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 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, 2019 and 2018 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, 2019 compared to
year ended December 31, 2018
Revenue was $0 for the years ended December
31, 2019 and 2018. All the operations were transferred over to MariMed Inc. in the spin off. We still need to raise
a sufficient amount of capital to provide the resources required that would enable us to expand our business.
Selling general and administrative (S, G &
A) expenses decreased by $340,430 from $971,085 to $630,655 for the year ended December 31, 2019. $178,340 of the
decrease is attributable to costs incurred in the prior year related to the Company exploring potential opportunities in the augmented
reality space and crypto currencies. The balance of the decrease is due to a decrease in professional service fees related to the
patent infringement lawsuit.
Salaries and related expenses decreased by
$81,596 to $214,208 from $295,804 for the year ended December 31, 2019. Decrease is due to the CEO receiving a larger portion of
his previously accrued salary from prior years last year than in 2019.
For the year ended December 31, 2019, the Company
recorded an option expense of $309,783 equal to the increase in estimated fair value of the unvested options at December 31, 2019.
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 is due to 5,800,000 options granted to an officer and directors 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 warrants granted to investors of the company. There was no warrant expense in the year ended December
31, 2019.
For the year ended December 31, 2018 we had
a gain on sale of marketable securities of $4,692,990. The Company sold shares in the spin-off company Worlds Online Inc. now called
MariMed Inc. in 2018. The company did not sell any shares during the year ended December 31, 2019.
For the year ended December 31, 2019 the Company
had interest expense of $82,858. For the year ended December 31, 2018 the Company had interest expense of $45,000. Increase is
due to accruing interest on old notes payable that are well past the statute of limitations and for which the Company never expects
to pay back.
For the year ended December 31, 2019 the Company
had interest income of $3,033.
As a result of the foregoing, we had a net
loss of $1,234,471 for the year ended December 31, 2019 compared to a net income of $1,754,315 for the year ended December 31,
2018.
Liquidity and Capital Resources
At December 31, 2019, our cash
and cash equivalents were $1,570,844. We did not raise any additional cash during the year ended December 31, 2019.
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.
No capital expenditures were made in 2019 or
2018.
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 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.
Director Resignation
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.
Notes to the Financial
Statements
NOTE 1 – GOING CONCERN
As reflected in the accompanying financial
statements, the Company has a working capital deficiency of $1,648,020 and a stockholder’s deficiency of $1,444,987 and used
$1,322,243 of cash in operations for the year ended December 31, 2019. This raises substantial doubt about its ability to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise
additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Management believes that the actions presently
being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue
as a going concern.
NOTE 2 – 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.
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 employee and using consultants to perform any additional work that may be required.
Use of Estimates
The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes highly liquid
money market instruments, which have original maturities of three months or less at the time of purchase.
Revenue Recognition
Effective January 1, 2018, the Company adopted
ASC 606. There was no impact in adopting ASC 606 as the Company has no revenue at this time. In the second quarter of 2011, the
Company spun off its online businesses to 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 2019 and 2018.
Stock-Based Compensation
The Company accounts for stock-based compensation
using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for
disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is required to provide service in exchange for the award (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, 2019 and December 31, 2018. 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 had an additional $750,000 in short
term notes outstanding at December 31, 2018. The Company paid off these notes during the first quarter and the balance is $0 at
December 31, 2019.
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, 2019 and 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,
2019 or 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, 2019, and December 31, 2018 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, 2019.
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.
In February 2016, the FASB issued ASU 2016-02,
“Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases. The new standard increases
transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets
and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required to
meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising
from leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and
classification of expense recognition in the income statement. The Company adopted the new lease guidance effective January 1,
2019. The Company is not a party to any leases and therefore is not showing any asset or liability related to leases in the
current period or prior periods.
NOTE 3 - NOTES PAYABLE
Notes payable at December 31, 2019 consist of the following:
|
|
|
Unsecured note payable bearing 8% interest,
|
|
|
|
|
entire balance of principal and unpaid interest due on demand
|
|
$
|
124,230
|
|
Unsecured note payable bearing 10% interest,
|
|
|
|
|
entire balance of principal and unpaid interest due on demand
|
|
$
|
649,049
|
|
Total notes
|
|
$
|
773,279
|
|
2019
|
|
$
|
773,279
|
|
2020
|
|
$
|
-0-
|
|
2021
|
|
$
|
-0-
|
|
2022
|
|
$
|
-0-
|
|
2023
|
|
$
|
-0-
|
|
|
|
$
|
773,279
|
|
The Company imputed interest of $74,843 on
the notes during the year ended December 31, 2019. The Company repaid the $600,000 in notes payable and $150,000 in notes payable
related party with accrued interest totaling $189,118 during the first quarter of 2019.
NOTE 4 - 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 on February 9, 2018, the Company
had to issue an additional 167 shares due to rounding.
During the year ended December 31, 2019, the
Company recorded an option expense of $309,783 representing the amortization of the value of the options issued in 2018 that have
not yet vested.
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 5,500,000 options. 5,000,000 options were issued to Thom Kidrin, the Chief Executive Officer and President of the
Company and 500,000 options were issued to Directors of the Company. The Company recorded an option expense of $368,728
in 2018 and $19,173 in the first quarter of 2019 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.
For the year ended December 31, 2019, the Company
recorded an option expense of $309,783, equal to the increase in estimated fair value of the unvested options at December 31, 2019.
Stock Warrants and Options
|
Stock warrants/options outstanding and exercisable on December 31, 2019 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
|
|
|
|
2.75
|
|
$
|
0.15
|
|
|
|
580,000
|
|
|
|
1.20
|
|
$
|
0.05
|
|
|
|
200,000
|
|
|
|
2.95
|
|
$
|
0.30
|
|
|
|
200,000
|
|
|
|
2.95
|
|
$
|
0.55
|
|
|
|
60,000
|
|
|
|
0.50
|
|
$
|
0.65
|
|
|
|
60,000
|
|
|
|
0.50
|
|
$
|
0.25
|
|
|
|
5,000,000
|
|
|
|
3.67
|
|
$
|
0.24
|
|
|
|
800,000
|
|
|
|
3.67
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
$
|
0.325
|
|
|
|
3,500,000
|
|
|
|
4.08
|
|
$
|
0.15
|
|
|
|
5,220,000
|
|
|
|
2.75
|
|
$
|
0.15
|
|
|
|
580,000
|
|
|
|
1.20
|
|
$
|
0.05
|
|
|
|
200,000
|
|
|
|
2.95
|
|
$
|
0.30
|
|
|
|
200,000
|
|
|
|
2.95
|
|
$
|
0.55
|
|
|
|
60,000
|
|
|
|
0.50
|
|
$
|
0.65
|
|
|
|
60,000
|
|
|
|
0.50
|
|
$
|
0.25
|
|
|
|
3,500,000
|
|
|
|
3.67
|
|
$
|
0.24
|
|
|
|
800,000
|
|
|
|
3.67
|
|
NOTE 5 - INCOME TAXES
At December 31, 2019, the Company had federal
and state net operating loss carry forwards of approximately $44,000,000 that expire in various years through the year 2039.
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, 2019 and 2018.
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, 2019 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately
$16,954,008 less a valuation allowance in the amount of approximately $16,954,008. Because of the Company’s lack of earnings
history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance decreased by approximately
$1,841,265 for the year ended December 31, 2018 and increased by approximately $1,192,252 for the year ended December 31, 2019.
The Company’s total deferred tax asset
as of December 31, 2019 and 2018 are as follows:
|
|
2019
|
|
2018
|
Net operating loss carry forwards
|
|
|
16,954,008
|
|
|
|
16,552,502
|
|
Valuation allowance
|
|
|
(16,954,008
|
)
|
|
|
(16,552,502
|
)
|
|
|
|
|
|
|
|
|
|
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, 2019 and 2018 is as follows:
|
|
2019
|
|
2018
|
Income tax computed at the federal statutory rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax computed at the state statutory rate
|
|
|
5
|
%
|
|
|
5
|
%
|
Valuation allowance
|
|
|
(26
|
)%
|
|
|
(26
|
)%
|
Total deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
On December 22, 2017, the 2017 Tax Cuts and
Jobs Act (the Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including
a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective
January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such
as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability
of our deferred tax asset and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement
period not to extend beyond one year of the enactment date.
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 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 7 - RELATED PARTY TRANSACTIONS
The Company paid $150,000 in notes payables
with accrued interest to related parties during the first quarter of 2019. The Company paid $176,785 in accrued salary to
the CEO, Thom Kidrin and paid $35,000 to the CFO, Chris Ryan over the year ended December 31, 2019.
See note 11 for a discussion on the convertible
note receivable from the related party.
The balance in the accrued expense attributable
to related parties is $66,518 and $329,624 at December 31, 2019 and December 31, 2018, 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 twelve
months ended December 31, 2018, the Company sold 1,842,116 shares at an average price of $1.64 per share raising $3,017,790. The
proceeds from the sale are treated as a gain on sale of marketable securities in the financial statements. No shares were sold
in the year ended December 31, 2019.
NOTE 10 – ACCRUED EXPENSES
Accrued expenses is comprised of $66,518 owed
to related parties. $205,000 is related to a judgment against the Company relating to unpaid consulting services dating back to
April of 2001. $1,305,009 is related to old accruals for which the statute of limitations has passed and therefore the Company
does not expect it will ever have to repay those amounts. The balance of $61,008 is related to accruals for recurring operating
expenses.
NOTE 11 – CONVERTIBLE NOTE RECEIVABLE
– RELATED PARTY
The Company made an investment in the form
of a convertible note in the amount of $200,000 to Canadian American Standard Hemp (CASH). The convertible note has a 7% annual
interest rate and matures in 2 years. Interest and principle is payable at maturity. The note can be converted at any time, either
all or part of the amount due can be converted into the borrowers equity at a price of $0.50 per share. If converted into common
stock, the Company would own 1% of CASH. Messrs. Kidrin, Toboroff, Christos and Ryan are Directors of CASH and Mr. Kidrin is the
CEO and Mr. Ryan is the CFO of CASH.
NOTE 12 – SUBSEQUENT EVENTS
The Company reviewed for subsequent events
and there are none to report.