When used in this form 10-K and in future filings
by the Company with the Commission, The words or phrases such as "anticipate," "believe," "could,"
"would," “should,” "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 current pricing levels that
we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic
conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes in technology
that render our technology relatively inferior, obsolete or more expensive compared to others; foreign currency fluctuations; changes
in the business prospects of our business partners and customers; increased competition, including from our business partners;
delays in the delivery of broadband capacity to the homes and offices of persons who use our services; general disruptions to Internet
service; and the loss of customer faith in the Internet as a means of commerce.
The following discussion should be read in
conjunction with the financial statements and related notes which are included in this report under Item 8.
We do not undertake to update our forward-looking
statements or risk factors to reflect future events or circumstances.
On May 16, 2011, we transferred, through
a spin-off to our then wholly owned subsidiary, Worlds Online Inc. (currently named MariMed Inc.), the majority of our
operations and related operational assets. We retained our patent portfolio which we intend to continue to increase and to
more aggressively enforce against alleged infringers. We also entered into a License Agreement with MariMed Inc. to
sublicense patented technologies.
At present, the Company’s anticipated
sources of revenue after the spin-off will be from any revenue that
may be generated from enforcing its patents.
We generated no revenue during the year
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.
RESULTS OF OPERATIONS
Our net revenues for each of
the years ended December 31, 2017 and 2016 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.
Year ended December 31, 2017 compared to
year ended December 31, 2016
Revenue was $0 for the years ended December
31, 2017 and 2016. 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 continue running the business.
Cost of revenues is $0 in the years ended December
31, 2017 and 2016.
Selling general and administrative (S, G &
A) expenses decreased by $84,684 from $588,283 to $503,599 for the year ended December 31, 2017. Expenses are primarily
professional fees and business consulting including broker fees. Expenses decreased during the year due to less legal fees related
to the patent litigation due to delays and extended court dates in 2017 compared to 2016 and a decrease in activity surrounding
financings compared to 2016.
Salaries and related expenses increased by
$21,934 to $262,623 from $240,689 for the year ended December 31, 2017. Increase is due to the CEO working under an employment
agreement whereby he is to receive a 10% increase each year.
Loss on conversion of payable to common stock
was $5,394 in 2017 compared to $0 in 2016.
For the year ended December 31, 2017, the Company
recorded an option expense of $1,041,264, equal to the estimated fair value of the options at the date of grants. The option expense
was due to 26,100,000 options granted to officers of the company. For the year ended December 31, 2016, there was no option expense.
For the year ended December 31, 2017, the Company
recorded a warrant expense of $1,215,240, equal to the estimated fair value of the warrants at the date of grants. The warrant
expense was due to 39,900,000 (pre reverse split) warrants granted to consultants and investors of the company. For the year ended
December 31, 2016, there was no warrant expense.
For the year ended December 31, 2017 we had
a gain on sale of marketable securities of $326,153. The Company started to sell shares in the spin-off company Worlds Online Inc.
now called MariMed Inc. For the year ended December 31, 2016 we had $0.
For the year ended December 31, 2016 we had
a loss on settlement of convertible notes of $246,413. For the year ended December 31, 2017 we had $0.
For the year ended December 31, 2017, the Company
had interest expense of $45,000. For the year ended December 31, 2016, the Company had a gain on change in fair value of derivative
liability of $6,191 and interest expense of $58,712. For the year ended December 31, 2016, the Company had a debt issuance expense
of $5,000 related to the signing of the debenture during the year.
As a result of the foregoing, we realized
a net loss of $2,746,968 for the year ended December 31, 2017 compared to a loss of $1,132,906 in the year ended December 31,
2016, an increase in net losses of $1,614,062.
Liquidity and Capital Resources
At December 31, 2017, our cash
and cash equivalents were $168,229. We raised $292,800 from the exercise of common stock warrants during the year ended December
31, 2017. We raised an additional $326,153 through the sale of shares of stock that the Company retained in the spin off company
MariMed Inc.
At December 31, 2016, our cash and cash equivalents
were $93,378. We raised an aggregate of $446,500 from issuing notes and convertible notes payable, $350,000 from issuing common
stock and $127,200 from the exercise of common stock warrants during the year ended December 31, 2016.
No capital expenditures were made in 2017 or
2016.
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 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.
Subsequent Events
The company received an additional $875,000
in January upon the exercise of 35,000,000 (pre reverse split) warrants to purchase 35,000,000 (pre reverse split) shares of the
Company’s common stock at a pre reverse split price of $0.025 per share.
On February 9, 2018 the Company implemented
a 5 for 1 reverse split of the Company’s common stock.
Recent Accounting Pronouncements
Recently issued accounting standards
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.
ITEM 8. FINANCIAL STATEMENTS.
CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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18
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BALANCE SHEETS
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19
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STATEMENTS OF OPERATIONS
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20
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STATEMENT OF STOCKHOLDERS’ DEFICIT
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21
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STATEMENTS OF CASH FLOWS
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22
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NOTES TO FINANCIAL STATEMENTS
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23
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19720 Jetton Road, 3rd Floor
Cornelius, NC 28031
Tel: 704-897-8336
Fax: 704-919-5089
|
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.
Due to Related Party
Due to related party is comprised of cash payments
made by MariMed 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 MariMed Inc. The Company’s sources of revenue after the spin off
was expected to be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from
enforcing its patents. The Company recognizes revenue 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 2016.
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 December 31, 2017 and December 31, 2016. 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 December 31, 2017. The Company had $750,000 in short term notes
outstanding at December 31, 2016. All of the notes were extended during the year.
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 December 31, 2017, there were
27,150,000 (pre reverse split) options and 39,900,000 (pre 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 December 31, 2017, and 2016 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 or 2016.
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:
•
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Level
1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
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•
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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.
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•
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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.
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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, 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 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 - NOTES PAYABLE
Notes payable at December 31, 2017 consist of the following:
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Unsecured note payable to a shareholder bearing 8% interest.
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Entire balance of principal and unpaid interest due on demand
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$
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124,230
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Unsecured note payable to a shareholder bearing 10% interest
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Entire balance of principal and unpaid interest due on demand
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$
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649,049
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Promissory notes
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$
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700,000
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Notes Payable - related party
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$
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50,000
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Total notes
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$
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1,523,279
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2018
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$
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798,279
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2019
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$
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725,000
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2020
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$
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-0-
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2021
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|
$
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-0-
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2022
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$
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-0-
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|
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$
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1,523,279
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We issued promissory notes in the amount
of $290,000 during the year ended December 31, 2017. 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 4 - EQUITY
All common stock numbers and exercise prices in this Note are reflected on a pre reverse split (5 to 1) basis.
During the year ended December 31, 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 year ended December 31, 2017
the Company issued 750,000 pre reverse split shares of the Company’s common stock as payment for services rendered, an aggregate
value of $18,000. The expense was recorded in a prior year and the shares were listed as common stock subscribed but not yet issued
until the shares were issued during the year ended December 31, 2017.
During the year ended December 31,
2017, the Company issued 867,183 shares of common stock as payment for an account payable in the amount of $20,187.
During the year ended December 31, 2016, the
Company issued 35,000,000 shares of common stock at a price of $0.01 per share raising $350,000. In connection
with this raise, the Company issued 35,000,000 warrants with each to purchase one share of common stock at a price of $0.012 in
the next five years. During the year ended December 31, 2016, 10,600,000 warrants were exercised.
During the year ended December 31,
2016, the Company issued 54,963,098 shares of common stock by converting $384,159 of the principal of convertible notes payable.
During the year ended December
31, 2017, the Company issued 26,100,000 options to Company officers. 25,000,000 options were issued to Thom Kidrin, the Chief
Executive Officer and President of the Company. An additional 1,100,000 options were issued to the Chief Financial Officer of
the Company. The Company recorded an option expense of $1,041,264 equal to the estimated fair value of the options
at the date of grants. The fair market value was calculated using the Binomial option price calculation method assuming
approximately 1.92% risk-free interest, 0% dividend yield, 402% volatility, an exercise price of $0.03 per share with a
current market price of $0.04 and an expected life of 5 years.
During the year ended December
31, 2017, the Company issued 35,000,000 warrants as part of the subscription agreement that included the sale of 35,000,000
shares of common stock. Each warrant entitles the holder to purchase one share of common stock at a price of $0.025. The
warrants expire in five years. During the year ended December 31, 2017, the Company issued 4,900,000 warrants to consultants
of the Company. The exercise price on the warrants range from $0.01 to $0.06 per share and the expiration dates range from 3
years to five years.
The Company recorded a warrant expense of $1,215,240 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 2.30% risk-free interest, 0% dividend yield, 405% volatility, exercise prices
from $0.01 to $0.06 per share with a current market price of $0.028 and an expected life between 3 and 5 years.
No stock options were issued during the year ended December
31, 2016 and no stock options were exercised during the year ended December 31, 2016. The Company issued 35,000,000 warrants as
part of the subscription agreement that included the sale of 35,000,000 shares of common stock. Each warrant entitles the holder
to purchase one share of common stock at a price of $0.012. The warrants expire in five years. 10,600,000 warrants were exercised
for 10,600,000 shares of common stock during the year ended December 31, 2016.
Stock Warrants and Options
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Stock warrants/options outstanding and exercisable on a pre reverse split (5 to 1) basis on December 31, 2017 are as follows:
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Exercise Price per Share
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Shares Under Option/warrant
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Remaining Life in Years
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Outstanding and Exercisable
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$
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0.025
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35,000,000
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|
|
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3.74
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$
|
0.03
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|
|
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26,100,000
|
|
|
|
4.75
|
|
$
|
0.03
|
|
|
|
2,900,000
|
|
|
|
2.95
|
|
$
|
0.01
|
|
|
|
1,000,000
|
|
|
|
4.95
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|
$
|
0.06
|
|
|
|
1,000,000
|
|
|
|
4.95
|
|
$
|
0.155
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|
|
|
200,000
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|
|
|
1.00
|
|
$
|
0.14
|
|
|
|
250,000
|
|
|
|
1.00
|
|
$
|
0.11
|
|
|
|
300,000
|
|
|
|
2.50
|
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$
|
0.13
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|
|
|
300,000
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|
|
|
2.50
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NOTE 5 - INCOME TAXES
At December 31, 2017, the Company had federal
and state net operating loss carry forwards of approximately $40,000,000 that expire in various years through the year 2037.
Due to operating losses, there is no provision
for current federal or state income taxes for the year ended December 31, 2017 and 2016.
Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount
used for federal and state income tax purposes.
The Company’s deferred tax asset at December
31, 2017 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately
$16,709,000 less a valuation allowance in the amount of approximately $16,137,000. Because of the Company’s lack of earnings
history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately
$571,000 and $441,000 for the years ended December 31, 2017 and 2016, respectively.
The Company’s total deferred tax asset
as of December 31, 2017 is as follows:
Net operating loss carry forwards
|
|
$
|
16,709,000
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Valuation allowance
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$
|
(16,709,000
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)
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|
|
|
Net deferred tax asset
|
|
$
|
—
|
|
The reconciliation of income taxes computed at the federal and
state statutory income tax rate to total income taxes for the years ended December 31, 2017 and 2016 is as follows:
|
|
2017
|
|
2016
|
Income tax computed at the federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Income tax computed at the state statutory rate
|
|
|
5
|
%
|
|
|
5
|
%
|
Valuation allowance
|
|
|
(39
|
)%
|
|
|
(39
|
)%
|
Total deferred tax asset
|
|
|
0
|
%
|
|
|
0
|
%
|
NOTE 6 - 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. Mr. Kidrin exercised his one-year renewal option. 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 option
portion of Mr. Kidrin’s employment agreement has expired and has been replaced by an option agreement giving Mr. Kidrin
the option to purchase 25,000,000 million pre reverse split 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 7 - RELATED PARTY TRANSACTIONS
On May 16, 2011, the Company transferred, through
a spin-off to its then wholly owned subsidiary, Worlds Online Inc., now 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.
Due to and Due from related party is comprised
of cash payments for operating expenses made by MariMed Inc. on behalf of Worlds Inc. for the year ended December 31, 2016 and
the balance at December 31, 2017 represents payments made by Worlds Inc. on behalf of MariMed Inc. The due from related party
balance at December 31, 2017 is $15,998 and at December 31, 2016 the balance in the due to related party is $5,053. The balance
in the accrued expense and accounts payables attributable to related parties is $871,463 and $742,032 at December 31, 2017 and
2016, respectively.
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
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 by the Company.
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 9 – 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 year ended December 31, 2017, the Company sold 582,805 shares at an average price of $0.56 per share raising $326,153.
The proceeds from the sale are treated as a gain on sale of marketable securities in the financial statements
.
NOTE 10 - SUBSEQUENT EVENT
The company received an additional $875,000 in January upon the
exercise of 35,000,000 warrants to purchase 35,000,000 shares of the Company’s common stock at $0.025 per share.
On
February 9, 2018 the Company implemented a 5 for 1 reverse split of the Company’s common stock.