WORLDS INC. Forward Looking Statements
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. 12 Table of Contents 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.
Overview General OnMay 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.
Revenues 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. Expenses
We classify our expenses into two broad groups:
• cost of revenues; and • selling, general and administration.
Liquidity and Capital Resources
We have had to limit our operations since mid- 2001 due to a lack of liquidity. However, we were able to issue equity and convertible debt in the last few years and raise small amounts of capital from time to time that, prior to the spinoff, was used to enable us to begin upgrading our technology, develop new products and actively solicit additional business, and more recently to protect, increase and enforce our patent portfolio. 13 Table of Contents
Although we have been able to generate funds through our sale of shares of MariMed Inc., we continue to pursue additional sources of capital though we have no current arrangements with respect to, or sources of, additional financing at this time and there can be no assurance that any such financing will become available. If we cannot raise additional capital, form an alliance of some nature with another entity, raise more funds through the sale of shares of MariMed Inc., or start to generate sufficient revenues, we may be unable to purchase additional patents or otherwise expand operations through acquisition or otherwise. RESULTS OF OPERATIONS
Year ended
Revenue was$0 for the years endedDecember 31, 2021 and 2020. 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. 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 increased by$508,526 from$1,031,472 to$1,539,998 for the year endedDecember 31, 2021 . The increase is due to an increase in legal costs related to the patent infringement litigation cases.
Salaries and related expenses increased by$7,670 to$215,332 from$207,662 for the year endedDecember 31, 2021 . Salaries and related are in line with last year and are based on the terms of the CEO's employment agreement. For the year endedDecember 31, 2021 , the Company recorded an option expense of$109,874 , representing the amortization of the value of the options issued in 2020 that have not yet vested. For the year endedDecember 31, 2020 , the Company recorded an option expense of$267,647 , representing the amortization of the value of the options issued in 2020 and 2018 that have not yet vested. For the year endedDecember 31, 2021 , the Company had interest expense of$76,063 . For the year endedDecember 31, 2020 , the Company had interest expense of$76,091 . The Company is 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
For the year ended
For the year ended
For the year ended
For the year ended
As a result of the foregoing, we had a net loss of
14 Table of Contents
Liquidity and Capital Resources
At
At
No capital expenditures were made in 2021 or 2020.
Our primary cash requirements have been used to fund the cost of operations, lawsuits, and patent enforcement.
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.
15
Table of Contents
ITEM 8. FINANCIAL STATEMENTS.
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM (Auditor firm ID 2738) 17
BALANCE SHEETS 19
STATEMENTS OF OPERATIONS 20
STATEMENT OF STOCKHOLDERS' DEFICIT 21
STATEMENTS OF CASH FLOWS 22
NOTES TO FINANCIAL STATEMENTS 23
16
Table of Contents
[[Image Removed]]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Worlds, Inc. Opinion on the Financial Statements
We have audited the accompanying balance sheets ofWorlds, Inc. (the Company) as ofDecember 31, 2021 and 2020, and the related statements of operations, stockholders' deficit, and cash flows for each of the years in the two-year period endedDecember 31, 2021 , and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period endedDecember 31, 2021 , in conformity with accounting principles generally accepted inthe United States of America . Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 17 Contents
The Company loaned a material amount of money to a related party that they have asserted was within the normal course of business for a future business transaction. The note is convertible into common stock of another related party company. Management's position on the legality of this payment and the realizability of the asset are inherently riskier and more complex than they would be had this been an arm's length transaction. We evaluated the evidence provided by management for the business purpose of this loan and the current valuation of the stock that this asset is convertible into. There is a large reliance on managements representations about this transaction. Notes receivable related party is discussed in Notes 7 & 11 to the financial statements.
Going Concern
As discussed in Note 1 to the financial statements, the Company had a going concern due to a working capital deficiency and stockholders' deficiency. Auditing management's evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses, which are not able to be substantiated. To evaluate the appropriateness of the going concern, we examined and evaluated the financial information that was the initial cause along with management's plans to mitigate the going concern and management's disclosure on going concern.
/s/
We have served as the Company's auditor since 2018.
Houston, TX March 30, 2022 18 ContentsWorlds Inc. Balance SheetsDecember 31, 2021 and 2020 Audited AuditedDecember 31, 2021 December 31, 2020 ASSETS: Current Assets
Cash and cash equivalents $ 44,421
$ 474,587
Other Assets 8,222 -
Total Current Assets 52,643 474,587
Convertible Note Receivable - related party 200,000 200,000 Accrued interest receivable - related party 31,461 17,267 Total assets $ 284,104
$ 691,854
LIABILITIES AND STOCKHOLDERS' DEFICIT: Current Liabilities Accounts payable $ 975,255 $ 981,898 Accrued expenses 1,546,480 1,606,565 Notes payable exceeding statute of limitations 773,279 773,279 Total Current Liabilities 3,295,014 3,361,742 Total Liabilities 3,295,014 3,361,742 Stockholders' Deficit Common stock (Par value$0.001 authorized 250,000,000 shares, issued and outstanding 57,112,506 atDecember 31, 2021 and 56,814,833 at December 31, 2020 57,113
56,815
Additional paid in capital 41,513,730 41,240,880
Common stock-warrants 1,206,913 1,206,913
Accumulated deficit (45,788,666 ) (45,174,496 )
Total stockholders' deficit (3,010,910 ) (2,669,888 )Total Liabilities and stockholders' deficit $ 284,104
$ 691,854
The accompanying notes are an integral part of these financial statements
19
Contents
Worlds Inc.
Statements of Operations
For the Year Ended December 31, 2021 and
2020
Audited
December 31,
2021 2020
Revenues
Revenue $ - $ -
Total Revenue - -
Cost and Expenses
Cost of Revenue - -
Gross Profit/(Loss) - -
Option expense 109,874 267,647
Selling, General & Admin. 1,539,998 1,031,472
Salaries and related 215,332 207,662
Operating loss (1,865,204 ) (1,506,781 )
Other Income (Expense)Loss on issuance of shares for services (8,685 )
-
Gain on sale of marketable securities 1,006,588
-
Settlement of litigation 315,000 -
Interest income 14,194 14,233
Interest expense (76,063 ) (76,091 )
Net Loss $ (614,170 ) $ (1,568,639 ) Weighted Average Loss per share - basic$ (0.01 ) $ (0.03 ) Weighted Average Loss per share - fully diluted$ (0.01 ) $ (0.03 ) Weighted Average Common Shares Outstanding (reflecting the reverse stock split) - basic 57,072,544
56,814,833
Weighted Average Common Shares Outstanding (reflecting the reverse stock split) - fully diluted 57,072,544
56,814,833
The accompanying notes are an integral part of these financial statements
20 ContentsWorlds Inc. Statement of Stockholders' Deficit For the Years EndedDecember 31, 2020 and 2021 Total Additional Common Accumulated stockholders' Common stock Common stock Paid-in Stock Deficit equity Shares Amount capital Warrants (deficit) Balances, December 31, 2019 56,814,833 56,815 40,897,142 1,206,913 (43,605,857 ) (1,444,987 ) Stock options expense - - 267,647 - - 267,647 Imputed Interest - - 76,091 - - 76,091 Common stock issued for settlement of accounts payable - related party Gain on forgiveness of accounts payable - related party Net Loss - - - - (1,568,639 ) (1,568,639 ) Balances, December 31, 2020 56,814,833 56,815 41,240,880 1,206,913 (45,174,496 ) (2,669,888 ) Common stock issued for settlement of accounts payable - related party 297,673 298 70,512 - - 70,810 Gain on forgiveness of accounts payable - related party - - 16,401 - - 16,401 Stock options expense - - 109,874 - - 109,874 Imputed Interest - - 76,063 - - 76,063 Net Loss - - - - (614,170 ) (614,170 ) Balances, December 31, 2021 57,112,506 57,113 41,513,730 1,206,913 (45,788,666 ) (3,010,910 ) The accompanying notes are an integral part of these financial statements 21 Contents Worlds Inc. Statements of Cash Flows Year EndedDecember 31, 2021 and 2020 Audited
Audited
12/31/21
Cash flows from operating activities: Net loss$ (614,170 ) $ (1,568,639 ) Adjustments to reconcile net loss to net cash (used in) operating activities Fair value of stock options issued 109,874
267,647
Imputed interest 76,063
76,091
Loss on shares issued for settlement of accounts payable - related party 8,685
-
Realized gain on sale of marketable securities (1,006,588 )
-
Other assets (8,222 )
-
Accounts payable and accrued expenses 11,798
142,878
Net cash (used in) operating activities: (1,422,560 )
(1,082,023 )
Cash flows from investing activities: Accrued interest receivable - related party (14,194 ) (14,234 ) Cash received from sale of marketable securities 1,006,588
-
Cash provided from investing activities: 992,394
(14,234 )
Net increase/(decrease) in cash and cash equivalents (430,166 )
(1,096,257 )
Cash and cash equivalents, including restricted, beginning of year 474,587
1,570,844
Cash and cash equivalents, including restricted, end of period$ 44,421 $
474,587
Non-cash financing activities Shares issued for settlement of accounts payable - related party 62,125
-
Gain on forgiveness of account payable - related party 14,401
-
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ - $ -
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements
22
Contents
Worlds, Inc.
Notes to the Financial Statements
NOTE 1 - GOING CONCERN
As reflected in the accompanying financial statements, the Company has a working
capital deficiency of $3,242,371 and a stockholder's deficiency of $3,010,910
and used $1,422,560 of cash in operations for the year ended December 31, 2021 .
This raises substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the
Company's ability to raise additional capital and implement its business plan.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Management believes that the actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
NOTE 2 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Description of Business OnMay 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 and is looking to expand on its legacy celebrity worlds and its collection of non-fungible tokens. Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted inthe 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 include highly liquid money market instruments, which have original maturities of three months or less at the time of purchase.
23 Contents Revenue Recognition
EffectiveJanuary 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. 24 Contents 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 atDecember 31, 2021 andDecember 31, 2020 . These are old notes payable for which the statute of limitations has passed and therefore the Company does not expect it will ever have to repay those notes. 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 ofDecember 31, 2021 andDecember 31, 2020 , there were 11,720,000 options and 4,380,000 warrants outstanding whose effect is anti-dilutive and not included in diluted net loss per share forDecember 31, 2021 or forDecember 31, 2020 . The options and warrants may dilute future earnings per share. Commitments and Contingencies The Company follows subtopic 450-20 of the FASB Accounting Standards 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. 25 Contents During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. InApril 2001 a judgment against the Company was rendered for approximately$205,000 . As ofDecember 31, 2021 , andDecember 31, 2020 , 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 endedDecember 31, 2021 .
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.
26 Contents 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.
The Company accounts for stock-based compensation for employees and directors in
accordance with Accounting Standards Codification 718, Compensation ("ASC 718")
as issued by the FASB. ASC 718 requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the statement of
operations based on their fair values. Under the provisions of ASC 718,
stock-based compensation costs are measured at the grant date, based on the fair
value of the award, and are recognized as an expense over the employee's
requisite service period (generally the vesting period of the equity grant). The
fair value of the Company's common stock options are estimated using the Black
Scholes option-pricing model with the following assumptions: expected
volatility, dividend rate, risk free interest rate and the expected life. The
Company expenses stock-based compensation by using the straight-line method. In
accordance with ASC 718 and, excess tax benefits realized from the exercise of
stock-based awards are classified as cash flows from operating activities. All
excess tax benefits and tax deficiencies (including tax benefits of dividends on
share-based payment awards) are recognized as income tax expense or benefit in
the condensed consolidated statements of operations. The Company accounts for
stock-based compensation awards issued to non-employees for services, as
prescribed by ASC 718-10, at either the fair value of the services rendered or
the instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Accounting
Standards Update ("ASU") 2018-07.
In February 2016 , the FASB issued ASU 2016-02, "Leases" Topic 842, which amends
the guidance in former ASC Topic 840, Leases. The new standard increases
transparency and comparability most significantly by requiring the recognition
by lessees of right-of-use assets and lease liabilities on the balance sheet for
all leases longer than 12 months. Under the standard, disclosures are required
to meet the objective of enabling users of financial statements to assess the
amount, timing, and uncertainty of cash flows arising from leases. For lessees,
leases will be classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income statement.
The Company adopted the new lease guidance effective January 1, 2019 . The
Company is not a party to any leases and therefore is not showing any asset or
liability related to leases in the current period or prior periods.
27
Contents
NOTE 3 - NOTES PAYABLE
Notes payable at
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
2021 $ 773,279
2022 $ 0
2023 $ 0
2024 $ 0
2025 $ 0
Total notes $ 773,279
The Company imputed interest of
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 onFebruary 9, 2018 , the Company had to issue an additional 167 shares due to rounding. During the year endedDecember 31, 2021 , the Company issued 297,673 shares of common stock as settlement of accounts payable to a related party. The value of the shares at the date of issuance was$70,810 resulting in a loss of$8,685 . During the year endedDecember 31, 2021 , the Company recorded an option expense of$109,874 representing the amortization of the value of the options issued in 2020 that had not yet vested. During the year endedDecember 31, 2020 , the Company recorded an option expense of$267,647 representing the amortization of the value of the options issued in 2020 and 2018 that had not yet vested. During the year endedDecember 31, 2020 , the Company issued 700,000 options. 300,000 options were issued toChris Ryan , the Chief Financial Officer of the Company, and 400,000 options were issued to Directors of the Company. The Company recorded an option expense of$267,647 in 2020.$256,574 of this amount relates to the 2018 grant toMr. Kidrin , the CEO.$11,073 relates to the grant in 2020 toMr. Ryan , the CFO. The directors' options were granted onDecember 31, 2020 and no expense was recorded for these options. The option expense represents the amortization of the value of the options issued in 2020 and 2018 that have not yet vested. The fair market value forMr. Ryan's options was calculated using the Black Scholes method assuming a risk free interest of .36%, 0% dividend yield, volatility of 204%, and an exercise price of$0.266 per share with a market price of$0.266 per share at issuance date and an expected life of 5 years. The options vest one year from the date of grant. 28 Contents Stock Warrants and Options Stock warrants/options outstanding and exercisable onDecember 31, 2021 are as follows: Exercise Price per Share Exercise Price Shares Under Option/warrant per Share Shares Under Option/warrant Remaining Life in Years Outstanding $ 0.325 3,400,000 0.08 $ 0.15 5,220,000 0.75 $ 0.15 580,000 1.00 $ 0.05 200,000 1.00 $ 0.30 200,000 1.00 $ 0.25 5,000,000 1.67 $ 0.24 800,000 1.67 $ 0.27 300,000 3.88 $ 0.30 400,000 4.00 Total 16,100,000 Exercisable $ 0.325 3,400,000 0.08 $ 0.15 5,220,000 0.75 $ 0.15 580,000 1.00 $ 0.05 200,000 1.00 $ 0.30 200,000 1.00 $ 0.25 5,000,000 1.67 $ 0.24 800,000 1.67 $ 0.27 300,000 3.88 $ 0.30 400,000 4.00 Total 16,100,000 NOTE 5 - INCOME TAXES
AtDecember 31, 2021 , the Company had federal and state net operating loss carry forwards of approximately$45,000,000 that expire in various years through
the year 2041.
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
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 atDecember 31, 2021 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately$17,292,188 less a valuation allowance in the amount of approximately$17,292,188 . 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$161,009 for the year endedDecember 31, 2021 and increased by approximately$338,288 for the year endedDecember 31, 2020 . 29 Contents The Company's total deferred tax asset as ofDecember 31, 2021 , and 2020 are as follows: Total Deferred Tax 2021 2020 Net operating loss carry forwards$ 17,292,188 $ 17,131,921 Valuation allowance (17,292,188 ) (17,131,179 ) 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 endedDecember 31, 2021
and
2020 is as follows:
Reconciliation of Income
2021 2020Income 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 ofAugust 28, 2018 , is for five years with a one-year renewal option held byMr. Kidrin . The agreement provides for a base salary of$200,000 , which increases 10% onSeptember 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 ofWorlds Inc. common stock at an exercise price of$0.25 per share, 2 million of which vested onAugust 28, 2018 , 1.5 million shall vest onAugust 28, 2019 and the remaining 1.5 million shall vest onAugust 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 thatMr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12 months after termination. 30 Contents
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company issued 297,673 shares of common stock toChris Ryan , our CFO as settlement of amounts previously recorded. The value of the shares on the date of issuance was$70,810 . The Company recorded a loss of$8,685 on the issuance of the shares.
The Company recorded a gain on forgiveness of accounts payable related party due
to the Company's CFO in the amount of
The Company paid to the CFO,
The balance in the accrued expense attributable to related parties is
See note 11 for a discussion on the convertible note receivable from the related party.
NOTE 8 - PATENTS
- 8,161,383, - 8,407,592 and 8,640,028.
See Legal Proceedings section for more information on the patent infringement lawsuits.
NOTE 9 - SALE OF MARKETABLE SECURITIES
When
During the year endedDecember 31, 2021 the Company generated net cash of$1,006,588 from the sale of 1,245,000 shares of MariMed Inc. common stock during the year endedDecember 31, 2021 and 100,000 shares of MariMed Inc. common stock at the end ofDecember 2020 which was not transferred to the Company's bank account until January of 2021. The average price per share was$0.79 per share.
As of
Those shares were retained on the books of the Company with a book value of
NOTE 10 - ACCRUED EXPENSES
Accrued expenses is comprised of$33,899 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 ,009is 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$2,572 is related to accruals for recurring operating expenses. 31 Contents
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 borrower's equity. During the year endedDecember 31, 2020 , CASH merged with Real Brands, Inc. The note was amended with a new maturity date ofOctober 15, 2023 . All other terms remained the same. As consideration for the extension, the Company received one million warrants to purchase Real Brands, Inc. common stock at$0.05 per share. The convertible note and accrued interest of$31 ,461can be converted into 28,438,561 shares of Real Brands common stock at a conversion price of$0.008139 . If converted into common stock, the Company would own approximately 1% of Real Brands Inc. Messrs. Kidrin, Toboroff and Christos are Directors of Real Brands andMr. Kidrin is the CEO andMr. Ryan is the CFO of Real Brands.
NOTE 12 - OTHER ASSETS
Other assets is comprised of an over payment to a law firm in the amount of
NOTE 13 - SUBSEQUENT EVENTS The Company signed an asset purchase agreement onJanuary 18, 2022 with the CEO of the CompanyMr. Kidrin . The Company purchased fromMr. Kidrin assets previously owned by MariMed Inc. (MRMD) and used in its 3D VR business, whichMr. Kidrin received through a settlement of a lawsuit with MRMD. The Company plans to use this IP to enter into the NFT market. In consideration for the IP,Mr Kidrin received fifteen million options to purchase common stock in the Company at the market price onJanuary 18, 2022 . The option expires three years from the date of the agreement. At theFebruary 16, 2022 board meeting, the directors voted to reprice their existing options at the current market price and extend the options exercise date to 5 years from the date of the repricing. The board also approved the annual option grants for the directors for the prior years' service that were never issued and the current year. OnApril 30, 2021 ,Judge Casper granted Activision's summary judgment motion, entered an Order finding that all asserted patents were invalid as directed to patent-ineligible subject matter, and terminated the Company's lawsuit, with judgment for the Activision Entities. The Company appealed this Order onMay 28, 2021 to theU.S. Court of Appeals for the Federal Circuit , sitting inWashington, D.C. Oral argument occurred onMarch 8, 2022 . OnMarch 10, 2022 , the Federal Circuit issued an Order affirming the District Court's judgment. 32 Contents
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