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, which agreement has since expired.
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, 2018 and 2017 were $0. All the operations were transferred over to MariMed Inc. in the
spin off. The Company’s sources of revenue are anticipated to be from enforcing our patents in litigation or otherwise.
Year ended December 31, 2018 compared
to year ended December 31, 2017
Revenue was $0 for the years ended December
31, 2018 and 2017. All the operations were transferred over to MariMed Inc. in the spin off. The business up to the
spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient
amount of capital to provide the resources required that would enable us to continue running the business.
Selling general and administrative (S,
G & A) expenses increased by $467,486 from $503,599 to $971,085 for the year ended December 31, 2018. $363,489
of the increase is attributable to costs related to the Company exploring potential opportunities in the augmented reality space
and crypto currencies. The balance of the increase is due to an increase in professional service fees related to the patent infringement
lawsuit and exploring new business opportunities as explained above.
Salaries and related expenses increased
by $33,181 to $295,804 from $262,624 for the year ended December 31, 2018. Increase is due to the CEO receiving a portion of his
previously accrued salary from prior years and the Company having to pay the corporate share of employment taxes.
Loss on conversion of payable to common
stock was $5,394 in 2017 compared to $0 in 2018.
For the year ended December 31, 2018,
the Company recorded an option expense of $415,383, equal to the estimated fair value of the options at the date of grants. The
option expense was due to 5,800,000 options (post reverse split) granted to an officer and directors of the company.
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 5,220,000 options (post reverse split) granted to officers of the company.
For the year ended December 31, 2018,
the Company recorded a warrant expense of $1,211,403, equal to the estimated fair value of the warrants at the date of grants.
The warrant expense was due to 3,400,000 (post reverse split) warrants granted to investors of the company.
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 7,980,000 (post reverse split) warrants granted to consultants and investors of the company.
For the year ended December 31, 2018
we had a gain on sale of marketable securities of $4,692,990. 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. in
2017.
For the year ended December 31, 2018
and 2017, the Company had interest expense of $45,000.
As a result of the foregoing, we realized
net income of $1,754,315 for the year ended December 31, 2018 compared to a net loss of $2,746,968 for the year ended December
31, 2017.
Liquidity and Capital Resources
At December 31, 2018, our cash
and cash equivalents were $3,846,120. We raised $875,000 from the exercise of common stock warrants during the year ended December
31, 2018. We raised an additional $4,692,990 through the sale of shares of stock that the Company retained in the spin off company
MariMed Inc.
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.
No capital expenditures were made in
2018 or 2017.
Our primary cash requirements have been
used to fund the cost of operations and lawsuits, and patent enforcement, with additional funds having been used in connection
with the exploration of new business lines.
The funds raised in our 2018 and 2017 financings
and from our sale of shares of common stock of MariMed Inc. were and will be used to enhance our patent portfolio, pay salaries
to management and pay professional fees to our attorneys and auditors to prepare and file reports with the Securities and Exchange
Commission and to explore new business opportunities. We hope to raise additional funds to be used for further developing
our portfolio of patents and to document our technology in order to enforce our patents where there is infringement. No
assurances can be given that we will be able to raise any additional funds or implement any of these plans.
New Directors
On August 28, 2018, the board of
directors of the Company appointed Peter N. Christos and Leonard Toboroff to be directors and to hold such office until the
earlier of their resignation or until after the next annual meeting of shareholders and their successors have been duly
elected and assumed office. Pursuant to the policy previously established by the Company, Messrs. Christos and Toboroff were
each granted on the date of their appointment 150,000 options that are exercisable for five years from the date of grant at
an exercise price equal to the closing price of the Company’s common stock on the grant date. All of the options vest
after 12 months provided the director served in office for at least 6 months.
Subsequent Events
Effective February 21, 2019,
Mr. Edward Gildea voluntarily resigned as a director for personal reasons.
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.
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"). The Company has incurred significant losses since its inception
and has had minimal revenues from operations. The Company will require substantial additional funds for development and enforcement
of its patent portfolio. There can be no assurance that the Company will be able to obtain the substantial additional capital resources
to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company has not
been able to generate sufficient revenue or obtain sufficient financing which has had a material adverse effect on the Company,
including requiring the Company to reduce operations. As the Company has focused its attention on increasing its patent portfolio and enforcing it, the Company has
been operating at a reduced capacity, with only one full time employee and using consultants to perform any additional
work that may be required.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes highly
liquid money market instruments, which have original maturities of three months or less at the time of purchase.
Due from Related Party
Due from related party is comprised
of cash payments made by Worlds Inc. on behalf of MariMed Inc. for operating expenses.
Revenue Recognition
Effective June 1, 2018, the Company
adopted ASC 606. There was no impact in adopting ASC 606 as the Company has no revenue at this time. In the second quarter of 2011,
the Company spun off its online businesses to MariMed Inc. The Company’s sources of revenue after the spinoff was expected
to be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated from enforcing its patents.
The Company recognizes revenue by applying the following steps: (1) identify the contract with a customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation
in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Research and Development Costs
Research and development costs are charged
to operations as incurred.
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 2018 and 2017.
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, 2018 and December 31, 2017. These are old notes payable for which the statute of limitations
has passed and therefore the Company does not expect it will ever have to repay those notes.
The Company has an additional $750,000
in short term notes outstanding at December 31, 2018. The Company had $725,000 in long term notes and $25,000 in short term notes
outstanding at December 31, 2017.
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, 2018, there were
11,140,000 options and 4,480,000 warrants outstanding, whose effect is anti-dilutive and not included in diluted net loss per share for
December 31, 2018. The options and warrants may dilute future earnings per share.
Commitments and Contingencies
The Company follows subtopic 450-20
of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date
the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more
future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves
an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted
claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims
as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material
loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote
are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not
believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s
financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and
adversely affect the Company’s business, financial position, and results of operations or cash flows.
During 2000 the Company was involved
in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company was rendered for approximately
$205,000. As of December 31, 2018, and 2017 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued
expenses in the accompanying balance sheets.
Risk and Uncertainties
The Company is subject to risks common
to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations
and dependence on key personnel.
Off Balance Sheet Arrangements
The Company does not have any off-balance
sheet arrangements.
Uncertain Tax Positions
The Company did not take any uncertain
tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25
for the year ended December 31, 2018 or 2017.
Fair Value of Financial Instruments
The Company measures assets and liabilities
at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents
the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels
of inputs to measure fair value:
•
|
Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
•
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
•
|
Level 3 - Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, other receivables, accounts payable & accrued expenses, due to related party,
notes payable and notes payables, approximate their fair values because of the short maturity of these instruments. The Company's
convertible notes payable are measured at amortized cost.
Warrant and option expense was measured
by using level 3 valuation.
Embedded Conversion Features
The Company evaluates embedded conversion
features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion
feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value
recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated
under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments,
including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or
credits to income.
For option-based simple derivative financial
instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is re-assessed at the end of each reporting period.
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 - NOTES PAYABLE
Notes payable at December 31, 2018 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
|
|
$
|
600,000
|
|
Notes payable - related party
|
|
$
|
150,000
|
|
Total notes
|
|
$
|
1,523,279
|
|
2019
|
|
$
|
1,523,279
|
|
2020
|
|
$
|
-0-
|
|
2021
|
|
$
|
-0-
|
|
2022
|
|
$
|
-0-
|
|
2023
|
|
$
|
-0-
|
|
|
|
$
|
1,523,279
|
|
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. None of the notes are convertible to common stock. 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. $150,000 of these notes are with related parties. The CEO has a note payable in the amount of $50,000
and a director has a $25,000 note. The remaining $75,000 note is held by a related party to the Company.
NOTE 3 - EQUITY
All common stock numbers and exercise
prices in this Note are reflected on a post reverse split (5 to 1) basis. As a result of the reverse split, the Company had to
issue an additional 167 shares due to rounding.
During the year ended December 31, 2018
the Company received an additional $875,000 upon the exercise of 7,000,000 warrants to purchase 7,000,000 shares of the Company’s
common stock at $0.0125 per share.
During the year ended December 31, 2018
the Company issued 460,000 shares of the Company’s common stock as payment for services rendered, an aggregate value of $99,372.
During the year ended December 31, 2018,
the Company issued 5,800,000 options. 5,000,000 options were issued to Thom Kidrin, the Chief Executive Officer and President of
the Company and 800,000 options were issued to Directors of the Company. The Company recorded an option expense of $415,383
equal to the estimated fair value of the options at the date of grants. The fair market value was calculated using the Black Scholes
method assuming approximately 2.73% risk-free interest, 0% dividend yield, 104% volatility, an exercise price of $0.25 per share
for Thom Kidrin’s options and $0.24 per share for the Directors options with a current market price of $0.24 and an expected
life of 5 years. Mr. Kidrin’s options vest 2,000,000 on the date of grant, August 28, 2018, 1,500,000 on August 28, 2019
and 1,500,000 on August 28, 2020. The Director’s options vest one year from the date of grant.
During the year ended December 31, 2018,
the Company issued 3,400,000 warrants as part of the subscription agreement that included the sale of 7,000,000 shares of common
stock. Each warrant entitles the holder to purchase one share of common stock at a price of $0.325. The warrants expire in five
years. The warrants can be exercised at any time within those five years. The Company recorded a warrant expense of $1,211,403
equal to the estimated fair value of the warrants at the date of issuance. The fair market value was calculated using the Black
Scholes method assuming approximately 2.52% risk-free interest, 0% dividend yield, 153% volatility, exercise price of $0.325 per
share with a current market price of $0.385 and an expected life of 5 years.
During the year ended December 31, 2017
the Company received an additional $292,800 upon the exercise of 4,880,000 warrants to purchase 4,880,000 shares of the Company’s
common stock at $0.06 per share.
During the year ended December 31, 2017
the Company issued 150,000 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 173,437 shares of common stock as payment for an account payable in the amount of $20,187.
During the year ended December 31,
2017, the Company issued 5,220,000 options to Company officers. 5,000,000 options were issued to Thom Kidrin, the Chief
Executive Officer and President of the Company. An additional 220,000 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 7,000,000 warrants as part of the subscription agreement that included the sale of 7,000,000 shares of common
stock. Each warrant entitles the holder to purchase one share of common stock at a price of $0.125. The warrants expire in five
years.
During the year ended December 31, 2017,
the Company issued 980,000 warrants to consultants of the Company. The exercise price on the warrants range from $0.05 to $0.30
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 $0.05 to $0.30 per share with a current market price of $0.14 and an expected life between 3 and 5 years.
Stock Warrants and Options
|
Stock warrants/options outstanding and exercisable on December 31, 2018 are as follows:
|
|
Exercise Price per Share
|
|
Shares Under Option/warrant
|
|
Remaining Life in Years
|
Outstanding
|
|
|
|
|
$
|
0.325
|
|
|
|
3,500,000
|
|
|
|
4.08
|
|
$
|
0.15
|
|
|
|
5,220,000
|
|
|
|
3.75
|
|
$
|
0.15
|
|
|
|
580,000
|
|
|
|
1.95
|
|
$
|
0.05
|
|
|
|
200,000
|
|
|
|
3.95
|
|
$
|
0.30
|
|
|
|
200,000
|
|
|
|
3.95
|
|
$
|
0.55
|
|
|
|
60,000
|
|
|
|
1.50
|
|
$
|
0.65
|
|
|
|
60,000
|
|
|
|
1.50
|
|
$
|
0.25
|
|
|
|
5,000,000
|
|
|
|
4.67
|
|
$
|
0.24
|
|
|
|
800,000
|
|
|
|
4.67
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
$
|
0.325
|
|
|
|
3,500,000
|
|
|
|
4.08
|
|
$
|
0.15
|
|
|
|
5,220,000
|
|
|
|
3.75
|
|
$
|
0.15
|
|
|
|
580,000
|
|
|
|
1.95
|
|
$
|
0.05
|
|
|
|
200,000
|
|
|
|
3.95
|
|
$
|
0.30
|
|
|
|
200,000
|
|
|
|
3.95
|
|
$
|
0.55
|
|
|
|
60,000
|
|
|
|
1.50
|
|
$
|
0.65
|
|
|
|
60,000
|
|
|
|
1.50
|
|
$
|
0.25
|
|
|
|
2,000,000
|
|
|
|
4.67
|
|
NOTE 4 - INCOME TAXES
At December 31, 2018, the Company had
federal and state net operating loss carry forwards of approximately $43,000,000 that expire in various years through the
year 2038.
Due to net operating loss carry forwards
and operating losses, there is no provision for current federal or state income taxes for the years ended December 31, 2018 and
2017.
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, 2018 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating
to approximately $15,938,753 less a valuation allowance in the amount of approximately $15,938,753. 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 $1,071,000 for the year ended December 31, 2017 and decreased by approximately $1,841,265 for the year ended December
31, 2018.
The Company’s total deferred tax
asset as of December 31, 2018 is as follows:
|
|
2018
|
|
2017
|
Net operating loss carry forwards
|
|
|
15,938,753
|
|
|
|
17,780,000
|
|
Valuation allowance
|
|
|
(15,938,753
|
)
|
|
|
(17,780,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
0
|
|
|
|
0
|
|
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, 2018 and 2017 is as follows:
|
|
2018
|
|
2017
|
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 5 - COMMITMENTS AND CONTINGENCIES
The Company is committed to an employment
agreement with its President and CEO, Thom Kidrin. The agreement, dated as of August 28, 2018, is for five years with a one-year
renewal option held by Mr. Kidrin. The agreement provides for a base salary of $200,000, which increases 10% on September
1 of each year; a monthly car allowance of $500; an annual bonus equal to 2.5% of Pre-Tax Income (as defined in the agreement);
an additional bonus as follows: $75,000, if Pre-Tax Income for the year is between 150% and 200% of the prior fiscal year’s
Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year is between 201% and 250% of the prior fiscal year’s Pre-Tax
Income or (C) $200,000, if Pre-Tax Income for the year is 251% or greater than the prior fiscal year’s Pre-Tax Income, but
in no event shall this additional bonus exceed five (5%) percent of Pre-Tax Income for such year; payment of up to $10,000 in life
insurance premiums; options to purchase 5 million shares of Worlds Inc. common stock at an exercise price of $0.25 per share,
2 million of which vested on August 28, 2018, 1.5 million shall vest on August 28, 2019 and the remaining 1.5 million shall vest
on August 28, 2020 ; a death benefit of at least $2 million dollars; and a payment equal to 2.99 times his base amount (as defined
in the agreement) in the event of a Change of Control (as defined in the agreement). The agreement also provides that Mr.
Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12 months
after termination.
NOTE 6 - RELATED PARTY TRANSACTIONS
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 from related party represents payments
for operating expenses made by Worlds Inc. on behalf of MariMed Inc. for the years ended December 31, 2017. The due from related
party balance at December 31, 2018 is $0 and at December 31, 2017 the balance is $15,998. The balance in the accrued expense attributable
to related parties is $329,624 and $871,463 at December 31, 2018 and 2017, respectively.
NOTE 7 - PATENTS
Worlds Inc. currently has nine patents,
6,219,045 - 7,181,690 - 7,493,558 – 7,945,856, - 8,082,501, – 8,145,998 – 8,161,383, – 8,407,592 and 8,640,028.
On March 30, 2012, the Company filed a patent infringement lawsuit against Activision Bizzard Inc., Blizzard Entertainment Inc.
and Activision Publishing Inc. in the United States District Court for the District of Massachusetts. Susman Godfrey LLP is lead
counsel for the Company. The costs to prosecute those parties that the Company and our legal counsel believe to be infringing on
said patents are expensed 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 8 – SALE OF MARKETABLE
SECURITIES
When
Worlds Inc. spun off Worlds Online Inc. in January 2011, the Company retained 5,936,115 shares of common stock in Worlds Online
Inc. (now named MariMed Inc.). Those shares were retained on the books of the Company with a book value of $0. During the year
ended December 31, 2018, the Company sold 2,242,613 shares at an average price of $2.09 per share raising $4,692,990. During the
year ended December 31, 2017, the Company sold 698,805 shares at an average price of $0.46 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 9 – SUBSEQUENT
EVENTS
Effective February 21, 2019,
Mr. Edward Gildea voluntarily resigned as a director for personal reasons.