<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section
13 or 15(d) of THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
Commission file number 2-31876
WORLDS INC.
(Exact name of small business issuer as specified in its charter)
NEW JERSEY
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
13-3768554
(IRS EMPLOYER IDENTIFICATION NO.)
15 UNION WHARF, BOSTON, MASSACHUSETTS 02109
(Address of principal executive offices)(Zip Code)
(617) 725-8900
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock outstanding was 16,149,996 shares as of
May 14, 1998
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
PERIOD FROM APRIL 8, 1997 (INCEPTION)
TO MARCH 31, 1998
<PAGE> 3
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
===============================================================================
FINANCIAL STATEMENTS
PERIOD FROM APRIL 8, 1997 (INCEPTION)
TO MARCH 31, 1998
F-1
<PAGE> 4
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONTENTS
WORLDS INC. (THE "COMPANY")
FINANCIAL STATEMENTS (UNAUDITED):
Balance sheets F-3
Statements of operations F-4
Statement of stockholders' deficit F-5
Statements of cash flows F-6
Summary of accounting policies F-7 - F-10
Notes to financial statements F-11 - F-14
WORLDS INC. ("PREDECESSOR")
[Predecessor company - information prior
to date of merger with the Company
herein disclosed]:
FINANCIAL STATEMENTS (UNAUDITED):
Statements of operations F-17
Statements of cash flows F-18
Summary of accounting policies F-19 - F-21
Notes to financial statements F-22 - F-23
F-2
<PAGE> 5
<TABLE>
<CAPTION>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
December 31, 1997 March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $3,541,829 $2,821,472
Trade receivables, less allowance for doubtful accounts of
$140,318 and $140,318 538 -
Prepaid expenses and other current assets 74,175 47,438
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,616,542 2,868,910
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION AND
AMORTIZATION 209,452 155,411
- ------------------------------------------------------------------------------------------------------------------------------------
$3,825,994 $3,024,321
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
Accounts payable $ 568,707 $ 203,429
Accrued expenses 592,250 759,350
Advanced customer billings and deferred revenue 436,140 436,140
Current maturities of notes payable 269,333 291,886
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,866,430 1,690,805
LONG-TERM PORTION, NOTES PAYABLE 1,968,333 1,937,500
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,834,763 3,628,305
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT (NOTES 2 AND 3):
Common stock, $.001 par value - shares authorized
30,000,000; outstanding 16,119,996 and 16,149,996 16,120 16,150
Additional paid-in capital 6,661,582 6,688,052
Deficit accumulated during the development stage (6,686,471) (7,308,186)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (8,769) (603,984)
- ------------------------------------------------------------------------------------------------------------------------------------
$3,825,994 $3,024,321
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements.
</TABLE>
F-3
<PAGE> 6
<TABLE>
<CAPTION>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS (UNAUDITED)
Cumulative, period
Three months ended from inception to
March 31, 1998 March 31, 1998 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET REVENUES $ 4,002 $ 5,422
COSTS AND EXPENSES:
Cost of revenues (2,601) (2,601)
Selling, general and administrative (548,340) (1,223,370)
Research and development (231,912) (231,912)
Acquired research and development - (6,135,538)
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (778,851) (7,587,999)
OTHER INCOME (EXPENSES):
Interest income 41,938 55,531
Interest expense (36,456) (53,148)
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (773,369) (7,585,616)
EXTRAORDINARY ITEM - GAIN ON DEBT SETTLEMENT 151,654 277,430
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(7,308,186)
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE (BASIC AND DILUTED):
Loss before extraordinary item $ (.05)
Extraordinary item .01
- -----------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE (BASIC AND DILUTED) $ (.04)
- -----------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 16,149,996
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
(a) Includes the results of Predecessor and Academic (from December 4, 1997)
which were merged into the Company on December 3, 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements.
</TABLE>
F-4
<PAGE> 7
<TABLE>
<CAPTION>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
Period from April 8, 1997 (inception) to March 31, 1998
- -------------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Common Stock during the Total
------------------------------- Additional development stockholders'
Shares Amount paid-in capital stage deficit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founding stockholders 8,400,000 $ 8,400 $ 195,600 $ - $ 204,000
Sale of shares in private offering
memorandum and shares
issued to placement agent
(Note 3) 4,810,000 4,810 3,689,866 - 3,694,676
Issuance of shares to Academic
Computer Systems, Inc.
(Note 2) 910,000 910 557,116 - 558,026
Issuance of shares pursuant to
merger with Predecessor
(Note 2) 1,999,996 2,000 1,998,000 - 2,000,000
Capital contribution resulting
from forgiveness of debt to
shareholders of Predecessor - - 221,000 - 221,000
Net loss for the period April 8 to
December 31, 1997 - - - (6,686,471) (6,686,471)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 16,119,996 16,120 6,661,582 (6,686,471) (8,769)
Additional sale of shares in
private offering memorandum
(January 1998) 30,000 30 26,470 - 26,500
Net loss for the three months
ended March 31, 1998
(unaudited) - - - (621,715) (621,715)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998
(UNAUDITED) 16,149,996 $16,150 $6,688,052 $(7,308,186) $(603,984)
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements.
</TABLE>
F-5
<PAGE> 8
<TABLE>
<CAPTION>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Cumulative, period
Three months ended from inception to
March 31, 1998 March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (621,715) $(7,308,186)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 54,041 70,364
Gain on debt settlement (151,654) (277,430)
Acquired research and development - 6,135,538
Changes in operating assets and liabilities, net of effects from merger
with Predecessor and Academic:
Trade receivables 538 -
Prepaid expenses and other assets 26,737 120,453
Accounts payable and accrued expenses (46,524) 167,837
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (738,577) (1,091,424)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock to founding stockholders - 204,000
Proceeds from sale of common stock in private offering
memorandum 26,500 3,721,176
Payments on note payable (8,280) (12,280)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,220 3,912,896
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (720,357) 2,821,472
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,541,829 -
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,821,472 $ 2,821,472
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements.
</TABLE>
F-6
<PAGE> 9
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
DEFINITIONS The Company is the resulting entity of
two contemporaneous mergers
(the "Mergers") of Worlds Inc., a
Delaware corporation ("Predecessor"),
with and into Worlds Acquisition Corp.,
a Delaware corporation ("WAC"), and WAC
with and into Academic Computer Systems,
Inc., a New Jersey corporation
("Academic"), which changed its name to
Worlds Inc. (see Note 2). While Academic
was the legal entity that survived the
mergers, WAC was the accounting acquiror
in both mergers. The Company's fiscal
year-end is December 31.
The term the "Company," as used herein,
refers to the consolidated entity
resulting from the two contemporaneous
mergers, as well the pre-merger
Predecessor, WAC and Academic; however,
Predecessor, WAC and Academic are
hereinafter sometimes referred to
separately as the context requires.
NATURE OF BUSINESS WAC was incorporated on
April 8, 1997 to design, develop and
market three-dimensional ("3D") music
oriented Internet sites on the World
Wide Web. These web sites are
anticipated to utilize 3D technologies
developed by Predecessor.
BASIS OF PRESENTATION The accompanying financial statements
are unaudited; however, in the opinion
of management, all adjustments
necessary for a fair statement of
financial position and results for the
stated periods have been included.
These adjustments are of a normal
recurring nature. Selected information
and footnote disclosures normally
included in financial statements
prepared in accordance with generally
accepted accounting principles have
been condensed or omitted. Results for
interim periods are not necessarily
indicative of the results to be expected
for an entire fiscal year. It is
suggested that these condensed
financial statements be read in
conjunction with the audited financial
statements and accompanying notes for
the Company for the year ended December
31, 1997 and for the Predecessor for the
period ended December 3, 1997.
The financial statements include the
results of Predecessor and Academic from
December 4, 1997, the date of the
Mergers (the "Merger Date").
F-7
<PAGE> 10
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
The financial statements have been
prepared in accordance with the
provisions of Statement of Financial
Accounting Standards ("SFAS") No. 7,
"Accounting, and Reporting by
Development Stage Enterprises," which
requires development stage enterprises
to employ the same accounting principles
as operating companies.
FAIR VALUE OF FINANCIAL The carrying amounts of financial
INSTRUMENTS instruments, including cash and
short-term debt, approximated fair value
as of March 31, 1998 because
of the relatively short maturity of the
instruments. The carrying value of
long-term debt, including the current
portion, approximates fair value as of
March 31, 1998, based upon estimates for
similar debt issues.
USE 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
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 are comprised
of highly liquid money market
instruments, which have original
maturities of three months or less at
the time of purchase.
PROPERTY AND EQUIPMENT Property and equipment are
stated at cost. Depreciation is
calculated using the straight-line
method over the estimated useful lives
of the assets, which range from two to
five years.
REVENUE RECOGNITION Revenue from technology
development and licensing contracts is
recognized upon the attainment of
contractual milestones (approximating
the percentage-of-completion method).
Cash received in advance of revenues
earned is recorded as deferred revenue.
F-8
<PAGE> 11
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
SOFTWARE DEVELOPMENT Software development costs are charged
COSTS to expense when incurred until the
technological feasibility of the product
has been established. After
technological feasibility has been
established, any additional costs would
be capitalizable in accordance with the
Financial Accounting Standards Board's
("FASB") SFAS No. 86 ("SFAS No. 86"). No
such costs have been capitalized to
date.
RESEARCH AND DEVELOPMENT Research and development costs are
COSTS expensed as incurred.
INCOME TAXES The Company uses the
liability method of accounting for
income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes."
Deferred income tax assets and
liabilities are recognized based on the
temporary differences between the
financial statement and income tax bases
of assets, liabilities and carryforwards
using enacted tax rates. Valuation
allowances are established, when
necessary, to reduce deferred tax assets
to the amount expected to be realized.
LOSS PER SHARE In 1997, the FASB's SFAS No. 128,
"Earnings per Share," replaced the
calculation of primary and fully diluted
earnings (loss) per share with basic and
diluted earnings (loss) per share.
Unlike primary earnings per share, basic
earnings per share excludes any dilutive
effects of options, warrants and
convertible securities. Diluted earnings
per share is very similar to the
previously reported fully diluted
earnings per share. The loss per share
amounts have been presented to conform
to SFAS No. 128 requirements. The common
stock equivalents which would arise from
the exercise of stock options and
warrants are excluded from calculation
of diluted loss per share since their
effect is anti-dilutive. Therefore, the
amounts reported for basic and diluted
loss per share are the same.
F-9
<PAGE> 12
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No.
123 encourages entities to adopt the
fair value method in place of the
provisions of Accounting Principles
Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No.
25"), for all arrangements under which
employees receive shares of stock or
other equity instruments of the employer
or the employer incurs liabilities to
employees in amounts based on the price
of its stock. The Company has not
adopted the fair value method encouraged
by SFAS No. 123 and will continue to
account for such transactions in
accordance with APB No. 25.
COMPREHENSIVE INCOME Effective January 1, 1998, the Company
adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes
standards for reporting and display of
comprehensive income, its components and
accumulated balances. Comprehensive
income is defined to include all changes
in equity except those resulting from
investments by owners and distributions
to owners. Adoption of the standard has
had no effect on financial statement
disclosures.
F-10
<PAGE> 13
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. GOING CONCERN As discussed in Note 3, the Company
completed a private placement raising
gross proceeds of $4,415,000 and
consummated a merger agreement with a
development stage enterprise,
Predecessor. Predecessor had not
generated significant revenues from
operations and had an accumulated
deficit from inception to the Merger
Date of $21,236,139 and a capital
deficit of $4,135,538. The acquisition
of Predecessor by the Company was
accounted for as a purchase.
Accordingly, $6,135,538, the portion of
the purchase allocable to in- process
research and development projects that
had not reached technological
feasibility and had no probable
alternative future uses, was expensed by
the Company at the date of merger.
The accompanying financial statements
have been prepared assuming that the
Company will continue as a going
concern. The Company is in the
development stage and has had minimal
revenues from operations since the
series of merger transactions. The
Company anticipates that it currently
has only a portion of the funds
necessary to complete product
development and commercialization. There
can be no assurance that the Company
will be able to obtain the substantial
additional capital resources necessary
to pursue its business plan or that any
assumptions relating to its business
plan will prove to be accurate. The
Company is pursuing sources of
additional financing and there can be no
assurance that any such financing will
be available to the Company on
commercially reasonable terms, or at
all. Any inability to obtain additional
financing will have a material adverse
effect on the Company, including
possibly requiring the Company to
significantly curtail or cease
operations.
These factors raise substantial doubt
about the ability of the Company to
continue as a going concern. The
financial statements do not include any
adjustments that might result from the
outcome of this uncertainty.
F-11
<PAGE> 14
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
2. THE MERGERS On December 3, 1997, Predecessor was
merged with and into WAC in a series of
related transactions which included a
simultaneous capital transaction between
the Company and Academic (the "Mergers")
and a private offering of WAC's
securities (the "Private Placement"). In
both the merger with Predecessor and the
capital transaction with Academic, WAC
was the acquiror for accounting
purposes.
The acquisition of Predecessor was
accounted for as a purchase whereby all
of the common and preferred stock of
Predecessor were exchanged for 1,999,996
shares of WAC. The shares issued to
Predecessor common and preferred
shareholders were valued at $1.00 per
share which represented the share value
in the private placement that occurred
during this time period (see Note 3); a
purchase price of approximately
$2,000,000. The exchange ratio was
determined after extensive negotiation
between management of Predecessor and
WAC. Predecessor was a development stage
company, had not generated significant
revenues from operations and had an
accumulated deficit from inception to
December 3, 1997 of $21,236,139 and a
capital deficit of $4,135,538. The
assets acquired of Predecessor (cash,
prepaid expenses, property and
equipment) were recorded at fair market
value which approximated book value at
December 3, 1997, and, as discussed in
Note 1 above, since technological
feasibility of the various Predecessor
technologies acquired had not been
established, the excess purchase price
over Predecessor's capital deficit of
$6,135,538 was expensed as acquired
research and development.
Academic was an inactive company with no
operations. The value assigned to the
910,000 shares in the capital
transaction with Academic on December 3,
1997 represented Academic's net tangible
assets (primarily cash) of $558,026.
Academic voluntarily reported under the
Securities Exchange Act of 1934 (the
"Exchange Act").
The Company intends to continue
reporting under the Exchange Act. While
no trading market existed for the
securities of Academic, or currently
exists for the securities of the
Company, the Company intends to cause
its common stock to be traded on the
Bulletin Board.
F-12
<PAGE> 15
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. THE PRIVATE PLACEMENT The Private Placement called for WAC to
offer for sale a maximum of 50 units
(57-1/2 with the over-allotment), each
consisting of 120,000 shares of WAC's
common stock (the "Units") at a price of
$120,000 per Unit. In connection with
the Private Placement, the placement
agent was to receive one warrant to
purchase one share of WAC's common stock
at $1 per share for every $40 of gross
proceeds from the sale of the Units. On
November 21, 1997, WAC sold 31.67 Units
with gross proceeds of $3,800,000
(3,800,000 shares) (the "Initial Private
Placement Closing") and the placement
agent was issued 425,000 shares of
common stock. On December 31, 1997, the
Company sold 4.88 Units with gross
proceeds of $585,000 (585,000 shares).
On January 2, 1998 a further 30,000
shares were issued with gross proceeds
of $30,000. Cumulative net proceeds,
after commissions and expenses of the
offering, aggregated $3,721,176. WAC
agreed to include the shares of common
stock underlying the Units sold in the
Private Placement (the "Private
Placement Shares") in a registration
statement to be filed with the
Securities and Exchange Commission (the
"SEC"). Such registration statement was
declared effective by the SEC on May 1,
1998.
4. SUBSEQUENT EVENT On May 7, 1998, the Company signed a
letter of intent ("Letter of Intent")
with Unity First Acquisition Corp., a
Delaware corporation ("Unity"), whereby
Unity would acquire all of the
outstanding shares of Worlds Inc. (the
"Company") in exchange for shares of its
own common stock. The acquisition, if
consummated, calls for each share of the
Company's stock being converted into
.357 shares of Unity's common stock. At
that point, the Company would
"reverse-merge" into Unity which would
then change its name to "Worlds Inc."
The Company's current management will
continue as management following the
transaction.
F-13
<PAGE> 16
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Unity is a "blank check" company with no
operations, formed in May 1996 for the
sole and exclusive purpose of acquiring
an operating business. Certain of
Unity's management and stockholders are
stockholders of the Company. In the
aggregate, directly and indirectly, they
own approximately 1.1 million shares of
the Company's common stock. Unity's
unaudited financial statements as of
January 31, 1998 showed that Unity had
approximately $6,400,000 in net worth,
almost all of which is in the form of
cash or cash equivalents. On May 7,
1998, Unity had outstanding 1,875,000
shares of common stock; 1,350,000 Class
A warrants exercisable at $5.50 per
share; and 1,350,000 Class B warrants
exercisable at $7.50 per share. Unity
also has 125,000 underwriter's warrants
outstanding, exercisable at a price of
$6.60 per warrant to purchase up to a
like number of shares of common stock,
and Class A and Class B warrants.
Unity's common stock is quoted on the
Bulletin Board under the symbol "UFAC"
and, on May 6, 1997, closed at $4.875.
The Letter of Intent contemplates that
following the consummation of the
transaction, the officers, directors and
principal stockholders of the Company
and Unity will lock up their shares for
twelve months.
The Letter of Intent is not binding on
either corporation. The consummation of
the contemplated transaction is subject
to the Company and Unity agreeing to the
terms of a definitive agreement and plan
of merger to be negotiated between them
and then to the approval of the
stockholders of each corporation.
Accordingly, no assurance can be given
that the transaction discussed herein
will ever be consummated or, if a
transaction is consummated, that its
terms will be as contemplated in the
Letter of Intent or favorable to the
stockholders of the Company.
F-14
<PAGE> 17
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE
ENTERPRISE)
FINANCIAL STATEMENTS
Three months Ended March 31, 1997 and Period from
APRIL 26, 1994 (INCEPTION) TO DECEMBER 3, 1997
<PAGE> 18
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE
ENTERPRISE)
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND PERIOD FROM
APRIL 26, 1994 (INCEPTION) TO DECEMBER 3, 1997
F-15
<PAGE> 19
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
CONTENTS
Worlds Inc. ("Predecessor") is considered a predecessor company and the
information disclosed herein is as of and prior to the date of merger with
Worlds Inc. (formerly Worlds Acquisition Corp.) ("WAC") on December 3, 1997.
FINANCIAL STATEMENTS (UNAUDITED):
Statements of operations F-17
Statements of cash flows F-18
Summary of accounting policies F-19 - F-21
Notes to financial statements F-22 - F-23
F-16
<PAGE> 20
<TABLE>
<CAPTION>
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Cumulative, period
March 31, 1997 from inception to
(unaudited) December 3, 1997 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET REVENUES $ 39,985 $ 6,026,691
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of revenues 18,603 11,279,348
Selling, general and administrative 1,244,093 10,602,749
Research and development 311,564 5,388,340
Lawsuit settlements - 509,200
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,574,260 27,779,637
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (1,534,275) (21,752,946)
OTHER INCOME AND (EXPENSES):
Interest income 9,913 237,629
Interest expense (36,828) (171,082)
Gain (loss) on disposal of property and equipment 6,155 (79,125)
Income from sale of technology 260,100 260,100
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (1,294,935) (21,505,424)
INCOME TAXES 2,500 120,000
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (1,297,435) (21,625,424)
EXTRAORDINARY ITEM - GAIN ON DEBT SETTLEMENT - 389,285
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(1,297,435) $(21,236,139)
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
(a) Date of merger with Worlds Inc. (formerly Worlds Acquisition Corp.)
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements.
</TABLE>
F-17
<PAGE> 21
<TABLE>
<CAPTION>
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative, period
from April 26,
Three months ended 1994 (inception) to
March 31, 1997 December 3, 1997 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,297,435) $(21,236,139)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 66,370 721,097
(Gain) loss on disposal of property and equipment (6,155) 79,125
Gain on debt settlement - (389,284)
Compensation related to stock options 2,710 761,453
Compensation related to common stock issuance - 58,525
Licensed technology expense - 750,000
Changes in operating assets and liabilities:
Trade receivables 388,910 -
Prepaid expenses and other assets 52,093 (167,891)
Accounts payable and accrued liabilities (363,153) 1,856,619
Advanced customer billings and deferred revenue - 436,140
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,156,660) (17,130,355)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment - (999,302)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 116,857
Proceeds from issuance of preferred stock, net of issuance costs - 16,163,766
Advance from Worlds Inc. (formerly Worlds Acquisition Corp.) - 561,397
Payments on capital lease - (116,018)
Payments on note payable (40,000) (190,000)
Proceeds from note payable 500,000 1,650,000
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 460,000 18,186,002
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (696,660) 56,345
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 894,692 -
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 198,032 $ 56,345
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ - $ 23,916
Income taxes paid - 5,620
- ------------------------------------------------------------------------------------------------------------------------------------
DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:
In the quarter ended March 1997, as part of the restructuring of operations, the Predecessor disposed of property and equipment
with a net book value of $252,180, which included $138,439 of equipment under capital leases. The related capital lease
obligations, totaling $123,013, were assumed by the lessor and a party which acquired certain assets used in the Predecessor's
prior Seattle operations. The agreement with this party also resulted in a reduction of trade payables totaling $87,226.
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
(a)Date of merger with Worlds Inc. (formerly Worlds Acquisition Corp.)
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements.
</TABLE>
F-18
<PAGE> 22
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
NATURE OF BUSINESS Worlds Inc. (the
"Predecessor") was incorporated under
the laws of Delaware on April 26, 1994.
The Predecessor was formed to develop
and commercialize 3D multi-user tools
and technologies for the Internet
market. The Predecessor is in the
development stage and, as such, has not
generated significant revenues from
operations.
BASIS OF PRESENTATION The accompanying financial statements
are unaudited; however, in the opinion
of management, all adjustments necessary
for a fair statement of financial
position and results for the stated
periods have been included. These
adjustments are of a normal recurring
nature. Selected information and
footnote disclosures normally included
in financial statements prepared in
accordance with generally accepted
accounting principles have been
condensed or omitted. Results for
interim periods are not necessarily
indicative of the results to be expected
for an entire fiscal year. It is
suggested that these condensed financial
statements be read in conjunction with
the audited financial statements and
accompanying notes for the Predecessor
for the period ended December 3, 1997.
The accompanying financial statements
have been prepared assuming that the
Predecessor will continue as a going
concern. The Predecessor is in the
development stage (see Note 1) and has
suffered recurring losses from
operations since its inception that
raises substantial doubt about its
ability to continue as a going concern.
The financial statements do not include
any adjustments that might result from
the outcome of this uncertainty. As more
fully described in Note 2, on December
3, 1997, the Predecessor consummated a
merger agreement with Worlds Inc.
(formerly Worlds Acquisition Corp.)
("WAC"), a company which had completed a
private placement offering of
securities.
The financial statements have been
prepared in accordance with the
provisions of Statement of Financial
Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development
Stage Enterprises," which requires
development stage enterprises to employ
the same accounting principles as
operating companies.
F-19
<PAGE> 23
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
RESTRUCTURING OF OPERATIONS Due to recurring losses, insufficient
revenue, a working capital deficit and a
net stockholders' deficit, the
Predecessor's management made
significant reductions in operations in
February 1997 that are reflected in the
Predecessor's financial statements for
the period ended December 3, 1997. In
March 1997, the Predecessor engaged an
outside management firm to assist with
the downsizing of operations which has
included a major reduction in employees
and a consolidation of all operations to
one location in San Francisco.
USE 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
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.
REVENUE RECOGNITION Revenue from technology
development and licensing contracts is
recognized upon the attainment of
contractual milestones (approximating
the percentage-of-completion method).
Cash received in advance of revenues
earned is recorded as deferred revenue.
SOFTWARE DEVELOPMENT COSTS Software development costs are charged
to expense when incurred until the
technological feasibility of the product
has been established. After
technological feasibility has been
established, any additional costs would
be capitalizable in accordance with SFAS
No. 86. No such costs have been
capitalized to date.
RESEARCH AND DEVELOPMENT COSTS Research and development costs are
expensed as incurred.
F-20
<PAGE> 24
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
INCOME TAXES The Predecessor uses the liability
method of accounting for income taxes in
accordance with SFAS No. 109,
"Accounting for Income Taxes.". Deferred
income tax assets and liabilities are
recognized based on the temporary
differences between the financial
statement and income tax bases of
assets, liabilities and carryforwards
using enacted tax rates. Valuation
allowances are established, when
necessary, to reduce deferred tax assets
to the amount expected to be realized.
CONCENTRATION OF CREDIT RISK The Predecessor derives revenues from
corporate customers in a variety of
industries. For the periods ended March
31, 1997 and December 3, 1997, no
individual customer accounted for more
than 10% of revenues.
NEW ACCOUNTING STANDARDS Effective January 1, 1996, the
Predecessor adopted the provisions of
SFAS No. 123, "Accounting for
Stock-Based Compensation". Under this
standard, companies are encouraged, but
not required, to adopt the fair value
method of accounting for employee
stock-based transactions. Under the fair
value method, compensation cost is
measured at the grant date based on the
fair value of the award and is
recognized over the service period,
which is usually the vesting period.
Companies are permitted to continue to
account for employee stock-based
transactions under Accounting Principles
Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to
Employees," but are required to disclose
pro forma net income and earnings per
share as if the fair value method has
been adopted. The Predecessor has
elected to continue to account for
stock-based compensation under APB No.
25.
F-21
<PAGE> 25
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GOING CONCERN The accompanying financial statements
have been prepared on a going- concern
basis, which contemplates the
realization of assets and the
satisfaction of liabilities in the
normal course of business. As shown in
the financial statements, the
Predecessor, as of December 3, 1997, had
incurred recurring losses since
inception totaling $21,236,139. As
discussed in Note 2, on December 3,
1997, the Predecessor consummated a
merger agreement with WAC, a company
which had completed a private placement
offering of securities whereby
$4,415,000 of gross proceeds was raised.
The Predecessor anticipates, however,
that it currently has only a portion of
the funds necessary to permit it to
complete product development and
commercialization. There can be no
assurance that the Predecessor will be
able to obtain the substantial
additional capital resources necessary
to permit the Predecessor to pursue its
business plan or that any assumptions
relating to its business plan will prove
to be accurate. WAC is pursuing sources
of additional financing and there can be
no assurance that any such financing
will be available to WAC on commercially
reasonable terms, or at all. Any
inability to obtain additional financing
will have a material adverse effect on
the Predecessor and WAC, including
possibly requiring the Predecessor or
WAC to significantly curtail or cease
operations.
These factors raise substantial doubt
about the ability of the Predecessor to
continue as a going concern. The
financial statements do not include any
adjustments that might result from the
outcome of this uncertainty.
F-22
<PAGE> 26
WORLDS INC. - PREDECESSOR
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. MERGER On December 3, 1997, the Predecessor was
merged with and into Worlds Inc.
(formerly Worlds Acquisition Corp.)
("WAC") in a series of related
transactions which included the
simultaneous merger with and into
Academic Computer Systems, Inc., a New
Jersey corporation ("Academic") (the
"Mergers") and a private offering of
WAC's securities (the "Private
Placement"). All of the common and
preferred stock of the Predecessor were
exchanged for 1,999,996 shares of WAC.
WAC was incorporated in Delaware on
April 8, 1997 to engage in designing,
developing and marketing
three-dimensional ("3D") music oriented
Internet sites on the World Wide Web.
These web sites are anticipated to
utilize 3D technologies developed by the
Predecessor. Academic was an inactive
company with no operations. Academic
voluntarily reported under the
Securities Exchange Act of 1934
"Exchange Act"). The combined entity
that resulted from the Mergers (the
"Combined Entity") intends to continue
reporting under the Exchange Act. While
no trading market existed for the
securities of Academic, or currently
exists for the securities of the
Combined Entity, the Combined Entity
intends to cause its common stock to be
traded on the Bulletin Board.
F-23
<PAGE> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Statements contained herein which are not historical facts are
forward-looking statements. Forward-looking statements involve a number of risks
and uncertainties including, but not limited to, general economic conditions,
the Company's ability to complete development and then market its products,
competitive factors and other risks as stated in other of the Company's public
filings with the Securities and Exchange Commission.
The Company was originally formed on May 20, 1998. Since 1975 the Company
has been inactive with no operations and its only income has come from interest
and dividends. Following the contemporaneous mergers (the "Mergers") of Worlds
Inc, a Delaware corporation formed on April 26, 1994 ("Predecessor"), with and
into Worlds Acquisition Corp., a Delaware corporation formed on April 8, 1998
("WAC") and of WAC with and into the Company, then called Academic Computer
Systems, Inc., which changed its name to Worlds Inc., the Company is engaged in
the business and operations formerly conducted by Predecessor. Accordingly, a
discussion and analysis of the Company's financial condition and results of its
operations would be of limited import to any reader as it would only cover
activities (or lack thereof) which have no meaning in the context of the
Company's current operations. Thus, included herein is a discussion and analysis
of, and comparison to, the financial condition and results of the operations of
Predecessor's pre-Mergers operations. The following discussion should be read in
conjunction with the Financial Statements and related notes thereto included
elsewhere herein.
BACKGROUND
Predecessor was formed in April 1994 to design, develop and commercialize
3D multi-user tools and technologies for the Internet market. From inception
through 1997, Predecessor's operations were limited and consisted primarily of
start-up activities, including recruiting personnel, raising capital, and
research and development. In the third quarter of 1996, Predecessor launched its
first commercial user-oriented 3D chat site, Worlds Chat 1.0 and began selling
the client interface software through direct sales channels. In October of 1996,
Predecessor introduced its first commercial toolset for developing 3D multi-user
applications. In the first quarter of 1997, after an unsuccessful effort to
raise capital, Predecessor became insolvent and released most of its personnel,
and management sought to sell Predecessor and/or its technology.
Predecessor has not generated significant revenues, and the Company will
not generate significant revenues, if ever, until after it successfully
completes development and market testing of Worlds Platinum and its 3D Internet
music sites, and attracts and retains a significant number of subscribers and/or
advertisers. The Company anticipates that it will continue to incur significant
losses until, at the earliest, the Company generates sufficient revenues to
offset the substantial up-front expenditures and operating costs associated with
developing and commercializing its proposed products. There can be no assurance
that the Company will be able to attract and retain a sufficient
2
<PAGE> 28
number of subscribers and/or advertisers to generate significant revenues or
achieve profitable operations or that its products and services will prove to be
commercially viable.
Predecessor (and now the Company), classified its expenses into three broad
groups: (i) research and development; (ii) cost of revenues; and (iii) selling,
general and administrative. Revenues consisted primarily of production service
activities and sales of technology licenses.
Software development costs (consisting primarily of salaries and related
expenses) incurred prior to establishing technological feasibility are expensed
in accordance with Financial Accounting Standards Board (FASB) Statement No. 86.
In accordance with FASB 86, the Company will capitalize software development
costs at such time as the technological feasibility of the product has been
established.
PLAN OF OPERATION
During the next twelve months of operation the Company intends to (i)
refine and commercialize the technology of Predecessor by producing interactive,
3D, music related websites and distribute access to these web sites on enhanced
compact discs ("CD+") of various recording artists via traditional retail record
outlets, working in conjunction with major record labels, (ii) provide the
Company's proprietary 3D toolsets to aid programmers in the creation of unique
3D user experiences on the Internet, and (iii) offer the Company's 3D technology
for non-music applications such as corporate intranets.
The Company is presently completing work on Worlds Platinum, the latest
version of the Company's 3D internet software, to adapt it for distribution and
use on CD+ media. The Company is also in discussions with several major record
labels and companies for them to distribute Worlds Platinum, along with music
related web site access and graphics files co-authored by the Company and the
particular record label or company. While the Company foresees no particular
obstacle to completing work on Worlds Platinum, the development of software is
inherently fraught with unforeseen delays resulting from bugs, lack of
coordination among development staff, integration with other software and
hardware, and general design flaws, among other problems. In addition, the
Company's strategy of distributing its products on CD+ is wholly dependent upon
obtaining distribution agreements with record labels or companies. To date, the
Company has no such agreements and does not expect to have any until it can
demonstrate that it has successfully adapted Worlds Platinum for distribution on
CD+ media as planned.
The Company's present cash resources are insufficient to meet the
requirements of its business plan over the next twelve months, however, if
substantially all of the shares currently being offered by the Company are sold
or if the Company successfully completes its anticipated merger with Unity First
Acquisition Corp, the Company will have sufficient cash resources for at least
the next twelve months. The Company currently has 7 full-time employees and does
not anticipate hiring more than 2-3 additional employees or purchasing
additional plant or equipment until product sales increase significantly and
additional financing is obtained.
RESULTS OF OPERATIONS OF THE COMPANY
(Note to Results of Operations. The Predecessor merged into WAC and
Academic on December 3, 1997)
3
<PAGE> 29
The following data extracted from the attached financial statements
compares the results of operations of the Company for the three months ended
March 31, 1998 to those of the Predecessor for the three months ended March 31,
1997.
Worlds Inc. Worlds Inc.-Predecessor
Three months ended
3/31/98 3/31/97
------- -------
Net Revenue $ 4,002 39,985
Costs & Expenses:
Cost of revenues (2,601) (18,603)
Selling, general
& administrative (548,340) (1,244,093)
Research & development (231,912) (311,564)
--------- ---------
Operating Loss (778,851) (1,534,275)
Other Income (Expense):
Interest income 41,938 9,913
Interest expense (36,456) (36,828)
Loss on disposal of equipment -0- 6,155
Income from sale of technology -0- 260,100
-------- --------
Loss before taxes & extraordinary item (773,369) (1,294,935)
Income taxes -0- (2,500)
Extraordinary item - gain
on debt settlement 151,654 -0-
------- ---
Net Loss (621,715) (1,297,435)
--------- -----------
In the first quarter of 1998 the company continued the implementation of
the new business plan. Significant expenditure was incurred towards completion
of the Platinum technology and also with legal and professional fees as the
company proceeds with its public share listing. In the first quarter of 1997
Predecessor was insolvent and had failed to raise any additional capital. In
January and February the majority of Predecessor's personnel were released and
most of its management team resigned. Normal operations of Predecessor ceased
and significant wind down costs were incurred.
4
<PAGE> 30
The Seattle network operations center and Active Worlds, an earlier
generation of Predecessor's technology, were both sold, resulting in gross
proceeds of approximately $305,000
Revenues are nominal and are derived from the company's WorldsChat product.
Revenue was $4,002 and had associated direct costs of $2,601 for the three
months ended March 31, 1998 compared to $39,985 in revenue and $18,603 of direct
costs for the same period in 1997.
Selling, general and administrative expenses were $548,340 for the three
months ended March 31, 1998. This represented a decrease of $695,753 from
$1,244,093 compared to the three months ended March 31, 1997. This decrease was
directly attributable to the higher costs associated with the Predecessor
ceasing normal operations in the first quarter of 1997.
Research and development costs decreased by $79,652 to $231,912 for the
three months ended March 31, 1998 from $311,564 for the three months ended March
31, 1998. This decrease is directly attributable to the company developing
technology on three platforms in the first quarter of 1997 and two platforms in
1998. The Activeworlds technology was sold in 1997.
Other income included $41,938 of interest income in the three months to
March 31,1998 earned from the proceeds of the recent share offering. Other
income in the three months to March 31, 1997 included interest income of $9,913,
the sale of the Activeworlds technology in the amount of $260,100 and a property
disposal gain of $6,155 Other expenses included interest expense of $36,456
directly attributable to the Predecessor's notes payable in the three months to
March 31, 1998. Interest expenses in the three months to March 31, 1997 were
$36,828.
As a result of the foregoing the Company incurred a net loss of $621,715
for the three months to March 31,1998, compared to a loss $1,297,436 for the
three months to March 31,1997 a decrease of 52%.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
Net cash used by the Company's operating activities from January 1,1998
through March 31, 1998 was $738,577. At March 31, 1998 the Company had cash of
$2,821,472; its working capital was $1,750,112.
On December 3, 1997, Predecessor merged with and into WAC.
Contemporaneously, WAC, closed the first round of a private placement of its
common stock (the "Private Offering") raising gross proceeds of $3.8 million (of
which it netted approximately $3,000,000) and WAC merged with and into the
Company, then called Academic Computer Systems, Inc. ("Academic"), an inactive
corporation with approximately $600,000 of assets, all in the form of cash or
cash equivalents. Thereafter, Academic changed its name to Worlds Inc. The
merger of Predecessor into WAC and the subsequent merger of WAC with and into
Academic are sometimes hereinafter collectively referred to herein as the
"Mergers."
Prior to the Mergers, the Company had 910,000 shares outstanding. Effective
December 31, 1997, the Company closed on an additional $585,000 of gross
proceeds from the Private Offering, of which it netted $529,000, and issued an
additional 585,000 shares of Common Stock and on January 2, 1998 received an
additional $30,000, of which it netted $26,500, and issued an additional 30,000
shares. The total issued and outstanding shares of the Company as of March 31,
1998 is therefore 16,149,996 shares. The terms of the Mergers called for the
issuance, in exchange for all of the outstanding shares of WAC (which also
included the former shareholders of Predecessor), of an aggregate of 14,000,000
shares of Academic's common stock distributed, as follows: 8,400,000 to the
former shareholders of WAC; 1,999,996 to the former shareholders of Predecessor
and;
5
<PAGE> 31
3,800,000 to the investors in the private placement offering. As part of the
Merger, the Company issued 425,000 shares as a financial advisory fee to
International Capital Growth, Ltd.
On May 1, 1998 the Securities and Exchange Commission declared effective a
registration statement of the Company (as Supplemented on May 7, 1998) covering
the Company's sale of 2,000,000 shares of common stock at $1.00 per share and
the sale by securityholders of 5,604,375 shares of common stock.
The Company's capital requirements relating to the development and
commercialization of Worlds Platinum have been and will continue to be
significant. The Company is dependent on the proceeds of its current offering
and other future financings in order to continue in business and develop and
commercialize its proposed products.
The Company anticipates, based on currently proposed business plans and
assumptions relating to its operations (including the timetable of, and costs
associated with, product development and commercialization), that the proceeds
of its current offering, will provide only a portion of the funds necessary to
permit the Company to complete product development and commercialization.
Satisfactory completion of product development and commercialization will
require capital resources substantially greater than the proceeds of its current
offering or otherwise currently available to the Company. In addition, as a
result of the Mergers by operation of law, the Company assumed the Predecessor's
liabilities of approximately $4 million. Although the Company is in the process
of negotiating the amount and timing of payment of some of its liabilities,
there is no assurance that such negotiations will be successful.
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On May 7, 1998, the Company signed a Letter of Intent with Unity First
Acquisition Corp., a Delaware corporation ("Unity"), whereby Unity would acquire
all of the outstanding shares of Worlds Inc. (the "Company") in exchange for
shares of its own common stock, par value $.0001 per share. The acquisition, if
consummated, calls for each share of the Company's stock being converted into
.357 shares of Unity's common stock. At that point the Company would
"reverse-merge" into Unity which would then change its name to "Worlds Inc." The
Company's current management will continue as management following the
transaction.
Unity is a "blank check" company with no operations formed in May 1996 for
the sole and exclusive purpose of acquiring an operating business. Certain of
Unity's management and stockholders are shareholders of the Company. In the
aggregate, directly and indirectly, they own approximately 1.1 million shares of
the Company's common stock. Unity's unaudited financial statements as of January
31, 1998 showed that Unity had approximately $6,400,000 in net worth, almost all
of which is in the form of cash or cash equivalents. As of the date hereof,
Unity had outstanding 1, 875,000 shares of common stock; 1,350,000 Class A
Warrants exercisable at $5.50 per share; and 1,350,000 Class B Warrants
exercisable at $7.50 per share. Unity also has 125,000 underwriter's warrants
outstanding exercisable at a price of $6.60 per warrant to purchase up to a like
number of shares of common stock, Class A and Class B warrants. Unity's common
stock is quoted on the Bulletin Board under the symbol "UFAC" and on May 6,
1997, closed at $4.875.
The Letter of Intent contemplates that following the consummation of the
transaction the officers, directors and principal shareholders of the Company
and Unity will lockup their shares for twelve months.
The Letter of Intent is not binding on either corporation. The consummation
of the contemplated transaction is subject to the Company and Unity agreeing to
the terms of a definitive agreement and
6
<PAGE> 32
plan of merger to be negotiated between them and then to the approval of the
shareholders of each corporation. Accordingly, no assurance can be given that
the transaction discussed herein will ever be consummated, or if a transaction
is consummated, that its terms will be as contemplated in the Letter of Intent
or favorable to the shareholders of the Company.
As disclosed above in Item 2, the Company requires additional financing to
reach its goals. The Company believes that if the Unity transaction is
successfully consummated on its currently proposed terms, the Company will have
additional funds to help complete its current projects, although additional
financing in the future may be required.
The Company's management and its largest shareholder, which currently
control in the aggregate approximately 49.5% of the Company's common stock,
intend to vote in favor of the transaction should it develop to that level.
The disclosure in this Item 5 is a "forward looking statement" which may
never eventuate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) A financial data schedule is filed herewith as an exhibit.
(b) No reports on Form 8-K were filed during the quarter for which
this report is being filed.
7
<PAGE> 33
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned thereto duly
authorized.
Date: May 14, 1997
WORLDS INC.
By: /s/
--------------------------
Thomas Kidrin,
President, CEO and Treasurer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WORLDS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,821,472
<SECURITIES> 0
<RECEIVABLES> 140,318
<ALLOWANCES> (140,318)
<INVENTORY> 0
<CURRENT-ASSETS> 2,868,910
<PP&E> 650,557
<DEPRECIATION> (495,146)
<TOTAL-ASSETS> 3,024,321
<CURRENT-LIABILITIES> 1,690,805
<BONDS> 0
0
0
<COMMON> 16,150
<OTHER-SE> (620,134)
<TOTAL-LIABILITY-AND-EQUITY> 3,024,321
<SALES> 4002
<TOTAL-REVENUES> 4002
<CGS> 2601
<TOTAL-COSTS> 2601
<OTHER-EXPENSES> 780,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,456
<INCOME-PRETAX> (773,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (773,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 151,654
<CHANGES> 0
<NET-INCOME> (621,715)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
