NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2016
(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., 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, performing primarily consulting services and licensing software 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 are comprised of highly liquid
money market instruments, which have original maturities of three months or less at the time of purchase.
Due to Related Party
Due to related party is comprised of
cash payments made by Worlds Online Inc. on behalf of Worlds Inc. for shared operating expenses.
Revenue Recognition
Effective for the second quarter of
2011, the Company spun off its online businesses to Worlds Online Inc. The Company’s sources of revenue after the spin off
will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents.
Prior to the spin-off, the Company had the following sources of revenue: (1) consulting/licensing revenue from the performance
of development work performed on behalf of the Company, licensing revenue or from the sale of certain software to third parties;
and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service. 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 2016 and 2015.
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 March 31, 2016 and 2015. These are old notes payable for which the statute of limitations has passed and therefore
the Company does not expect it will have to repay those notes.
The company has an additional $600,000
and $460,000 in notes, and $306,000 and $349,500 (net of $21,000 discount) in convertible notes outstanding at March 31, 2016 and
December 31, 2015, respectively.
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 March 31, 2016, there were 9,050,000 options and no warrants,
whose effect is anti-dilutive and not included in diluted net loss per share for March 31, 2016. 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 March 31, 2016, and 2015 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 three months ended March 31, 2016 or 2015 respectively.
Fair Value of Financial Instruments
The Company measures assets and liabilities
at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents
the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels
of inputs to measure fair value:
•
|
|
Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
•
|
|
Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
•
|
|
Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, other receivables, accounts payable & accrued expenses, due to related party,
notes payable and notes payables, approximate their fair values because of the short maturity of these instruments. The Company's
convertible notes payable are measured at amortized cost.
The Company accounts for its derivative
liabilities, at fair value, on a recurring basis under level 3. See Note 5.
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 up to ASU 2015-16, 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.
NOTE 2 - GOING CONCERN
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had periods
where it had only minimal revenues from operations. There can be no assurance that the Company will be able to obtain the additional
capital resources to fully implement its business plan or that any assumptions relating to its business plan will prove to be accurate.
The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available
to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material
adverse effect on the Company, including possibly requiring the Company to completely reduce and/or cease operations.
These factors raise substantial doubt
about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 3 - EQUITY
During the three months ended March
31, 2016, the Company issued 11,271,666 shares of common stock by converting $125,000 of the principal of convertible notes payable.
During the three months ended March
31, 2015, the company issued 15,608,696 common shares to the Class C Note holders in order to terminate the litigation between
us, terminate all agreements between us, cancel all warrants we have previously issued to them as well as the outstanding balance
of the Class C Notes.
NOTE 4 - NOTES PAYABLE
The Notes are classified as a derivative
liability and not a note payable, see Note 9 below.
Notes payable at March 31, 2016 consist of the following:
|
|
|
Unsecured note payable to a shareholder bearing 8% interest.
|
|
|
|
|
Entire balance of principal and unpaid interest due on demand
|
|
$
|
124,230
|
|
Unsecured note payable to a shareholder bearing 10% interest
|
|
|
|
|
Entire balance of principal and unpaid interest due on demand
|
|
$
|
649,049
|
|
Promissory notes
|
|
$
|
550,000
|
|
Notes Payable - related party
|
|
$
|
50,000
|
|
Total notes
|
|
$
|
1,373,279
|
|
2016
|
|
$
|
863,279
|
|
2017
|
|
$
|
510,000
|
|
2018
|
|
$
|
-0-
|
|
2019
|
|
$
|
-0-
|
|
2020
|
|
$
|
-0-
|
|
|
|
$
|
1,373,279
|
|
We
issued promissory notes in the amount of $140,000 during the three months ended March 31, 2016. The promissory notes 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 form $2M - $4M and (ii) in an amount equal to up to 100% of the initial face
amount of the note out of available cash by sharing with all other investors in this series of notes in the allocation of 25%
of the available cash received by the Company from $4M - $6M. In other words, if the Company collects $6M in the net proceeds
of available cash, the holder will receive a return equal to 400% of its investment.
We issued promissory notes in the amount
of $135,000 during the year ended December 31, 2015. One of the promissory notes in the amount of $25,000 was in lieu of payment
of cash for an outstanding balance due to a consultant of the Company. The notes carry the same terms as those issued in 2016.
NOTE 5 - CONVERTIBLE DEBENTURES
On May 8, 2015, the Company issued
convertible debentures to certain accredited investors. The total principal amount of the debentures was $300,000 with a maturity
date of November 8, 2015 with a zero percent interest rate. The debentures are convertible into shares of the Company’s common
stock at the lower of the fixed price ($0.89) or fifty five percent (55%) of the average if the three lower trading price for 20
trading days prior to conversion.
The Company signed a Forbearance
Agreement on October 26, 2015 for the 10% Convertible Debenture with the principal amount of $300,000 that was due November 8,
2015. The new maturity date of the debenture is May 8, 2016.
On October 30, 2015, the company
entered into a new Debenture with the same Lender, with a face amount of $405,000 having similar terms as the first Convertible
Debenture with a maturity date of April 30, 2016. The debenture included a forbearance fee of $90,000 and had an original issue
discount of 10%.
During the three months ended
March 31, 2016, the Company issued 11,271,666 shares of common stock by converting $125,000 of the principal of convertible notes
payable.
During the year ended December
31, 2015, the Company issued 6,746,356 shares of common stock by converting $150,000 of the principal of convertible notes payable.
As of March 31, 2016, the aggregate
carrying value of the debentures was $327,000. As of December 31, 2015, the aggregate carrying value of the debentures was $370,500.
NOTE 6 - DERIVATIVE LIABILITIES
|
(A)
|
Convertible Notes Issued in May 8, 2015
|
The Company identified conversion features
embedded within convertible debt issued in May 8, 2015. The Company has determined that the features associated with the embedded
conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company
cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
As a result of the application of ASC
No. 815, the fair value of the ratchet feature related to convertible debt is summarized as follow:
|
|
Derivative Liabilities
|
Balances as of December 31, 2015
|
|
$
|
224,951
|
|
Changes in derivative liabilities
|
|
|
(22,080
|
)
|
Reclassified to Additional paid in capital due to conversion
|
|
|
(156,517
|
)
|
Balances as of March 31,
2016
|
|
|
46,354
|
|
The fair value at the commitment and
re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of
March 31, 2016:
|
|
Remeasurement Date
|
Expected dividends
|
|
|
0
|
%
|
Expected volatility
|
|
|
191
|
%
|
Expected term
|
|
|
0.167
|
years
|
Risk free interest rate
|
|
|
0.38
|
%
|
|
|
Derivative Liabilities
|
Fair value at the commitment date-November 8, 2015
|
|
$
|
446,282
|
|
Fair value mark to market adjustment
|
|
|
(18,698
|
)
|
Reclassified to Additional paid in capital due to conversion
|
|
|
(202,633
|
)
|
Balances as of December 31, 2015
|
|
|
224,951
|
|
The fair value at the commitment and
re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of
December 31, 2015:
|
|
Commitment Date
|
|
Remeasurement Date
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
183
|
%
|
|
|
183
|
%
|
Expected term
|
|
|
0.5
|
years
|
|
|
0.45
|
years
|
Risk free interest rate
|
|
|
0.34
|
%
|
|
|
0.49
|
%
|
|
(B)
|
Settlement of Derivative Liabilities
|
During the three month ended March 31,
2015 the Company settled a lawsuit brought forth by the note holders, effectively terminating and canceling all remaining agreements,
warrants and notes. As a result of the settlement, the company recorded a loss on settlement of convertible notes of $2,336,035
during the year ended December 31, 2015.
As of the date of the settlement with
the noteholders, the Company revalued the embedded derivative liability and recorded a loss on change in fair value of derivative
liability of $143,383.
|
(C)
|
Options identified as derivative
liability
|
The Company identified
options issued to directors and officers are a derivative liability due to a lack of number of authorized shares to cover all the
options issued by the Company if they are all exercised as of March 31, 2016 and December 31, 2015.
Therefore, the fair
value of the options have been recorded as liabilities on the balance sheet. The change in the fair value of the derivative liabilities
will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative
liabilities on the balance sheet. The fair value of the embedded derivative liabilities was determined using the Black-Scholes
valuation model on the issuance dates with the assumptions in the table below.
As a result of the application of ASC
No. 815, the fair value of the options is summarized as follow:
|
|
Derivative Liabilities
|
Balances as of December 31, 2015
|
|
$
|
190,755
|
|
Fair value mark to market adjustment
|
|
|
(89,234
|
)
|
Balances as of March 31, 2016
|
|
|
101,521
|
|
The fair value at the re-measurement
date for the Company’s derivative liabilities were based upon the following management assumptions as of March 31, 2016:
|
|
Remeasurement Date
|
Expected dividends
|
|
|
0
|
%
|
Expected volatility
|
|
|
200
|
%
|
Expected term
|
|
|
1.50 - 4.25
|
years
|
Risk free interest rate
|
|
|
0.38
|
%
|
The fair value at the commitment
and re-measurement dates for the Company’s derivative liabilities as of December 31, 2015 were:
|
|
Derivative Liabilities
|
Fair value at the commitment date - November 8, 2015
|
|
$
|
468,814
|
|
Fair value mark to market adjustment
|
|
|
(278,059
|
)
|
Balances as of December 31, 2015
|
|
|
190,755
|
|
The fair value at the commitment and
re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of
December 31, 2015:
|
|
Commitment
Date
|
|
Remeasurement
Date
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
volatility
|
|
|
183
|
%
|
|
|
208
|
%
|
Expected
term
|
|
|
1.89
- 4.64
|
years
|
|
|
1.75
- 4.5
|
years
|
Risk
free interest rate
|
|
|
0.89
– 1.75
|
%
|
|
|
1.06%
- 1.76
|
%
|
NOTE 7 – STOCK OPTIONS
On March 31, 2016, the Company
had convertible promissory notes entitled to be converted at a discount to market price. As a result, the existing 8,450,000 exercisable
options shall be reclassified from equity to liabilities. Please refer to Note 6 for further discussion.
No stock options were issued during
the three months ended March 31, 2016 and no stock options were exercised during the three months ended March 31, 2016.
No stock options were issued during
the three months ended March 31, 2015 and no stock options were exercised during the three months ended March 31, 2015.
On January 23, 2015 we entered into
an agreement with the Class C note holders who held four million five hundred thirty five thousand seven hundred and fourteen warrants
to purchase our common stock. The settlement agreement, among other things, cancelled all warrants we have previously issued to
them.
Stock Warrants and Options
|
Stock warrants/options outstanding and exercisable on March 31, 2016 are as follows:
|
|
|
|
Exercise Price per Share
|
Shares Under Option/warrant
|
Remaining Life in Years
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
$
|
0.19
|
|
|
200,000
|
|
|
1.75
|
|
$
|
0.155
|
|
|
200,000
|
|
|
2.75
|
|
$
|
0.14
|
|
|
250,000
|
|
|
2.75
|
|
$
|
0.115
|
|
|
300,000
|
|
|
1.50
|
|
$
|
0.11
|
|
|
300,000
|
|
|
4.25
|
|
$
|
0.03
|
|
|
300,000
|
|
|
4.25
|
|
$
|
0.070
|
|
|
7,500,000
|
|
|
1.50
|
|
$
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
|
|
$
|
0.19
|
|
|
200,000
|
|
|
1.75
|
|
$
|
0.155
|
|
|
200,000
|
|
|
2.75
|
|
$
|
0.14
|
|
|
250,000
|
|
|
2.75
|
|
$
|
0.115
|
|
|
300,000
|
|
|
1.50
|
|
$
|
0.070
|
|
|
7,500,000
|
|
|
1.50
|
|
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is committed to an employment
agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 30, 2012, is for five years with a one-year
renewal option held by Mr. Kidrin. The agreement provides for a base salary of $175,000, which increases 10% on September
1 of each year; a monthly car allowance of $500; an annual bonus equal to 2.5% of Pre-Tax Income (as defined in the agreement);
an additional bonus as follows: $75,000, if Pre-Tax Income for the year is between 150% and 200% of the prior fiscal year’s
Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year is between 201% and 250% of the prior fiscal year’s Pre-Tax
Income or (C) $200,000, if Pre-Tax Income for the year is 251% or greater than the prior fiscal year’s Pre-Tax Income, but
in no event shall this additional bonus exceed five (5%) percent of Pre-Tax Income for such year; payment of up to $10,000 in life
insurance premiums; options to purchase 7.5 million shares of Worlds Inc. common stock at an exercise price of $0.076 per
share, all of which vested on August 30, 2012; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times
his base amount (as defined in the agreement) in the event of a Change of Control (as defined in the agreement). The agreement
also provides that Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants
for 12 months after termination.
NOTE 9 - RELATED PARTY TRANSACTIONS
On May 16, 2011, the Company transferred,
through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of its operations and related operational
assets. The Company retained its patent portfolio which it intends to continue to increase and to more aggressively enforce against
alleged infringers. The Company also entered into a License Agreement with Worlds Online Inc. to sublicense its patented technologies.
Due to related party is comprised of
cash payments for operating expenses made by worlds Online Inc. on behalf of Worlds Inc. The balance at March 31, 2016 is $15,177
and the balance on December 31, 2015 is $36,310.
During 2014, we issued a promissory
note to a related party, the CEO, Thom Kidrin in the amount of $50,000. The promissory note carry the same terms as all the other
notes issued.
NOTE 10 - PATENTS
Worlds Inc. currently has nine patents,
6,219,045 - 7,181,690 - 7,493,558 – 7,945,856, - 8,082,501, – 8,145,998 – 8,161,383, – 8,407,592 and 8,640,028.
On March 30, 2012, the Company filed a patent infringement lawsuit against Activision Bizzard Inc., Blizzard Entertainment Inc.
and Activision Publishing Inc. in the United States District Court for the District of Massachusetts. Susman Godfrey LLP is lead
counsel for the Company. The costs to prosecute those parties that the Company and our legal counsel believe to be infringing on
said patents were capitalized under patents until a resolution is reached.
There can be no assurance that the
Company will be successful in its ability to prosecute its IP portfolio or that we will be able to acquire additional patents.
NOTE 11 - SUBSEQUENT EVENT
The convertible debt holder converted $25,000 worth of debentures
for 2,976,190 shares of common stock during April of 2016.