UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended September 30, 2017March 31, 2021

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

For the transition period from __________________ to __________________

Commission File number 0-24115000-24115

WORLDS INC.

(Exact Name of Registrant as Specified in Its Charter)

11 Royal Road

Brookline, MA02445

(Address of Principal Executive Offices)

(617)
(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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):

(Check One):

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 October 30, 2017, 246,773,331May 14, 2021, 57,112,506 shares of the Issuer's Common Stock were outstanding. 

Worlds Inc.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Worlds Inc.

NOTES TO FINANCIAL STATEMENTS

NineThree Months Ended September 30, 2017March 31, 2021

(Unaudited)

NOTE 1 – GOING CONCERN

As reflected in the accompanying financial statements, the Company has a working capital deficiency of $3,184,228 and a stockholder’s deficiency of $2,963,461 and used $319,495 of cash in operations for the three months ended March 31, 2021. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that the actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

NOTE 12 – 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(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 Worlds Online Inc. to sublicense its patented technologies.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplates continuation of the Company as a going concern.. The Company has always been considered a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. 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 includesinclude highly liquid money market instruments, which have original maturities of three months or less at the time of purchase.

Due to Related PartyRevenue Recognition

DueEffective January 1, 2018, the Company adopted ASC 606. There was no impact in adopting ASC 606 as the Company has no revenue at this time. In the second quarter of 2011, the Company spun off its online businesses to related party is comprisedMariMed Inc. The Company’s sources of cash payments maderevenue after the spinoff was expected to be from sublicenses of the patented technology by Worlds Online Inc. on behalf of Worlds Inc. for shared operating expenses.

and any revenue that may be generated from enforcing its patents. The Company recognizes revenue by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

Revenue Recognition

Effective for the second quarter of 2011, the Company spun off its online businesses to Worlds Online Inc. The Company’s sources of revenue after the spin off are 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 agreement or contract or a final court decision, 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 FASBFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during 20162020 and 2015 or the first nine months of 2017.2019.

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

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

Notes Payable

The Company has $773,279$773,279 in short term notes outstanding at September 30, 2017March 31, 2021 and December 31, 2016.2020. 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 $725,000 in long term notes and $25,000 in short term notes outstanding at September 30, 2017. The Company had $750,000 in short term notes outstanding at December 31, 2016. All of the notes were extended during the quarter.

Comprehensive Income (Loss)

The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards CodificationASC 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, 2017,March 31, 2021, there were 26,250,00011,720,000 options and no4,380,000 warrants outstanding and as of March 31, 2020, there were 11,140,000 options and 4,380,000 warrants outstanding whose effect is anti-dilutive and not included in diluted net loss per share for September 30, 2017.March 31, 2021 or for March 31, 2020. The options and warrants may dilute future earnings per share.

Commitments and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards CodificationASC 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, 2017,March 31, 2021, and December 31, 20162020 the Company recorded a reserve of $205,000$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, 2016.2020.

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. The Company's convertible notes payable are measured at amortized cost.

The Company accounts for its derivative liabilities, at fair value, on a recurring basis underWarrant and option expense was measured by using level 3. See Note 5.

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 accounts for stock-based compensation for employees and directors in accordance with Accounting Standards Codification 718, Compensation (“ASC 718”) as issued by the FASB. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 718 and, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit in the condensed consolidated statements of operations. The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting Standards Update (“ASU”) 2018-07.

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

NOTE 3 - NOTES PAYABLE

The Company imputed interest of $18,891 on the notes during the quarter ended March 31, 2021.

NOTE 24 - GOING CONCERNEQUITY 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had periods where it had only minimal revenues from operations. There can be no assurance that the Company will be able to obtain the additional capital resources to fully implement its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material adverse effect on the Company, including possibly requiring the Company to completely reduce and/or cease operations.

These factors raise substantial doubt about the ability of the CompanyAll common stock numbers and exercise prices in this Note are reflected on a post reverse split (5 to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

NOTE 3 - EQUITY1) basis, which reverse split was effectuated on February 9, 2018.

During the ninethree months ended September 30, 2017 the Company received an additional $292,800 upon the exercise of 24,400,000 warrants to purchase 24,400,000 shares of the Company’s common stock at $0.012 per share. During the nine months ended September 30, 2017March 31, 2021, the Company issued 750,000297,673 shares of the Company’s common stock as payment for services rendered, an aggregatesettlement of accounts payable to a related party. The value of $18,000. The expensethe shares at the date of issuance was recorded$70,810 resulting in a prior year and the shares were listed as common stock subscribed but not yet issued until the shares were issued during the nine months ended September 30, 2017.loss of $8,685.

During the ninethree months ended September 30, 2016,March 31, 2021, the Company issued 35,000,000 sharesrecorded an option expense of common stock at a price of $0.01 per share raising $350,000. In connection with this raise,$58,182 representing the Company issued 35,000,000 warrants with each to purchase one share of common stock at a price of $0.012. Allamortization of the warrantsvalue of the options issued in 2020 that have been exercised as of September 30, 2017.not yet vested.

During the nine monthsyear ended September 30, 2016,December 31, 2020, the Company issued 54,963,098 shares of common stock by converting $384,159700,000 options. 300,000 options were issued to Chris Ryan, the Chief Financial Officer of the principalCompany, and 400,000 options were issued to Directors of convertible notes payable.the Company.  The Company recorded an option expense of $267,647 in 2020. $256,574 of this amount relates to the 2018 grant to Mr. Kidrin, the CEO. $11,073 relates to the grant in 2020 to Mr. Ryan, the CFO. The directors’ options were granted on December 31, 2020 and no expense was recorded for these options. The option expense represents the amortization of the value of the options issued in 2020 and 2018 that have not yet vested. The fair market value for Mr. Ryan’s options was calculated using the Black Scholes method assuming a risk free interest of .36%, 0% dividend yield, volatility of 204%, and an exercise price of $0.266 per share with a market price of $0.266 per share at issuance date and an expected life of 5 years. The options vest one year from the date of grant.

NOTE 4 - NOTES PAYABLEDuring the three months ended March 31, 2020, the Company recorded an option expense of $81,079 representing the amortization of the value of the options issued in 2018 that have not yet vested.

We issued promissory notes in the amount of $290,000 during the nine months ended September 30, 2016. The promissory notes carry a 6% annual interest rate. All of the promissory notes had reached their maturity date and extension agreements have been signed for all of the $750,000 in notes. The holders of the promissory notes shall receive repayment in the full face amount of the note from the initial $750,000 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.  

NOTE 5 – STOCK OPTIONS

The Company issued 25,000,000 shares of common stock with an exercise price of $0.03 per share during the nine months ended September 30, 2017 and no stock options were exercised during the nine months ended September 30, 2017.

No stock options were issued during the nine months ended September 30, 2016 and no stock options were exercised during the nine months ended September 30, 2016. 

NOTE 65 - COMMITMENTS AND CONTINGENCIES

The Company is committed to an employment agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 30, 2012,28, 2018, is for five years with a one-year renewal option held by Mr. Kidrin.  The agreement provides for a base salary of $175,000,$200,000, which increases 10%10% on September 1 of each year; a monthly car allowance of $500;$500; an annual bonus equal to 2.5%2.5% of Pre-Tax Income (as defined in the agreement); an additional bonus as follows: $75,000,$75,000, if Pre-Tax Income for the year is between 150%150% and 200%200% of the prior fiscal year’s Pre-Tax Income or (B) $100,000,$100,000, if Pre-Tax Income for the year is between 201%201% and 250%250% of the prior fiscal year’s Pre-Tax Income or (C) $200,000,$200,000, if Pre-Tax Income for the year is 251%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$10,000 in life insurance premiums; options to purchase 7.55 million shares of Worlds Inc. common stock at an exercise price of  $0.076$0.25 per share, all2 million of which vested on August 30, 2012;28, 2018, 1.5 million vested on August 28, 2019 and the remaining 1.5 million vested 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 option portion of Mr. Kidrin’s employment agreement has expired and has been replace by an option agreement giving Mr. Kidrin the option to purchase 25,000,000 million shares of Worlds Inc. common stock at an exercise price of $0.03 per share, all of which vest on October 1, 2017. The remaining parts of the agreement have been renewed by Mr. Kidrin for one year. 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

The Company issued 297,673 shares of common stock to Chris Ryan the CFO as settlement of amounts previously recorded. The value of the shares on the date of issuance was $70,810. The Company recorded a loss of $8,685 on the issuance of the shares.

The Company recorded a gain on forgiveness of accounts payable related party due to the Company’s CFO in the amount of $16,401.

The balance in the accrued expense attributable to related parties is $21,899 and $82,214 at March 31, 2021 and December 31, 2020, respectively. 

See note 9 for a discussion on the convertible note receivable from the related party.

NOTE 7 - RELATED PARTY TRANSACTIONS

On May 16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against alleged infringers.

Due to and due from related party accounts is comprised of cash payments for operating expenses made by Worlds Online Inc. on behalf of Worlds Inc. or made by Worlds Inc on behalf of Worlds Online Inc. The balance at September 30, 2017 is a due from related party of $10,095 and the balance on December 31, 2016 is a due to related party of $5,053.

NOTE 8 - 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 GodfreyOn September 20, 2019, the Company filed a lawsuit against Linden Research, Inc. in the US District court for the District of Delaware. On September 25, 2020, the Company filed a lawsuit against Microsoft Corporation in the U.S. District Court for the Western District of Texas. Davidson, Berquist, Jackon & Gowdey LLP is lead counsel for the Company. The costs to prosecute those parties thatSee Legal Proceedings section for more information on the Company and our legal counsel believe to be infringing on said patents were capitalized under patents until a resolution is reached.patent infringement lawsuits.

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 – ACCRUED EXPENSES

Accrued expenses is comprised of (i) $21,899 owed to related parties, (ii) $205,000 related to a judgment against the Company relating to unpaid consulting services dating back to April of 2001, (iii) $1,305,009 related to old accruals for which the statute of limitations has passed and therefore the Company does not expect it will ever have to repay those amounts, and (iv) $14,342 related to accruals for recurring operating expenses.

NOTE 9 – CONVERTIBLE NOTE RECEIVABLE – RELATED PARTY

The Company made an investment in the form of a convertible note in the amount of $200,000 to Canadian American Standard Hemp (“CASH”). The convertible note has a 7% annual interest rate and matures in 2 years. Interest and principle is payable at maturity. The note can be converted at any time and either all or part of the amount due can be converted into the borrower’s equity. During the year ended December 31, 2020, CASH merged with Real Brands, Inc. The convertible note and accrued interest of $20,767 can be converted into 27,124,585 shares of Real Brands common stock at a conversion price of $0.008139. If converted into common stock, the Company would own approximately 1% of Real Brands Inc. Messrs. Kidrin, Toboroff and Christos are Directors of Real Brands and Mr. Kidrin is the CEO and Mr. Ryan is the CFO of Real Brands.

During the three months ended March 31, 2021, the Company earned $3,500 in interest on the note.

During the three months ended March 31, 2020, the Company earned $3,539 in interest on the note.

NOTE 910 – 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 quarterthree months ended March 31, 2021 the Company sold 120,472 shares at an average pricegenerated net cash of $0.49 per share raising $58,654.57. The proceeds$431,191 from the sale of 495,000 shares of MariMed Inc. common stock during the three months ended March 31, 2021 and 100,000 shares of MariMed Inc. common stock at the end of December 2020 which was treated as a gain on salenot transferred to the Company’s bank account until January of marketable securities2021. The average price per share was $0.73 per share. 

As of March 31, 2021, the Company still owns approximately 2.4 million shares of MariMed Inc. common stock.

No shares were sold in the financial statements.three months ended March 31, 2020.

NOTE 11 – SUBSEQUENT EVENTS

Regarding the Company's lawsuit against the Activision entities filed in 2012, on April 30, 2021, Judge Casper granted Activision’s summary judgment motion, entered an Order finding that all asserted patents were invalid as directed to patent-ineligible subject matter, and terminated the Company’s lawsuit against the Activision Entities.  The Company has thirty (30) days from entry of this Order to appeal, and plans to seek appellate review of Judge Casper’s Order by the U.S. Court of Appeals for the Federal Circuit, sitting in Washington, D.C. For further information see Part II Other Information, legal proceedings.

Regarding the Company’s lawsuit against Linden Research, Inc., d/b/a Linden Lab (“Linden”) filed on September 20, 2019. On April 8, 2021, the Company and Linden jointly filed a stipulation to stay the Court’s deadlines for 30 days pending completion of a settlement agreement between the parties.  The Court granted the stay stipulation on the same day.  On May 11, 2021, the Company and Linden jointly reported to the Court that a settlement agreement has been finalized, and they anticipated that a stipulation of dismissal with prejudice would be filed by May 27, 2021.  The Court authorized this proposal on May 12, 2021.

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

Forward Looking Statements

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

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions;conditions resulting from changes in political, social and economic conditions (whether or not related to terrorism, war, pandemic, weather, environmental or other factors) in the jurisdictions in which we operate;operate and changes to regulations that pertain to our operations; changes in technology that render our technology relatively inferior, obsolete or more expensive compared to others; delays in the delivery of broadband capacity to the homes and offices of persons who license our technology; general disruptions to Internet service; and the loss of customer faith in the Internet as a means of commerce.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. (currently callednamed MariMed Inc.), the majority of our operations and related operational assets. We retained our patent portfolio which we intend to continue to increase and to more aggressively enforce against alleged infringers. We also entered into a License Agreement with Worlds OnlineMariMed Inc. to sublicense patented technologies.technologies, which agreement has since expired.

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

Revenues

We generated no revenue during the quarter because we transferred the operations of the Company to Worlds Online Inc. and our other anticipated revenue generation streams did not producereceive any incomecourt awards or settlements during the quarter.

Expenses

We classify our expenses into two broad groups:

Liquidity and Capital Resources

We have had to limit our operations since mid 2001mid-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.  WeAlthough 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 needbe unable to once again scale back operations.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, 2017March 31, 2021 and 20162020 were $0.  All the operations were transferred over to Worlds Online Inc. in the spin off. The Company’s future sources of revenue after the spin off are anticipated to be from enforcing our patents in litigation or otherwise.

Three months ended September 30, 2017 compared to the three months ended September 30, 2016

Revenue is $0 for the three months ended September 30, 2017 and 2016. All the operations were transferred over to Worlds Online Inc. in the spin off. The business up to the spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we  We still need to raise a sufficient amount of capital to provide the resources required that would enable us to continue running theexpand our business.

Cost of revenues is $0 in theThree months ended March 31, 2021 compared to three months ended September 30, 2017 and 2016.March 31, 2020

Selling general and administrative (SG&A) expenses decreased by $57,651 from $136,448increased substantially to $78,797$753,434 for the three months ended SeptemberMarch 31, 2021 from $171,930 for the three months ended March 30, 2016 and 2017, respectively. Decrease2020. The increase of $581,504 is due to professional servicean increase in legal fees surroundingrelated to the patent infringement lawsuit and raising funds last year with limited activity this year.litigation.

Salaries and related increased by $3,882$690 to $64,054$53,356 from $60,172$52,666 for the three months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. The increase is due to an increase in the CEO’s salary based on the terms of his 2018 employment agreement.

For the three months ended September 30, 2017,March 31, 2021, the Company recorded an option expense of $58,182, equal to the increase in estimated fair value of the unvested options at March 31, 2021. For the three months ended March 31, 2020, there was $81,079 of option expense. 

For the three months ended March 31, 2021 the Company had an interest expense of $18,891 and for March 31, 2020 the Company had an interest expense of $18,919.

For the three months ended March 31, 2020 the Company had interest income of $3,500. For the three months ended March 31, 2020 the Company had interest income of $3,539.

For the three months ended March 31, 2021, the Company recorded a loss on issuance of shares for services of $8,685.

For the three months ended March 31, 2021, the Company had a gain on sale of marketable securities of $58,655 from the sale of Worlds Online Inc. common stock.

For the three months ended September 30, 2016, we had a warrant expense of $1,109,440.

For the three months ended September 30, 2017, the$431,191. The Company had interest expense of $11,342 compared to an interest expense of $21,536did not sell any marketable securities for the three months ended September 30, 2016.

For the three months ended September 30, 2016, the Company had a gain on change in fair value of derivative liability of $71,860 related to the issuance of secured convertible notes and the outstanding options that are required to be recorded as a derivative liability.March 31, 2020.

As a result of the foregoing, we realized a net loss of $95,540$457,857 for the three months ended September 30, 2017March 31, 2021 compared to a net loss of $1,255,340$321,055 in the three months ended September 30, 2016.

March 31, 2020.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenue is $0 for the nine months ended September 30, 2017 and 2016. All the operations were transferred over to Worlds Online Inc. in the spin off. The business up to the spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to provide the resources required that would enable us to continue running the business.

Cost of revenues is $0 in the nine months ended September 30, 2017 and 2016.

Selling general and administrative (SG&A) expenses decreased by $207,090 from $539,256 to $332,166 for the nine months ended September 30, 2016 and 2017, respectively. Decrease is due to a decrease in professional service fees related to the patent infringement lawsuit and raising of funds last year compared to limited activity this year.

Salaries and related increased by $15,528 to $192,163 from $176,635 for the nine months ended September 30, 2017 and 2016, respectively. The increase is due to an increase in the CEO’s salary based on the terms of his employment agreement.

For the nine months ended September 30, 2017, the Company had a gain on sale of marketable securities of $58,655 from the sale of Worlds Online Inc. common stock.

For the nine months ended September 30, 2016, we had a warrant expense of $1,109,440.

For the nine months ended September 30, 2017, the Company had interest expense of $33,658 compared to $75,796 for the comparable period in 2016.

For the nine months ended September 30, 2016, the Company had a loss on change in fair value of derivative liability of $364,191. The derivative liabilities are in connection with the issuance of the secured convertible notes which are required to be recorded as a derivative liability and for 2016, the options which are required to be recorded as a derivative liability.

As a result of the foregoing, we realized a net loss of $504,726 for the nine months ended September 30, 2017 compared to a net loss of $2,264,922 in the nine months ended September 30, 2016.

Liquidity and Capital Resources

At September 30, 2017,March 31, 2021, our cash and cash equivalents were $37,976.  During$582,783. The Company raised funds by selling shares of stock that the nineCompany retained in the spin off company MariMed Inc. during the three months ended September 30, 2017, weMarch 31, 2021. The Company raised an aggregate$431,191 from selling shares of $292,800 from warrants being exercisedMariMed Inc. common stock. The Company used $319,495 in cash to pay for common stock and $58,655 fromoperating expenses during the sale of marketable securities.three months ended March 31, 2021.

DuringAt March 31, 2020, our cash and cash equivalents were $1,326,255. The Company did not raise any funds or sell any shares of stock that the nineCompany retained in the spin off company MariMed Inc. during the three months ended September 30, 2016, we raised an aggregate of $290,000 from issuing notes payable, $156,500 was raised from a convertible note payable; and an aggregate of $350,000 from issuing thirty five million shares of common stock.March 31, 2020. The Company used approximately $225,000 in cash to pay for operating expenses during the three months ended March 31, 2020.

There were no capital expenditures in the nine months ended September 30, 2017 or in the nine months ended September 30, 2016.

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

The funds raised in our 2017 and 2016 financings were and will be used to enhance our patent portfolio, pay salaries to management and pay professional fees to our attorneys and auditors to prepare and file reports with the Securities and Exchange Commission.  We hope to raise additional funds to be used for further developing our portfolio of patents and to document our technology in order to enforce our patents where there is infringement.  No assurances can be given that we will be able to raise any additional funds.  

Item 4. Controls And Procedures

As of September 30, 2017,March 31, 2021, 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 not effective as of September 30, 2017. The above statement notwithstanding, you are cautioned that no system is foolproof.March 31, 2021.

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.

PART II OTHER INFORMATION

Item 1. Legal Proceedings.Proceedings

The Federal case beforeCompany has sought damages for patent infringement of the Company’s patents in three proceedings.  The first proceeding was filed by the Company against Activision Blizzard, Inc., Blizzard Entertainment, Inc., and Activision Publishing, Inc. in the U.S. District Court for the District of Massachusetts in 2012.  The Company also filed a complaint for patent infringement against Linden Research, Inc., d/b/a Linden Lab in the U.S. District Court for the District of Delaware in 2019, and filed a complaint for patent infringement against Microsoft Corporation in the U.S. District Court for the Western District of Texas in September, 2020.

The Company's lawsuit against the Activision entities was filed in 2012, with U.S. District Judge Denise Casper has beenpresiding over these proceedings.  This lawsuit was stayed in 2015 pending the outcome of the IPR appealsix Inter Partes Review (“IPR”) petitions filed by Bungie, Inc. to the United StatesU.S. Patent & Trademark Office's Patent Trial and Appeal Board (“PTAB”).  Those IPR proceedings were finally concluded in Company's favor on January 14, 2020, with the majority of the challenged claims surviving Bungie's challenges.  Returning to its District Court litigation, the Company asked that Judge Casper lift the stay and allow the Company to proceed in its lawsuit for patent infringement of the Company’s patents against the Activision entities.

On April 17, 2020, Judge Casper issued an Order lifting the stay, and setting a pre-trial schedule with a final pretrial conference and trial to occur at a date to be determined after September 24, 2021.  On May 5, 2020, Activision submitted a renewed motion for summary judgment of patent invalidity under 35 U.S.C. 101 motion, and claimed that the asserted patents are directed to patent-ineligible subject matter.  Worlds opposed this motion on June 9, 2020, and a hearing was held on July 22, 2020 at 3:00 p.m.  The parties proceeded with fact and expert discovery up to and including April 30, 2021.  On April 30, 2021, Judge Casper granted Activision’s summary judgment motion, entered an Order finding that all asserted patents were invalid as directed to patent-ineligible subject matter, and terminated the Company’s lawsuit against the Activision Entities.  The Company has thirty (30) days from entry of this Order to appeal, and plans to seek appellate review of Judge Casper’s Order by the U.S. Court of Appeals for the Federal Circuit, (“CAFC”)sitting in Washington, D.C.

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. 

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 September 20, 2019, the Company filed a lawsuit against Linden Research, Inc., d/b/a Linden Lab (“Linden”) in the U.S. District Court for the District of Delaware for patent infringement of the Company’s U.S. Patent No. 7,181,690.  This case was assigned to U.S. District Judge Maryellen Noreika.  On December 2, 2019, Linden answered the Complaint, denying that it has committed patent infringement.  On January 8, 2020, the Court entered a Scheduling Order, setting deadlines for Fact Discovery and Contentions, Claim Construction, Expert Discovery, Summary Judgment, and Trial Phase.  A claim construction hearing (“Markman” hearing) occurred on November 13, 2020.  The scheduled trial date was set for January 31, 2022.

On April 8, 2021, the Company and Linden jointly filed a stipulation to stay the Court’s deadlines for 30 days pending completion of a settlement agreement between the parties.  The Court granted the stay stipulation on the same day. On May 11, 2021, the Company and Linden jointly reported to the Court that a settlement agreement has been finalized, and they anticipated that a stipulation of dismissal with prejudice would be filed by May 27, 2021.  The Court authorized this proposal on May 12, 2021.

On September 25, 2020, the Company filed a lawsuit against Microsoft Corporation (“Microsoft”) in the U.S. District Court for the Western District of Texas for patent infringement of the Company’s U.S. Patent No. 8,082,501.  This case was assigned to U.S. District Judge Alan D. Albright. On December 4, 2020, Microsoft filed Motion to Dismiss and Motion to Stay.  On January 15, 2021, the Court entered a Scheduling Order, setting the Jury Selection and Jury Trial for March 14, 2022.  The Company filed its Opening claim construction brief on April 9, 2021. Microsoft filed its Responsive claim construction brief on April 30, 2021.  In view of the Order issued by Judge Casper in the Company’s litigation against Activision on April 30, 2021, including the Company’s intent to appeal that Order, the Company and Microsoft jointly asked that Judge Albright stay the lawsuit against Microsoft pending the Company’s appeal of Judge Casper’s Order.  The parties’ motion to stay pending appeal was filed on May 7, 2021, and Court granted the motion on May 11, 2021.

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 20152020 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 20152020 Annual Report on Form 10-K.

The above notwithstanding, we are mindful of the COVID-19 pandemic currently sweeping the world in general and in particular the United States. Inasmuch as our business model does not rely on sales of a product or services or consumer access thereto, we do not believe that we will be negatively impacted by the pandemic and the economic havoc it is currently wreaking on the economies of the United States and the world. Having said that, it is possible that if the pandemic continues for an extended period of time and/or recurs again in the future, it may cause delays in the prosecution of the Company’s lawsuit.

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

During the ninethree months ended September 30, 2017March 31, 2021 and 2020 we raised an aggregatedid not raise any funds through the sale of $292,800 from warrants being exercised for common stock.equity securities. 

During the nine months ended September 30, 2016, we raised an aggregate of $350,000 from issuing thirty five million shares of common stock to accredited investors in exempt private offerings without the use of public advertising or the payment of commissions. During the nine months ended September 30, 2016, we raised an aggregate of $446,500 from issuing notes payable and convertible notes payable to accredited investors in exempt private offerings without the use of public advertising or the payment of commissions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable. 

Item 5. Other Information

None.

Item 6. Exhibits

SIGNATURES

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: NovemberMay 14, 20172021

WORLDS INC.

By: /s/Thomas Kidrin

Thomas Kidrin

President and CEO

By: /s/Christopher Ryan

Christopher Ryan

Chief Financial Officer 

 INDEX TO EXHIBITS