | (44,125,701) |
| Total stockholders deficit | (1,871,989) | (4,950,615) |
| Total Liabilities and stockholders deficit | $ 2,667,670 | $ 184,227 |
Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common Stock, par value | $ 0.001 | $ 0.001 |
| Common Stock, shares authorized | 250,000,000 | 250,000,000 |
| Common Stock, shares issued | 56,554,833 | 49,354,833 |
| Common Stock, shares outstanding | 56,554,833 | 49,354,833 |
Statements of Operations - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Revenues | ||||
| Revenue | ||||
| Total Revenue | ||||
| Cost and Expenses | ||||
| Cost of Revenue | 79,610 | 189,500 | ||
| Gross Profit/(Loss) | (79,610) | (189,500) | ||
| Options expense | 1,316,380 | 1,316,380 | ||
| Selling, General & Admin. | 166,567 | 78,797 | 504,448 | 332,166 |
| Salaries and related | 63,640 | 64,054 | 204,560 | 192,163 |
| Operating (loss) | (1,626,196) | (142,852) | (2,214,887) | (524,329) |
| Other Income Expense | ||||
| Gain on sale of marketable securities | 1,678,288 | 58,655 | 3,017,790 | 58,655 |
| Warrant expense | (1,339,420) | |||
| Loss on conversion of payable to common stock | (5,394) | |||
| Interest Expense | (11,342) | (11,342) | (33,658) | (33,658) |
| Net Income/ (Loss) | $ 40,749 | $ (95,540) | $ (570,175) | $ (504,726) |
| Weighted Average (Loss) per share | $ 0 | $ 0 | $ (0.01) | $ (0.01) |
| Weighted Average Common Shares Outstanding (refelecting the reverse stock split) | 56,631,137 | 49,354,666 | 51,944,650 | 49,009,445 |
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCTING POLICIES |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||
| 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. (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. The Company also entered into a License Agreement with MariMed Inc. to sublicense its patented technologies.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. As the Company has focused its attention on increasing its patent portfolio and enforcing it, the Company has been operating at a significantly 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 for the second quarter of 2011, the Company spun off its online businesses to MariMed Inc. The Company’s current sources of revenue after the spin off are expected to be from any revenue that may be generated from enforcing its patents. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and 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.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets ranging from three to five years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Maintenance and repairs are charged to expense in the period incurred.
Impairment of Long Lived Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during 2017 and thus far in 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.
Notes Payable
The Company has $773,279 in short term notes outstanding at September 30, 2018 and December 31, 2017. 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 has an additional $750,000 in short term notes outstanding at September 30, 2018. As of December 31, 2017 $725,000 of such additional notes were categorized as long term notes and only $25,000 were categorized as short term notes.
Comprehensive Income (Loss)
The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.
Loss Per Share
Net loss per common share is computed pursuant to section 260-10-45 of the FASB ASC. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. As of September 30, 2018 there were 5,430,000 options and 4,480,000 warrants whose effect is anti-dilutive and not included in diluted net loss per share. As of December 31, 2017, there were 5,430,000 (post reverse split) options and 7,980,000 (post reverse split) warrants, whose effect is anti-dilutive and not included in diluted net loss per share for December 31, 2017. The options and warrants may dilute future earnings per share.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of September 30, 2018 and December 31, 2017, the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets.
Risk and Uncertainties
The Company is subject to risks common to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the year ended December 31, 2017.
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:
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.
Warrant and option expense was measured by using level 3 valuation.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Subsequent Events
The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, 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.
The Company has reviewed the new tax law recently enacted and determined that there will not be a material impact on the financial statements. |
NOTE 2 - EQUITY |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Equity [Abstract] | |
| NOTE 2 - EQUITY | NOTE 2 - EQUITY
On February 9, 2018 the Company implemented a 5 for 1 reverse split of the Company’s common stock. During the nine months ended September 30, 2018 the Company received an additional $875,000 upon the exercise of 35,000,000 warrants (pre reverse split) to purchase 35,000,000 (pre reverse split) shares of the Company’s common stock at $0.025 per share.
During the nine months ended September 30, 2018, the Company issued 3,500,000 warrants as part of a subscription agreement. 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 Company recorded a warrant expense of $1,339,420 equal to the estimated fair value of the warrants at the date of issuance. The fair market value was calculated using the Binomial option price calculation method assuming approximately 2.52% risk-free interest, 0% dividend yield, 443% volatility, exercise price of $0.325 per share with a current market price of $0.385 and an expected life of 5 years.
During the nine months ended September 30, 2017 the Company received an additional $292,800 upon the exercise of 24,400,000 warrants (pre reverse split) to purchase 24,400,000 (pre reverse split) shares of the Company’s common stock at $0.012 per share. |
NOTE 3 - NOTES PAYABLE |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTE 3 - NOTES PAYABLE | NOTE 3 - NOTES PAYABLE
The promissory notes and note payable related party carry a 6% annual interest rate and are payable upon the earlier of (a) 24 months from the date of the promissory note or (b) the Company reaching a settlement(s) on a patent infringement claim(s) and receiving an aggregate of at least $2 million net proceeds from such settlement(s). The holders of the promissory notes shall receive repayment in the full face amount of the note from the initial $500,000 the Company actually receives from the net proceeds of its patent infringement claim(s) or from the net proceeds of a public offering. In addition the holder shall receive a preferred return (i) in an amount equal to up to 200% of the initial face amount of the note out of available cash by sharing with all other investors in this series of notes in the allocation of 50% of the available cash received by the Company from $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. All of the promissory notes had reached their maturity date and extension agreements have been signed for all of the $750,000 in notes. |
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NOTE 4 - STOCK OPTIONS |
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTE 4 - STOCK OPTIONS | NOTE 4 - STOCK OPTIONS AND WARRANTS
Five million stock options were issued to the CEO as part of his employment agreement on August 28, 2018, see Note 5. An additional 300,000 options were issued to two new Directors on August 28, 2018. The options expire in five years. The Company recorded an option expense of $1,316,380 equal to the estimated fair value of the options at the date of issuance. The fair market value was calculated using the Binomial option price calculation method assuming approximately 2.52% risk-free interest, 0% dividend yield, 460% volatility, exercise price of $0.25 per share with a current market price of $0.25 and an expected life of 5 years. No stock options were exercised during the nine months ended September 30, 2018.
During the nine months ended September 30, 2018, the Company issued 3,500,000 warrants as part of a subscription agreement. 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 Company recorded a warrant expense of $1,339,420 equal to the estimated fair value of the warrants at the date of issuance. The fair market value was calculated using the Binomial option price calculation method assuming approximately 2.52% risk-free interest, 0% dividend yield, 443% volatility, exercise price of $0.325 per share with a current market price of $0.385 and an expected life of 5 years.
No stock options were issued or exercised during the nine months ended September 30, 2017.
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NOTE 5 - COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| NOTE 5 - COMMITMENTS AND CONTINGENCIES | NOTE 5 - 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 6 - RELATED PARTY TRANSACTIONS |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Related Party Transactions [Abstract] | |
| NOTE 6 - RELATED PARTY TRANSACTIONS | NOTE 6 - RELATED PARTY TRANSACTIONS
On May 16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, 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.
Due from related party account is comprised of cash payments for operating expenses made by Worlds Inc on behalf of MariMed Inc. The balance at September 30, 2018 is a due from related party of $20,998 and the balance on December 31, 2017 is $15,998. |
NOTE 7 - PATENTS |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Note 7 - Patents | |
| NOTE 7 - PATENTS | NOTE 7 - 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 are expensed as incurred.
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 8 - SALE OF MARKETABLE SECURITIES |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Marketable Securities [Abstract] | |
| NOTE 8 - SALE OF MARKETABLE SECURITIES | NOTE 8 - 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 nine months ended September 30, 2018, the Company sold 1,842,116 shares at an average price of $1.64 per share raising $3,017,790. The proceeds from the sale are treated as a gain on sale of marketable securities in the financial statements. |
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCTING POLICIES (Policies) |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||
| 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. (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. The Company also entered into a License Agreement with MariMed Inc. to sublicense its patented technologies. |
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| Basis of Presentation | Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. As the Company has focused its attention on increasing its patent portfolio and enforcing it, the Company has been operating at a significantly reduced capacity, with only one full time employee and using consultants to perform any additional work that may be required. |
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| 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. |
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| Cash and Cash Equivalents | 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. |
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| Revenue Recognition | Revenue Recognition
Effective for the second quarter of 2011, the Company spun off its online businesses to MariMed Inc. The Company’s current sources of revenue after the spin off are expected to be from any revenue that may be generated from enforcing its patents. The Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract, delivery has occurred, the price is fixed or determinable, and 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. |
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| Research and Development Costs | Research and Development Costs
Research and development costs are charged to operations as incurred. |
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| 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. |
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| 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 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 2017 and thus far in 2018. |
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| 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 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. |
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| Income Taxes | 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. |
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| Notes Payable | Notes Payable
The Company has $773,279 in short term notes outstanding at September 30, 2018 and December 31, 2017. 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 has an additional $750,000 in short term notes outstanding at September 30, 2018. As of December 31, 2017 $725,000 of such additional notes were categorized as long term notes and only $25,000 were categorized as short term notes. |
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| 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 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. |
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| 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, 2018 there were 5,430,000 options and 4,480,000 warrants whose effect is anti-dilutive and not included in diluted net loss per share. As of December 31, 2017, there were 5,430,000 (post reverse split) options and 7,980,000 (post reverse split) warrants, whose effect is anti-dilutive and not included in diluted net loss per share for December 31, 2017. The options and warrants may dilute future earnings per share. |
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| Commitments and Contingencies | Commitments and Contingencies The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately $205,000. As of September 30, 2018 and December 31, 2017, the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets. |
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| 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. |
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| Off Balance Sheet Arrangements | Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements. |
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| 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 Section 740-10-25 for the year ended December 31, 2017. |
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| Fair Value of Financial Instruments | 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:
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.
Warrant and option expense was measured by using level 3 valuation. |
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| Embedded Conversion Features | 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. |
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| Derivative Financial Instruments | 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. |
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| Subsequent Events | Subsequent Events
The Company evaluated for subsequent events through the issuance date of the Company’s financial statements. |
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| Recent Accounting Pronouncements | 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.
The Company has reviewed the new tax law recently enacted and determined that there will not be a material impact on the financial statements. |
NOTE 3 - NOTES PAYABLE (Tables) |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes payable |
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NOTE 4 - STOCK OPTIONS (Tables) |
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option table |
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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCTING POLICIES (Details Narrative) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Short term notes outstanding | $ 773,279 | $ 773,279 |
| Notes outstanding | 750,000 | 725,000 |
| Options | $ 5,430,000 | $ 5,430,000 |
| Warrants | 4,480,000 | 7,980,000 |
| Reserve for litigation | $ 205,000 | $ 205,000 |
NOTE 2 - EQUITY (Details Narrative) |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
$ / shares
shares
| |
| Equity [Abstract] | |
| Company received additional funds | $ | $ 875,000 |
| Warrants exercised | 35,000,000 |
| Shares purchased | 35,000,000 |
| Price per share | $ / shares | $ 0.025 |
| Additional warrants issued | 3,500,000 |
NOTE 3 - NOTES PAYABLE (Details Narrative) |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
| |
| Debt Disclosure [Abstract] | |
| Promissory note - annual interest | 6.00% |
| Net proceeds from settlements | $ 2,000,000 |
| Holder of promissory note shall receive payment of | $ 500,000 |
| Holder shall receive a preferred return | 20.00% |
| Promissory notes | $ 750,000 |
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Details Narrative) |
Aug. 28, 2018
USD ($)
majorshareholders
$ / shares
shares
|
|---|---|
| Term of employment agreement | majorshareholders | 5 |
| Officer compensation | $ 200,000 |
| Yearly increase | 10.00% |
| Car allowance | $ 500 |
| Annual bonus | 0.025 |
| Additional bonus | $ 75,000 |
| Pre-tax income range | 1.50 |
| Pre-tax income range | 2.00 |
| Llife insurance premium | $ 10,000 |
| Option to purchase stock | shares | 5,000,000 |
| Exercise price per share | $ / shares | $ 0.25 |
| Death benefit | $ 2,000,000 |
| Payment of base amount | 2.99 |
| Restrictive convenants time | majorshareholders | 12 |
| Additional bonus 1 | |
| Additional bonus | $ 100,000 |
| Pre-tax income range | 2.01 |
| Pre-tax income range | 2.50 |
| Additional bonus 2 | |
| Annual bonus | 0.05 |
| Additional bonus | $ 200,000 |
| Pre-tax income | 2.51 |
NOTE 6 - RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Related Party Transactions [Abstract] | ||
| Due from related party | $ 20,998 | $ 15,998 |
NOTE 8 - SALE OF MARKETABLE SECURITIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Jan. 31, 2011 |
|
| Marketable Securities [Abstract] | |||||
| Shares issued to spin off Company | 5,936,115 | ||||
| Shares sold | 1,842,116 | ||||
| Price per share | $ 1.64 | ||||
| Gain on sale of marketable securities | $ 1,678,288 | $ 58,655 | $ 3,017,790 | $ 58,655 | |
NOTE 3 - NOTES PAYABLE (Details) |
Sep. 30, 2018
USD ($)
|
|---|---|
| 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 |
| Promissory notes | 700,000 |
| Notes payable - related party | 50,000 |
| Total current | 1,523,279 |
| Notes payable due within 2018 | 773,279 |
| Notes payable due within 2019 | 750,000 |
| Notes payable due within 2020 | 0 |
| Notes payable due within 2021 | 0 |
| Notes payable due within 2022 | 0 |
| Notes Payable Total | $ 1,523,279 |
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