<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JULY 31, 1998
------------------------------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
Commission file number 0-21683
--------------------------------
UNITY FIRST ACQUISITION CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3899021
- --------------------------------- ------------------------------------
(State or other jurisdict (I.R.S. Employer Identification No.)
of incorporation or organization)
245 FIFTH AVENUE, SUITE 1500, NEW YORK, NEW YORK 10016
- ------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 696-4282
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
</TABLE>
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
- --------------------------------------------------------------------------------
(Title of Class)
CLASS A COMMON STOCK PURCHASE WARRANTS
- --------------------------------------------------------------------------------
(Title of Class)
CLASS B COMMON STOCK PURCHASE WARRANTS
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes........ No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes....... No.........
----------------------
The number of shares outstanding of the Registrant's common stock is 1,875,000
(as of January 22, 1999).
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $ 8,159,515 (as of January 22, 1999).
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Unity First Acquisition Corp. ("Unity") was formed in May 1996
to serve as a vehicle to effect a merger, exchange of capital stock, asset
acquisition or other similar business combination ("Business Combination") with
an operating business (an "Acquired Business").
In November 1996, Unity successfully consummated an initial
public offering of its equity securities (the "IPO") from which it derived net
proceeds of $6,402,112. Reference is made to Unity's Registration Statement on
Form S-1 (File No. 333-11165), declared effective on November 12, 1996, for more
detailed information in these regards.
On May 6, 1998, Unity entered into a letter of intent to
effectuate a Business Combination ("Merger") with Worlds, Inc. ("Worlds"), a
company engaged in developing music-oriented content applications for its
proprietary 3D Internet technology for consumer markets, as well as developing
select business oriented applications. On June 25, 1998, Unity and Worlds
entered into a definitive Agreement and Plan of Merger and Reorganization to
effectuate the Merger.
On October 29, 1998, those holders of Unity's common stock
who acquired their respective shares ("Public Shares") in Unity's IPO or at
any time thereafter (the "Unity Public Stockholders"), at a special meeting
of Unity's stockholders, rejected the Worlds Merger by a vote of 317,000
shares in favor of such Merger and 884,000 shares in favor of its rejection.
Article SEVENTH, paragraph (c) of Unity's Certificate of
Incorporation (the "Unity Charter") states that:
In the event that the Corporation does not consummate a
Business Combination by the later of (i) 18 months after
consummation of the IPO or (ii) 24 months after the
consummation of the IPO in the event that an agreement for a
<PAGE>
Business Combination was executed but was not consummated
within such 18 month period (the later of such dates being
referred to as the "Termination Date"), the officers of the
Corporation shall take all such actions as may be necessary to
dissolve and liquidate the Corporation within sixty days of
the Termination Date. In the event that the
Corporation is so dissolved and liquidated, liquidating
distributions shall be made only with respect to the Public
Shares and the Corporation shall pay no liquidating
distribution with respect to any shares of Common Stock
outstanding prior to the consummation of the IPO.
Article SEVENTH also states, among other things, that paragraph (c) shall apply
during the period commending upon the consummation of the IPO and terminating
upon the consummation of any Business Combination and may not be amended during
such period.
As a consequence of the rejection of the Worlds Merger by the
Unity Public Stockholders, Article SEVENTH, paragraph (c) of the Unity Charter
would have required the liquidation and dissolution of Unity (the "Liquidation")
no later than January 11, 1999. Had such Liquidation taken place on that date,
the Unity Public Stockholders, collectively, would have received a liquidating
distribution representing their respective pro rata interest in a trust fund
established for their benefit upon the consummation of the IPO, which currently
approximates $6.5 million.
On December 10, 1998, Unity entered into a letter of intent to
effectuate a Merger with GraphOn Corporation, a privately owned developer and
marketer of proprietary "thin client" software that enables a diverse range of
desktop computing devices ("desktops") to easily access and utilize UNIX
applications from any location, over both fast networks and slow internet
connections.
Unity's Board of Directors has unanimously concluded that a
Merger with GraphOn would be in the best interests of both Unity and its
stockholders, including the Unity Public Stockholders. Consequently, Unity's
Board of Directors has sought and obtained an
2
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opinion from special Delaware counsel to the effect that such Article SEVENTH,
paragraph (c), which attempts to waive Unity's statutory right to amend the
Unity Charter, is contrary to Delaware law and cannot prevent Unity and its
stockholders from amending the Unity Charter.
Subject to its submission under the Securities Exchange Act
of 1934, as amended, of proxy solicitation materials, Unity's Board of
Directors intends to seek the approval of the Unity Public Stockholders to
(i) amend the Unity Charter to remove the provision therein that would have
required Unity to commence the Liquidation as a consequence of its inability
to consummate a Business Combination within the period defined by Article
SEVENTH, paragraph (c) of the Unity Charter and, if such approval is
obtained, to (ii) consider and vote upon a proposal to approve Unity's Merger
with GraphOn. If either the amendment to the Unity Charter or such Merger is
not approved by a majority in equity interest of the Unity Public
Stockholders, Unity will immediately commence the Liquidation.
The proposed amendment to the Unity Charter will not affect
the right of any Unity Public Stockholder to convert his shares of Unity Common
Stock into cash, as provided in Article SEVENTH of the Unity Charter, should
such Unity Public Stockholder object to the GraphOn Merger and such Merger is
approved by a majority in equity interest of the Unity Public Stockholders and
thereafter consummated.
Unity was incorporated as a Delaware corporation on May 30,
1996. Unity's executive offices are located at 245 Fifth Avenue, New York, New
York 10016; its telephone number is (212) 696-4282.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY'S SEGMENTS
Not applicable.
(c) NARRATIVE DESCRIPTION OF BUSINESS
See Item 1(a) above.
3
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(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
Not applicable.
ITEM 2. PROPERTIES
Unity's executive offices are located at 245 Fifth Avenue, New
York, New York where it uses approximately 500 square feet of office space and
premises occupied by Unity Venture Capital Associates Ltd. ("Unity VCA"), a
concern which is an affiliate of certain of Unity's officers and directors. See
Item 13 hereof.
ITEM 3. LEGAL PROCEEDINGS
Unity is not a party to any legal proceedings which may have a
material adverse effect upon Unity, its assets or its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year ended July 31, 1998.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
(a) Unity's Common Stock, Class A Redeemable Common Stock Purchase
Warrants ("Class A Warrants") and Class B Redeemable Common Stock Purchase
Warrants ("Class B Warrants") are each quoted on the OTC Bulletin Board under
the respective symbols "UFAC", "UFACW" and "UFACZ". The following table sets
forth the range of the high and low bid quotations on the OTC Bulletin Board for
the periods indicated:
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK WARRANTS WARRANTS
THREE MONTHS --------------- ------------ -------------
ENDED HIGH LOW HIGH LOW HIGH LOW
------------ ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997* 4-3/4 4-3/8 1-1/4 7/8 1-1/4 3/4
April 30, 1997 4-13/16 4-3/8 1-1/8 3/8 7/8 1/4
July 31, 1997 4-7/8 4-7/16 1-1/4 5/16 7/8 1/4
October 31, 1997 N/A N/A 13/16 1/4 7/16 1/8
January 31, 1998 5-1/2 5 1 3/8 9/16 1/4
April 30, 1998 5-3/16 4-7/8 1 5/8 1/2 1/4
July 31, 1998 5-5/16 4-7/8 1-1/4 1/2 7/16 3/8
</TABLE>
- ----------
* Unity's securities began separate trading on November 21, 1996.
The above quotations represent prices between dealers and do not include retail
mark up, markdown or commission. They do not necessarily represent actual
transactions.
(b) As of January 22, 1999, there were 37, 6 and 5 record holders of
the Common Stock, Class A Redeemable Warrants and Class B Redeemable Warrants,
respectively.
(c) Unity has not declared any cash dividends on its Common Stock and
has no intention to pay cash dividends in the foreseeable future.
5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables should be read in conjunction with the
financial statements of Unity and the notes thereto appearing elsewhere in this
Annual Report on Form 10-K. The selected financial data of Unity has been
derived from the financial statements of Unity, which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere herein.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 30, 1996 MAY 30, 1996
(DATE OF (DATE OF
YEARS ENDED INCEPTION) TO INCEPTION) TO
JULY 31, JULY 31, 1996 JULY 31, 1998
------------------------- ------------- ---------------
1998 1997
---- ----
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
Net income (loss) (315,991) 6,637 (15,000) ( 324,354)
Earnings (loss) (.14) - ( .02)
per common share
Weighted average
common shares 1,875,000 1,515,000 625,000
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
JULY 31,
---------------------------------
1998 1997
---- ----
<S> <C> <C>
Total assets $6,489,903 $ 6,465,021
Total liabilities $ 412,082 $ 71,209
Shareholders' equity $4,780,520 $ 5,154,432
</TABLE>
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Unity was incorporated in May 1996 for the purpose of raising
money to fund a vehicle to effect a Business Combination with an Acquired
Business. On November 12, 1996, Unity's registration statement under the
Securities Act of 1933, as amended, covering 1,250,000 units, each unit
consisting of one share of Unity's Common Stock, one Class A Redeemable Warrant
and one Class B Redeemable Warrant at an initial public offering price of $6.00
per unit, was declared effective by the Securities and Exchange Commission.
Unity derived $7,500,000 from the IPO prior to underwriting commissions of
$600,000 and expenses of approximately $497,888, respectively.
For the year ended July 31, 1998, for the year ended July 31,
1997 and for the period from the date of inception (May 30, 1996) to July 31,
1996, Unity had net income (loss) of $(315,991), $6,637 and $(15,000),
respectively. These results of operations were attributable to interest and
dividend income offset by general and administrative expenses, primarily
consisting of management and professional fees of $346,390, $127,775 and
$15,000, respectively, and taxes. Unity was inactive during the period May 30,
1996 (date of inception) through November 19, 1996.
At July 31, 1998, Unity had cash and cash equivalents and
short-term investments, inclusive of restricted cash and investments of
$6,489,707, totaling $6,489,903 and total liabilities of $412,082.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pps. F-1 through F-12 comprising a
portion of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The current directors and executive officers of Unity are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lawrence Burstein 55 President, Treasurer and
Director
John Cattier 66 Director
Barry Ridings 46 Director
Norman Leben 38 Secretary and Director
</TABLE>
LAWRENCE BURSTEIN has been President, Treasurer and a director
of Unity since its inception. For approximately ten years prior thereto, Mr.
Burstein was the President, a director and principal stockholder of Trinity
Capital Corporation, a private investment banking concern ("Trinity"). Trinity
ceased operations upon the formation of Unity VCA. Since March 1996, Mr.
Burstein has been Chairman of the Board and a principal shareholder of Unity
VCA. Mr. Burstein is a director of four public companies, being, respectively,
THQ Inc., which designs and markets Nintendo and Sega games, Brazil Fast Food
Corp., the owner and operator of the second largest fast food restaurant chain
in Brazil, CAS Medical Systems, Inc., engaged in the manufacture and marketing
of blood pressure monitors and other medical products principally for the
neonatal market, and The MNI Group Inc., engaged in the marketing of specially
formulated medical foods. Mr. Burstein received an L.L.B. from Columbia Law
School.
JOHN CATTIER has been a director of Unity since its inception.
Since May 1996, Mr. Cattier has been a director and shareholder of Unity VCA.
Mr. Cattier has been an independent consultant since January 1985. From 1957 to
December 1984, Mr. Cattier was associated with White Weld & Co., investment
bankers,
8
<PAGE>
serving as a general partner, and with Credit Suisse White Weld (which
subsequently became Credit Suisse First Boston), investment bankers, in various
capacities, Mr. Cattier, who was both a director and stockholder of Trinity for
at least five years prior to its cessation of operations, is a director of
Pacific Assets Trust PLC, a United Kingdom investment trust, and Chairman of the
Board of Directors of Heptagon Investments Limited, an investment
company ("Heptagon"). Mr. Cattier received a B.A. from Yale
University.
BARRY RIDINGS has been a director of Unity since its
inception. Since March 1990, Mr. Ridings has been a Managing
Director of BT Alex. Brown & Sons, investment bankers. From June
1986 to March 1990, Mr. Ridings was a Managing Director of Drexel
Burnham Lambert, investment bankers. Mr. Ridings is a director of
SubMicron Systems Corporation, a semi-conductor capital equipment
manufacturer, Transcor Waste Services Corp., a waste management
company, Noodle Kidoodle, Inc., an operator of specialty toy
stores, New Valley Corp., formerly known as Western Union, Search
Capital Group, an auto finance company, Telemundo Group, a Spanish
language television network, and Norex Industries Inc., a shipping
company. Mr. Ridings received an M.B.A. from Cornell University.
NORMAN LEBEN has been Secretary and a director of Unity
since its inception. Mr. Leben is, and since 1988 has been, a
partner of Dalessio Millner & Leben LLP ("DML"), certified public
accountants. Prior thereto and from 1985, Mr. Leben was engaged in
the acquisition, management, syndication and operation of real
estate and other emerging marketing businesses. Prior to 1985, Mr.
Leben was employed by Laventhol & Horwath. Mr. Leben received a
B.B.A. from George Washington University.
All directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Directors
receive no compensation for serving on the Board of Directors other than
reimbursement of reasonable expenses incurred in attending meetings. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board. Mr. Burstein devotes approximately 30% of his time to the affairs of
Unity. Unity has not entered into employment agreements with either of its
officers.
9
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ITEM 11. EXECUTIVE COMPENSATION
(a) CASH COMPENSATION
Unity's officers receive no compensation for serving as
officers other than accountable reimbursement for any reasonable business
expenses incurred in connection with activities undertaken on Unity's behalf.
(b) COMPENSATION PURSUANT TO PLANS
Unity's 1996 Stock Option Plan (the "1996 Plan") was
adopted by both of Unity's Board of Directors and by a majority in
interest of Unity's stockholders on May 30, 1996. The 1996 Plan
provides for the granting of 187,500 options which are intended to qualify
either as incentive stock options ("Incentive Stock Options") within the meaning
of Section 422 of the Internal Revenue Code of 1986 or as options which are not
intended to meet the requirements of such section ("Nonstatutory Stock
Options"). The total number of shares of Common Stock reserved for issuance
under the 1996 Plan is 187,500. Options to purchase shares may be granted under
the 1996 Plan to persons who, in the case of Incentive Stock Options, are
employees (including officers) of Unity, or, in the case of Nonstatutory Stock
Options, are employees (including officers) or non-employee directors of Unity.
The exercise price of all Incentive Stock Options granted under the 1996 Plan
must be at least equal to the fair market value of such shares on the date of
the grant or, in the case of Incentive Stock Options granted to the holder of
ten percent or more of Unity's Common Stock, at least 110% of the fair market
value of such shares on the date of grant. The maximum exercise period for which
Incentive Stock Options may be granted is ten years from the date of grant (five
years in the case of an individual owning more than 10% of Unity's Common
Stock).
No options have been granted under the 1996 Plan to date.
(c) OTHER COMPENSATION
None.
10
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(d) COMPENSATION OF DIRECTORS
Unity's directors presently receive no compensation for their
services as such.
(e) TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of January
22,1999, based on information obtained from the persons named below, with
respect to the beneficial ownership of shares of Unity's Common Stock by (i)
each person known by Unity to be the owner of more than 5% of its outstanding
shares of Common Stock, (ii) each director and (iii) all officers and directors
as a group. Except as indicated in the footnotes to the table, the persons named
in the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OF OUTSTANDING
BENEFICIAL OWNER OWNERSHIP(1)(2) SHARES OWNED(2)
- ------------------- --------------- ----------------
<S> <C> <C>
Lawrence Burstein 175,000(3) 9.3%
245 Fifth Avenue
New York, NY 10016
John Cattier 140,500(3) 7.5%
Achlain Invermoriston
Invernesshire
IV3 6YN, United Kingdom
</TABLE>
11
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<TABLE>
<CAPTION>
<S> <C> <C>
Barry Ridings 6,000 *
21 Lilac Lane
Princeton, NJ 08540
Norman Leben 40,000(3) 2.1%
245 Fifth Avenue
New York, NY 10016
All officers and 311,500(3)(4) 16.6%
directors as a group
(4 persons)
</TABLE>
- --------------------
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise noted, Unity believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(2) Does not include shares issuable upon exercise of the Directors'
Warrants (as hereinafter defined) which are beneficially owned by each
of the persons named in the above table but which are not exercisable
until the consummation of a Business Combination.
(3) Includes 25,000 shares of Common Stock owned by Unity VCA, over which
shares Messrs. Burstein, Leben and Cattier share voting and investment
power.
(4) Includes (i) 75,000 shares held by Heptagon and (ii) 1,500
shares held by an affiliate of Heptagon. Mr. Cattier is
Chairman of Heptagon's board of directors and exercises voting and
dispositive control over approximately 7.6% of Heptagon's shares of
capital stock. Mr. Cattier disclaims any voting or dispositive power
over these shares. Also includes 39,000 shares owned by Cricket
Services, Ltd. ("Cricket"), over which shares Mr. Cattier exercises
voting and dispositive control. Both Heptagon and Cricket are private
investment companies.
12
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, Unity issued an aggregate of 625,000 shares of
Common Stock at a price of $.0001 per share, as follows: 25,000 shares to Unity
VCA; 150,000 shares to Mr. Burstein; 15,000 shares to Mr. Leben; an aggregate of
76,500 shares to Heptagon and its affiliate; 39,000 shares to Cricket; 6,000
shares to Barry Ridings; and 313,500 shares to 24 other persons.
In June 1996, the Company issued 58,334, 58,333, 58,333 and
25,000 Class A and Class B Warrants to each of, respectively, Messrs. Burstein,
Leben, Cattier and Ridings (collectively, the "Directors' Warrants"), in
consideration for future services to be rendered by such persons on behalf of
Unity. The Directors' Warrants are identical to the Company's Series A and
Series B Warrants offered and sold in the IPO but are not redeemable by Unity
and may not be transferred until the consummation of a Business Combination.
Unity has been obligated to pay Unity VCA, since June 1, 1996,
a monthly fee of $7,500 for general and administrative services pursuant to an
agreement which may be cancelled by either party upon 30 days' prior written
notice. Such fee includes the use of approximately 500 square feet of office
space in premises occupied by Unity VCA. DML, an accounting firm which is an
affiliate of Mr. Leben, affords Unity VCA the use of such space at a monthly
rental of $2,000. Messrs. Burstein, Cattier and Leben are each directors and
shareholders of Unity VCA.
Unity VCA had made non-interest demand loans aggregating
approximately $50,000 to Unity as of the IPO date to cover expenses incurred by
Unity in connection with the IPO. Unity repaid these loans out of the proceeds
of the IPO.
DML has performed bookkeeping, tax and accounting services for
certain of the "blank check" companies of which Messrs. Burstein, Cattier and
Ridings, have been directors and shareholders from their dates of inception
through the consummation of their respective Business Combinations and performs
similar services for Unity at an aggregate cost of $15,570 for the year ended
July 31, 1998.
13
<PAGE>
PART IV
<TABLE>
<CAPTION>
<S> <C>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:
(i) FINANCIAL STATEMENTS Page
----
Report of Independent Public Accountants F-1
Balance Sheets - July 31, 1998 and 1997 F-2
Statements of Operations for the years ended
July 31, 1998 and 1997, the period May 30,
1996 (date of inception) through July 31,
1996 and the cumulative amounts from
inception F-3
Statements of Cash Flows for the years ended July 31,
1998 and 1997, the period May 30, 1996 (date
of inception) through July 31, 1996 and the
cumulative amounts from inception F-4
Statements of Changes in Stockholders' Equity
for the years ended July 31, 1998 and 1997,
and for the period May 30, 1996 (date of
inception) through July 31, 1996 F-5
Notes to Financial Statements F-6 - F-12
(ii) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because
the conditions requiring their filing do not exist or the
information required thereby is included in the financial
statements filed, including the notes thereto.
(b) REPORTS ON FORM 8-K
None.
</TABLE>
14
<PAGE>
(c) EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated as
of June 25, 1998 between Unity and Worlds, Inc. (1)
3.1 Restated Certificate of Incorporation(2)
3.2 By-Laws(2)
4.1 Form of certificate evidencing shares of Common Stock(2)
4.2 Form of certificate evidencing Class A Redeemable
Warrants(2)
4.3 Form of certificate evidencing Class B Redeemable
Warrants(2)
4.4 Form of Unit Purchase Option between Unity and the
Underwriters of the IPO(2)
4.5 Form of Warrant Agreement between Unity and American
Stock Transfer & Trust Company(2)
10.1 Stock Option Plan(2)
10.2 Form of Trust Agreement by and between Unity and The Bank
of New York(2)
10.3 Form of Insider's Letter(2)
10.4 Form of Escrow Agreement by and among Unity, Lawrence
Burstein, John Cattier, Cricket Services, Ltd., Barry
Ridings, Norman Leben, Unity Venture Capital Associates
Ltd. ("Unity") and American Stock Transfer & Trust
Company(2)
10.5 General and Administrative Services Agreement, dated as
of May 30, 1996 by and between Unity and Unity Capital
Corp.(2)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.6 Form of Officer/Director Warrant Purchase Agreement with
the Representative of the IPO Underwriters(2)
</TABLE>
- --------------------
(1) Incorporated by reference to an exhibit filed as part of Unity's
Registration Statement on Form S-4, File No. 333- 59863), declared
effective on September 14, 1998.
(2) Incorporated by reference to an exhibit filed as part of Unity's
Registration Statement on Form S-1, File No. 333- 11165), declared
effective on November 12, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 22nd day of January, 1999.
UNITY FIRST ACQUISITION CORP.
By: /S/LAWRENCE BURSTEIN
---------------------------------
Lawrence Burstein
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
---------- -------- ----
<S> <C> <C>
President and
Director (Principal
Executive, Financial
and Accounting
/S/LAWRENCE BURSTEIN Officer) January 22, 1999
- ----------------------------
Lawrence Burstein
- ---------------------------- Director
John Cattier
/S/BARRY RIDINGS Director January 22, 1999
- ----------------------------
Barry Ridings
Secretary and
/S/NORMAN LEBEN Director January 22, 1999
- ----------------------------
Norman Leben
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Unity First Acquisition Corp:
We have audited the accompanying balance sheets of Unity First Acquisition Corp.
(a Delaware corporation in the development stage) as of July 31, 1998 and 1997,
and the related statements of operations, changes in shareholders' equity and
cash flows for the years ended July 31, 1998 and 1997, for the period from
inception (May 30, 1996) to July 31, 1996, and for the period from inception
(May 30, 1996) to July 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unity First Acquisition Corp.
as of July 31, 1998 and 1997, and the results of its operations and its cash
flows for the years ended July 31, 1998 and 1997, for the period from inception
(May 30, 1996) to July 31, 1996, and for the period from inception (May 30,
1996) to July 31, 1998, in conformity with generally accepted accounting
principles.
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 is a development stage enterprise with no
significant operating results to date and, at July 31, 1998, had $196 of
remaining unrestricted assets available to meet its current obligations.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regards to these matters are
described in Notes 1, 3 and 10. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
New York, New York ARTHUR ANDERSEN LLP
December 10, 1998
F-1
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
JULY 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 196 $ 266,533
RESTRICTED CASH AND INVESTMENTS 6,489,707 6,198,488
---------- ----------
---------- ----------
TOTAL ASSETS $6,489,903 $6,465,021
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
ACCRUED EXPENSES $ 379,082 $ 67,634
ADVANCES FROM AFFILIATE 33,000 --
INCOME TAXES PAYABLE -- 3,575
---------- ----------
TOTAL LIABILITIES 412,082 71,209
---------- ----------
COMMITMENTS AND CONTINGENCIES
Common stock, $.0001 par value,
249,875 shares subject to possible
conversion, at conversion value 1,297,301 1,239,380
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000 shares authorized, no shares
issued or outstanding -- --
Common stock, $.0001 par value,
20,000,000 shares authorized, 1,625,125
shares issued and outstanding
(excluding 249,875 shares subject to possible conversion) 163 163
Additional paid-in capital 5,104,711 5,162,632
Deficit accumulated during the development stage (324,354) (8,363)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,780,520 5,154,432
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,489,903 $6,465,021
---------- ----------
---------- ----------
</TABLE>
See Accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended July 31, From May 30, 1996 Cumulative
-------------------------- (Date of Inception) Amounts
1998 1997 to July 31, 1996 from Inception
---- ---- ------------------- --------------
<S> <C> <C> <C> <C>
REVENUE $ -- $ -- $ -- $ --
---------- --------- -------- ---------
EXPENSES:
General and administrative 612,237 192,489 15,000 819,726
---------- --------- -------- ---------
OTHER INCOME:
Interest and dividends 296,246 202,701 -- 498,947
---------- --------- -------- ---------
OPERATING (LOSS) INCOME (315,991) 10,212 (15,000) (320,779)
PROVISION FOR INCOME
TAXES -- 3,575 -- 3,575
---------- --------- -------- ---------
NET (LOSS) INCOME $ (315,991) $ 6,637 $(15,000) $(324,354)
---------- --------- -------- ---------
---------- --------- -------- ---------
NET (LOSS) INCOME PER
COMMON SHARE -
BASIC AND DILUTED $ (.17) $ -- $ (.02)
--------- --------- -------
--------- --------- -------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 1,875,000 1,515,000 625,000
--------- --------- -------
--------- --------- -------
</TABLE>
See Accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended July 31, From May 30, 1996 Cumulative
---------------------------- (Date of Inception) Amounts
1998 1997 to July 31, 1996 from Inception
-------- -------- ------------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (315,991) $ 6,637 $ (15,000) $ (324,354)
----------- --------- ---------- -----------
CHANGES IN CERTAIN ASSETS AND LIABILITIES:
Increase in accrued expenses 311,448 92,634 -- 404,082
(Decrease) increase in income taxes payable (3,575) 3,575 -- --
----------- --------- ---------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (8,118) 102,846 (15,000) 79,728
----------- --------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 6,402,112 63 6,402,175
Advances from affiliate 33,000 55,417 40,500 128,917
Repayment to affiliate -- (95,917) -- (95,917)
Deferred registration costs -- -- (25,000) (25,000)
----------- --------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,000 6,361,612 15,563 6,410,175
----------- --------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) in restricted cash and investments (291,219) (6,198,488) -- (6,489,707)
----------- --------- ---------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (266,337) 265,970 563 196
CASH AND CASH EQUIVALENTS, beginning of period 266,533 563 -- --
----------- --------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 196 $ 266,533 $ 563 $ 196
----------- --------- ---------- -----------
----------- --------- ---------- -----------
</TABLE>
See Accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 30, 1996
(DATE OF INCEPTION) THROUGH JULY 31, 1996
AND EACH OF THE YEARS ENDED JULY 31, 1998 AND 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Additional Accumulated During
Common Stock Paid-In the Development
Shares Par Value Capital Stage Total
------ --------- ---------- ----------------- -----
<S> <C> <C> <C> <C> <C>
Issuance of stock to original
founders for cash, at par value 625,000 $ 63 $ -- $ -- $ 63
Net (loss) for the period
May 30, 1996 (date of inception)
through July 31, 1996 -- -- -- (15,000) (15,000)
--------- -------- ---------- --------- ----------
Balance, July 31, 1996 625,000 63 -- (15,000) (14,937)
Issuance of units to public, net
of shares subject to possible
conversion 1,000,125 100 5,162,632 -- 5,162,732
Net income for the year ended
July 31, 1997 -- -- -- 6,637 6,637
--------- -------- ---------- --------- ----------
Balance, July 31, 1997 1,625,125 163 5,162,632 (8,363) 5,154,432
Net (loss) for the year ended
July 31, 1998 -- -- -- (315,991) (315,991)
Increase in value attributable to
common shares subject to possible
conversion -- -- (57,921) -- (57,921)
--------- -------- ---------- --------- ----------
Balance, July 31, 1998 1,625,125 $ 163 $5,104,711 $(324,354) $4,780,520
--------- -------- ---------- --------- ----------
--------- -------- ---------- --------- ----------
</TABLE>
See Accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND OPERATIONS
Unity First Acquisition Corp. ("Unity") was incorporated in the State of
Delaware on May 30, 1996 to serve as a vehicle to effect a merger,
exchange of capital stock, asset acquisition or other similar business
combination (a "Business Combination"). Unity is currently in the
development stage. All activity of Unity to date relates to its formation,
fund-raising, and search to effect a Business Combination.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UTILIZATION OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure 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 those
estimates.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed based on the weighted
average number of common shares outstanding and common stock equivalents,
if not anti-dilutive.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
This statement establishes standards for computing and presenting earnings
per share ("EPS"), replacing the presentation of primary EPS with a
presentation of Basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both Basic
EPS and Diluted EPS on the face of the statement of operations. Under
this new standard, Basic EPS is computed based on the weighted average
number of shares actually outstanding during the year. Diluted EPS
includes the effect of potential dilution from the exercise of
outstanding dilutive stock options and warrants into common stock using
the treasury stock method. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, and early
application is not permitted. The adoption of this statement did not
have a material effect on Unity's financial position or on the results
of operations.
F-6
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 3 - OFFERING OF SECURITIES
On November 12, 1996, Unity completed its initial public offering (the
"Offering") consisting of the sale of 1,250,000 units (the "Units"). Each
Unit consisted of one share of Unity's Common Stock ("Common Stock"),
$.0001 par value, one Class A Redeemable Warrant (the "A Warrants") and
one Class B Redeemable Warrant (the "B Warrants"). Each A Warrant and B
Warrant entitles the holder to purchase from Unity one share of Common
Stock at an exercise price of $5.50 and $7.50, respectively, commencing on
the later of a Business Combination or November 12, 1997. The A Warrants
and B Warrants are redeemable, each as a class, in whole and not in part,
at the option of Unity and with the consent of the managing underwriter
("Underwriter") upon 30 days notice at any time after the Warrants become
exercisable, only in the event that the reported high bid price of the
Common Stock is at least $8.50 per share, with respect to the Class A
Warrants, and $10.50 per share, with respect to the Class B Warrants for
the 20 consecutive trading days immediately prior to notice of redemption,
at a price of $.05 per A Warrant or B Warrant. The Warrants are
immediately separable and transferable. In connection with the Offering,
Unity granted the Underwriter an option, exercisable within 45 business
days from November 12, 1996, to purchase up to 187,500 additional Units at
$6.00 per unit. This option, which was solely for the purpose of covering
over-allotments, was not exercised by the Underwriter either in whole or
in part prior to its expiration date. None of the A and B Warrants have
been exercised through July 31, 1998.
Net proceeds of the Offering to Unity including the purchase of warrants
by the Underwriter, discussed below, were $6,402,112, after deducting
related expenses. Ninety percent (90%) of the net proceeds are held in an
interest bearing Trust Fund until the earlier of (i) written notification
by Unity of its need for all or substantially all of the net proceeds for
the purpose of implementing or facilitating the implementation of a
Business Combination or (ii) the liquidation of Unity (See Note 10).
Unity's Certificate of Incorporation requires that in the event that Unity
does not effect a Business Combination within eighteen months from the
date of the Offering, Unity will be dissolved and Unity will distribute to
all Public Stockholders in proportion to their respective equity interests
in Unity, an aggregate sum equal to Unity's book value, calculated as of
the approval date of such proposal. In this regard, Unity's Initial
Stockholders, including all of the officers and directors of Unity, have
agreed to waive their respective rights to participate in any such
liquidation distribution (See Note 10).
F-7
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 3 - OFFERING OF SECURITIES (CONTINUED)
All of Unity's Initial Stockholders, including all of its officers and
directors, have agreed to vote their respective shares of Common Stock in
accordance with the vote of the majority of all non-affiliated future
stockholders of Unity with respect to a Business Combination. In addition,
Unity stock owned by all of the executive officers and directors of Unity,
their affiliates and by all persons owning 5% or more of the currently
outstanding shares of Common Stock was placed in escrow until the earlier
of (i) the occurrence of a Business Combination or (ii) 18 months from the
date of the Offering. During the escrow period, such stockholders are not
able to sell or otherwise transfer their respective shares of Common
Stock, but will retain all other rights as stockholders of Unity,
including, without limitation, the right to vote such shares of Common
Stock.
In connection with the Offering, Unity sold to the Underwriter and its
designees, for $100, warrants (the "Underwriter's Warrants") to purchase
up to 125,000 Units at an exercise price of $6.60 per Unit. The
Underwriter's Warrants will be exercisable for a period of five years
commencing on November 12, 1996. The Underwriter's Warrants are not
redeemable and have not been exercised.
NOTE 4 - RESTRICTED CASH AND INVESTMENTS
Unity, pursuant to the terms of the Offering, placed $6,007,500 as of
November 19, 1996, in a trust account which was primarily invested in a
short-term U.S. Government Security. These funds are subject to release
upon the earlier of (i) written notification by Unity of its need for all
or substantially all of the net proceeds for the purpose of implementing
or facilitating the implementation of a Business Combination or (ii) the
liquidation of Unity (See Note 10).
NOTE 5 - CAPITAL STOCK
Unity's Certificate of Incorporation authorizes the issuance of 20,000,000
shares of Common Stock. There are 14,862,500 authorized but unissued
shares of Common Stock available for issuance (after appropriate reserves
for the issuance of Common Stock in connection with the Class A Redeemable
Warrants and Class B Redeemable Warrants, the Underwriters' Warrants, the
executive officers and directors' Class A Warrants and Class B Warrants,
and future grants under Unity's 1996 Stock Option Plan). Unity's Board of
Directors has the power to issue any or all of the future grants under the
Company's 1996 Stock Option Plan. Unity's Board of Directors has the power
to issue any or all of the authorized but unissued Common Stock without
stockholder approval.
F-8
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK (CONTINUED)
Unity currently has no commitments to issue any shares of Common Stock
other than as described in the Offering; however, Unity will, in all
likelihood, issue a substantial number of additional shares in connection
with a Business Combination (See Note 10). To the extent that additional
shares of Common Stock are issued, dilution to the interests of Unity's
stockholders participating in the Offering will occur.
The Board of Directors of Unity is empowered, without stockholder
approval, to issue up to 5,000 shares of "blank check" preferred stock
(the "Preferred Stock") with dividend, liquidation, conversion, voting or
other rights which could adversely affect the voting power or other rights
of the holders of Unity's Common Stock. To date, no shares of preferred
stock have been issued.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Chairman of the Board of Directors and the President of Unity are
principal shareholders, officers and directors of Unity Venture Capital
Associates Ltd. ("Venture") which owns shares in Unity. Beginning June 1,
1996, commensurate with Unity's activities primarily related to the
Offering, Unity agreed to pay Venture a monthly fee of $7,500 for general
and administrative services, including the use of office space in premises
occupied by Venture. At July 31, 1998, Unity owed $33,000 to Venture for
administrative services.
Through July 31, 1996, Unity had obtained advances totaling $25,500 from
Venture to cover expenses related to the Offering. These advances were
repaid out of the proceeds of the Offering in 1997.
F-9
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 7 - STOCK OPTION PLAN
On May 30, 1996, Unity's Board of Directors approved a stock option plan
(the "Plan"). The Plan, which is subject to shareholder approval, provides
for issuance of up to 187,500 options (the "Options") to acquire shares of
Unity's Common Stock.
The Options are intended to qualify either as incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986 or as options which are not intended to meet
the requirements of such section ("Nonstatutory Stock Options"). The
Options may be granted under the Plan to persons who, in the case of
Incentive Stock Options, are key employees (including officers) of the
Company, or, in the case of Nonstatutory Stock Options, are key employees
(including officers) and nonemployee directors of the Company, except that
Nonstatutory Stock Options may not be granted to a holder of more than 10%
of the total voting power of Unity.
The exercise price of all Incentive Stock Options granted under the Plan
must be at least equal to the fair market value of such shares on the date
of grant or, in the case of Incentive Stock Options granted to the holder
of 10% or more of Unity's Common Stock, at least 110% of the fair market
value of such shares on the date of grant. The exercise price of all
Nonstatutory Stock Options granted under the Plan shall be determined by
the Board of Directors of Unity at the time of grant. The maximum exercise
period for which the Options may be granted is ten years from the date of
grant (five years in the case of Incentive Stock Options granted to an
individual owning more than 10% of Unity's Common Stock.) The aggregate
fair market value (determined at the date of the option grant) of such
shares with respect to which Incentive Stock Options are exercisable for
the first time by the holder of the option during any calendar year shall
not exceed $100,000.
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"), which requires
companies either to reflect in their financial statements or reflect as
supplemental disclosure the impact on earnings and earnings per share of
the fair value of stock based compensation using certain pricing models
for the option component of stock option plans. As of July 31, 1998, no
options have been granted under the Plan. Disclosure, as required by SFAS
123, will be made upon the issuance of options.
F-10
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this
method, deferred income taxes are determined based on differences between
the tax bases of assets and liabilities and their financial reporting
amounts at each year end, and are measured based on enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
NOTE 9 - CONTINGENCY
Unity has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act.
NOTE 10 - PENDING ACQUISITION
On May 6, 1998, Unity entered into a letter of intent to effectuate a
Business Combination ("Merger") with Worlds, Inc. ("Worlds"), a company
engaged in developing music-oriented content applications for its
proprietary 3D Internet technology for consumer markets, as well as
developing select business oriented applications. On June 25, 1998, Unity
and Worlds entered into a definitive Agreement and Plan of Merger and
Reorganization (the "Merger Agreement") to effectuate the Merger.
On October 29, 1998, Unity's stockholders, at a special meeting convened
to consider whether to approve or reject the Merger contemplated by the
Merger Agreement, rejected the Merger.
As a consequence of the rejection of the Worlds Merger by the Unity Public
Stockholders, Article SEVENTH, paragraph (c) of Unity's Certificate of
Incorporation would have required the liquidation and dissolution of Unity
(the "Liquidation") no later than January 11, 1999. Had such Liquidation
taken place on that date, the Unity Public Stockholders, collectively,
would have received a liquidating distribution representing their
respective pro rata interest in a trust fund established for their benefit
upon the consummation of the IPO, which currently approximates $6.5
million.
F-11
<PAGE>
UNITY FIRST ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 10 - PENDING ACQUISITIONS (CONT'D)
On December 10, 1998, Unity entered into a letter of intent to effectuate
a Business Combination with GraphOn Corporation, a privately owned
developer and marketer of proprietary "thin client" software that enables
a diverse range of desktop computing devices ("desktops") to easily access
and utilize UNIX applications from an location, over both fast networks
and slow internet connections.
Unity's Board of Directors has unanimously concluded that a Business
Combination with GraphOn would be in the best interests of both Unity and
its stockholders, including the Unity Public Stockholders. Consequently,
Unity's Board of Directors has sought and obtained an opinion from special
Delaware counsel to the effect that such Article SEVENTH, paragraph (c),
which attempts to waive Unity's statutory right to amend the Unity
Certificate of Incorporation, is contrary to Delaware law and cannot
prevent Unity and its stockholders from amending the Unity Certificate of
Incorporation.
Subject to its submission under the Securities Exchange Act of 1934, as
amended, of proxy solicitation materials, Unity's Board of Directors
intends to seek the approval of the Unity Public Stockholders to (i) amend
the Unity Certificate of Incorporation to remove the provision therein
that would have required Unity to commence the Liquidation as a
consequence of its inability to consummate a Business Combination within
the period defined by Article SEVENTH, paragraph (c) of the Unity
Certificate of Incorporation and, if such approval is obtained, to (ii)
consider and vote upon a proposal to approve Unity's Business Combination
with GraphOn. There can be no assurance that the Unity Stockholders
will approve the proposed amendment to the Certificate of Incorporation,
or the proposed Business Combination with GraphOn Corporation.
The proposed amendment to the Unity Certificate of Incorporation will not
affect the right of any Unity Public Stockholders to convert his shares of
Unity Common Stock into cash, as provided in Article SEVENTH of the Unity
Certificate of Incorporation, should such Unity Public Stockholder object
to the GraphOn Business Combination and such Business Combination is
approved by a majority in equity interest of the Unity Public Stockholders
and thereafter consummated.
Depending upon the voting of the Unity Public Stockholders as to the
amendment to the Unity Cerficate of Incorporation or the Business
Combination with GraphOn, the Company may liquidate. The accompanying
financial statements have not been presented on a liquidation basis of
accounting as the Company has not decided to liquidate. Additionally, it
is not expected that the carrying value of the Company's assets and
liabilities would be materially different if presented under a
liquidation basis based on the nature of such assets and liabilities.
F-12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 196
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,489,903
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,489,903
<CURRENT-LIABILITIES> 412,082
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 6,077,658
<TOTAL-LIABILITY-AND-EQUITY> 6,489,903
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 612,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (315,991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (315,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (315,991)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
