<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): December 3, 1997
WORLDS INC.
-----------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 2-31876 22-1848316
---------- ------- ----------
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NUMBER)
15 UNION WHARF, BOSTON, MASSACHUSETTS 02109
- ------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (617) 725-8900
--------------
- -----------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
1. Financial Statements of Worlds, Inc.
2. Financial Statements of Worlds Acquisition Corp.
3. Pro Forma Financial Statements.
2
<PAGE> 3
WORLDS INC.
(A DEVELOPMENT STAGE
ENTERPRISE)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995, PERIOD FROM APRIL 26, 1994
(INCEPTION) TO DECEMBER 31, 1994 AND PERIOD FROM APRIL 26, 1994
(INCEPTION) TO DECEMBER 31, 1996 (WITH UNAUDITED INFORMATION
AS OF SEPTEMBER 30, 1997, FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 AND PERIOD FROM APRIL 26, 1994
(INCEPTION) TO SEPTEMBER 30, 1997)
<PAGE> 4
WORLDS INC.
(A DEVELOPMENT STAGE
ENTERPRISE)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995, PERIOD FROM APRIL 26, 1994
(INCEPTION) TO DECEMBER 31, 1994 AND PERIOD FROM APRIL 26, 1994
(INCEPTION) TO DECEMBER 31, 1996 (WITH UNAUDITED INFORMATION
AS OF SEPTEMBER 30, 1997, FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 AND PERIOD FROM APRIL 26, 1994
(INCEPTION) TO SEPTEMBER 30, 1997)
F-1
<PAGE> 5
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONTENTS
INDEPENDENT AUDITORS' REPORT F-3
FINANCIAL STATEMENTS:
Balance sheets F-4 - F-5
Statements of operations F-6
Statements of stockholders' deficit F-7
Statements of cash flows F-8 - F-10
Summary of accounting policies F-11 - F-14
Notes to financial statements F-15 - F-27
F-2
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholders of
Worlds Inc.
We have audited the accompanying balance sheets of Worlds Inc. (a development
stage enterprise) as of December 31, 1996 and 1995, and the related statements
of operations, stockholders' deficit and cash flows for the years ended December
31, 1996 and 1995, for the period from April 26, 1994 (inception) to December
31, 1994, and for the period from April 26, 1994 (inception) to December 31,
1996. 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 Worlds Inc. as of December 31,
1996 and 1995, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, for the period from April 26, 1994
(inception) to December 31, 1994, and for the period from April 26, 1994
(inception) to December 31, 1996, 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 the summary of
accounting policies, the Company is in the development stage and has suffered
recurring losses from operations, has a working capital deficit, and has a
stockholders' deficit since inception that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 1 (Development Stage Risks) and Note 9 (Subsequent
Events) to the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
San Francisco, California
September 15, 1997 (except as to Note 9
which is as of December 31, 1997)
F-3
<PAGE> 7
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------- September 30, 1997
1995 1996 (unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $1,113,282 $ 894,692 $ 53,351
Trade receivables 831,344 638,734 149,684
Less: Allowance for doubtful accounts - (149,684) (149,684)
- -------------------------------------------------------------------------------------------------------------------------------
Trade receivables, net 831,344 489,050 -
Prepaids and other current assets 199,479 125,316 25,166
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,144,105 1,509,058 78,517
PROPERTY AND EQUIPMENT, NET (NOTE 2) 595,986 691,411 265,127
OTHER ASSETS, PRINCIPALLY DEPOSITS 191,895 - -
- -------------------------------------------------------------------------------------------------------------------------------
$2,931,986 $2,200,469 $343,644
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-4
<PAGE> 8
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1997
December 31, (unaudited)
-------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued liabilities $ 399,531 $ 901,800 $ 735,812
Accounts payable 1,233,632 1,003,574 1,137,768
Advanced customer billings and deferred revenue 832,807 436,140 436,140
Advance from Worlds Acquisition Corp. (Note 9) - - 100,000
Current portion, notes payable (Note 3) 120,000 1,120,000 1,710,000
Current portion, capital lease obligations (Note 4) 75,631 94,539 -
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,661,601 3,556,053 4,119,720
LONG-TERM PORTION, NOTES PAYABLE (NOTE 3) 590,000 480,000 126,666
LONG-TERM PORTION, CAPITAL LEASE OBLIGATIONS (NOTE 4) 104,106 28,473 -
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,355,707 4,064,526 4,246,386
- -----------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 4, 8 AND
9)
STOCKHOLDERS' DEFICIT (NOTE 5):
Preferred stock, $.0001 par value; designated as
Series A; 2,000,000 shares authorized,
1,801,533 shares issued and outstanding in 1996
and 1995 180 180 180
Preferred stock, $.0001 par value; designated as
Series B; 2,300,000 shares authorized, 1,022,726
shares issued and outstanding in 1996 - 102 102
Common stock, $.0001 par value; 15,000,000
shares authorized; 5,535,646 and 5,274,260
shares issued and outstanding in 1996 and 1995,
respectively 527 553 553
Deferred compensation related to stock options (45,647) (21,445) (8,183)
Additional paid-in capital 8,385,184 17,107,472 17,105,102
Deficit accumulated during development stage (8,763,965) (18,950,919) (21,000,496)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (423,721) (1,864,057) (3,902,742)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,931,986 $ 2,200,469 $ 343,644
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-5
<PAGE> 9
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
April 26, 1994 Year ended December 31, April 26, 1994
(inception) to ----------------------------------------- (inception) to
December 31, December 31,
1994 1995 1996 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES (NOTE 7) $ 279,720 $1,882,232 $ 3,784,019 $ 5,945,971
- --------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of revenues 787,030 4,445,582 6,014,432 11,247,044
Research and development 231,637 2,257,082 2,446,724 4,935,443
Selling, general and administrative 442,633 2,858,601 4,901,628 8,202,862
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,461,300 9,561,265 13,362,784 24,385,349
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (1,181,580) (7,679,033) (9,578,765) (18,439,378)
OTHER INCOME AND (EXPENSES):
Interest income 447 110,883 115,956 227,286
Interest expense - (14,682) (16,750) (31,432)
Lawsuit settlements (Note 8) - - (509,200) (509,200)
Gain (loss) on disposal of property and
equipment - - (83,195) (83,195)
Income from sale of technology - - - -
- --------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (1,181,133) (7,582,832) (10,071,954) (18,835,919)
INCOME TAXES - - (115,000) (115,000)
- --------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (1,181,133) (7,582,832) (10,186,954) (18,950,919)
EXTRAORDINARY ITEM - GAIN ON DEBT
SETTLEMENT (NOTE 3) - - - -
- --------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(1,181,133) $(7,582,832) $(10,186,954) $(18,950,919)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Period from
April 26, 1994
Nine months ended September 30, (inception) to
----------------------------------------- September 30,
1996 1997 1997
(unaudited) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES (NOTE 7) $ 2,690,264 $ 69,098 $ 6,015,069
- ------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of revenues 4,482,473 29,556 11,276,600
Research and development 1,935,228 401,345 5,336,788
Selling, general and administrative 3,874,843 2,244,283 10,447,145
- ------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 10,292,544 2,675,184 27,060,533
- ------------------------------------------------------------------------------------------------------------
OPERATING LOSS (7,602,280) (2,606,086) (21,045,464)
OTHER INCOME AND (EXPENSES):
Interest income 100,425 10,344 237,630
Interest expense (9,234) (71,338) (102,770)
Lawsuit settlements (Note 8) (270,000) - (509,200)
Gain (loss) on disposal of property and
equipment (61,393) 4,070 (79,125)
Income from sale of technology - 245,100 245,100
- ------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (7,842,482) (2,417,910) (21,253,829)
INCOME TAXES (77,840) (5,000) (120,000)
- ------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (7,920,322) (2,422,910) (21,373,829)
EXTRAORDINARY ITEM - GAIN ON DEBT
SETTLEMENT (NOTE 3) - 373,333 373,333
- ------------------------------------------------------------------------------------------------------------
NET LOSS $ (7,920,322) $(2,049,577) $(21,000,496)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-6
<PAGE> 10
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Preferred stock
-----------------------------------------------------------
Common stock Series A Series B
----------------------------- ----------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock; 2,415,000
shares at $.001 per share in July
585,000 shares at $.01 per share in
September 1994 3,000,000 $300 - $ - - $ -
Compensation related to stock options
founders' stock - - - - - -
Net loss - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 3,000,000 300 - - - -
Issuance of common stock at $0.01 to
$0.425 per share 2,274,260 227 - - - -
Issuance of Series A preferred stock
Issuance of Series A preferred stock
$4.25 per share, net of issuance costs
of $111,738 - - 1,801,533 180 - -
Compensation related to stock options - - - - - -
Compensation related to stock options - - - - - -
Net loss - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 5,274,260 527 1,801,533 180 - -
Issuance of common stock 261,386 26 - - - -
Issuance of Series B preferred stock
$8.80 per share, net of issuance costs
of $381,000 - - - - 1,022,726 102
Compensation related to stock options - - - - - -
Net loss - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 5,535,646 553 1,801,533 180 1,022,726 102
Compensation related to stock options
(unaudited) - - - - - -
Net loss (unaudited) - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997
(UNAUDITED) 5,535,646 $553 1,801,533 $180 1,022,726 $102
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
<TABLE>
<CAPTION>
Deferred
compensation Additional Total
on stock paid-in Accumulated stockholders'
options capital deficit deficit
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock; 2,415,000
shares at $.001 per share in July
585,000 shares at $.01 per share in
September 1994 $ - $ 7,115 $ - $ 7,415
Compensation related to stock options
founders' stock - 695,888 - 695,888
Net loss - - (1,181,133) (1,181,133)
- -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 - 703,003 (1,181,133) (477,830)
Issuance of common stock at $0.01 to
$0.425 per share - 54,919 - 55,146
Issuance of Series A preferred stock
Issuance of Series A preferred stock
$4.25 per share, net of issuance costs
of $111,738 - 7,544,597 - 7,544,777
Compensation related to stock options - 21,802 - 21,802
Compensation related to stock options (45,647) 60,863 - 15,216
Net loss - - (7,582,832) (7,582,832)
- -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 (45,647) 8,385,184 (8,763,965) (423,721)
Issuance of common stock - 112,795 - 112,821
Issuance of Series B preferred stock
$8.80 per share, net of issuance costs
of $381,000 - 8,618,887 - 8,618,989
Compensation related to stock options 24,202 (9,394) - 14,808
Net loss - - (10,186,954) (10,186,954)
- -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 (21,445) 17,107,472 (18,950,919) (1,864,057)
Compensation related to stock options
(unaudited) 13,262 (2,370) - 10,892
Net loss (unaudited) - - (2,049,577) (2,049,577)
- -------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997
(UNAUDITED) $ (8,183) $17,105,102 $(21,000,496) $ (3,902,742)
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-7
<PAGE> 11
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
April 26, 1994 Year ended December 31, April 26, 1994
(inception) to ----------------------------------------- (inception) to
December 31, December 31,
1994 1995 1996 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,181,133) $(7,582,832) $(10,186,954) $(18,950,919)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 6,469 156,849 344,345 507,663
(Gain) loss on disposal of property
and equipment - - 83,195 83,195
Gain on debt settlement - - - -
Compensation related to stock
options 695,888 37,018 14,808 747,714
Compensation related to common
stock issuance - - 58,525 58,525
Licensed technology expense - 750,000 - 750,000
Changes in operating assets and
liabilities:
Trade receivables (119,964) (711,380) 342,294 (489,050)
Prepaids and other assets (48,239) (343,134) 266,057 (125,316)
Accounts payable and accrued
liabilities 336,380 1,296,782 226,212 1,859,374
Advanced customer billings
and deferred revenue 241,867 590,940 (396,667) 436,140
- -------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN
OPERATING ACTIVITIES (68,732) (5,805,757) (9,248,185) (15,122,674)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Period from
April 26, 1994
Nine months ended September 30, (inception) to
---------------------------------------- September 30,
1996 1997 1997
(unaudited) (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,920,322) $(2,049,577) $(21,000,496)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 220,607 174,083 681,746
(Gain) loss on disposal of property
and equipment 61,393 (4,070) 79,125
Gain on debt settlement - (373,333) (373,333)
Compensation related to stock
options 11,419 13,263 760,977
Compensation related to common
stock issuance 58,425 - 58,525
Licensed technology expense - - 750,000
Changes in operating assets and
liabilities:
Trade receivables 339,371 489,050 -
Prepaids and other assets 24,258 100,150 (25,166)
Accounts payable and accrued
liabilities 10,972 101,156 1,960,530
Advanced customer billings
and deferred revenue (222,553) - 436,140
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN
OPERATING ACTIVITIES (7,416,430) (1,549,278) (16,671,952)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-8
<PAGE> 12
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
April 26, 1994 Year ended December 31, April 26, 1994
(inception) to ----------------------------------------- (inception) to
December 31, December 31,
1994 1995 1996 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment $ (26,646) $ (493,627) $ (476,966) $ (997,239)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 7,415 55,146 54,296 116,857
Proceeds from issuance of preferred stock,
net of issuance costs - 7,544,777 8,618,989 16,163,766
Advance from (to) officer 90,149 (90,149) - -
Advance from Worlds Acquisition Corp. - - - -
Payments on capital lease - (59,294) (56,724) (116,018)
Payments on note payable - (40,000) (110,000) (150,000)
Proceeds from note payable - - 1,000,000 1,000,000
- -------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 97,564 7,410,480 9,506,561 17,014,605
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,186 1,111,096 (218,590) 894,692
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD - 2,186 1,113,282 -
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,186 $1,113,282 $ 894,692 $ 894,692
- -------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ - $ 14,682 $ 9,234 $ 23,916
- -------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ - $ - $ 5,064 $ 5,064
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Period from
April 26, 1994
Nine months ended September 30, (inception) to
--------------------------------------- September 30,
1996 1997 1997
(unaudited) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment $ (383,494) $ (2,063) $ (999,302)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 53,896 - 116,857
Proceeds from issuance of preferred stock,
net of issuance costs 8,618,989 - 16,163,766
Advance from (to) officer - - -
Advance from Worlds Acquisition Corp. - 100,000 100,000
Payments on capital lease (56,724) - (116,018)
Payments on note payable (100,000) (40,000) (190,000)
Proceeds from note payable - 650,000 1,650,000
- ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 8,516,161 710,000 17,724,605
- ------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 716,237 (841,341) 53,351
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 1,113,282 894,692 -
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,829,519 $ 53,351 $ 53,351
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 9,234 $ - $ 23,916
- ------------------------------------------------------------------------------------------------------------
Income taxes paid $ - $ 2,128 $ 7,192
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-9
<PAGE> 13
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:
In 1995, the Company acquired equipment under capital leases totaling
$290,495. In 1995, the Company also purchased technology for $750,000
under an installment license obligation (Note 3).
In 1997, as part of the restructuring of operations (Notes 4 and 9), the
Company 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 Company's
Seattle operations. The agreement with this party also resulted in a
reduction of trade payables totaling $87,226.
See accompanying summary of accounting policies
and notes to financial statements.
F-10
<PAGE> 14
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS Worlds Inc. (the "Company") was incorporated
under the laws of Delaware on April 26, 1994.
The Company was formed to develop and
commercialize 3D multi-user tools and
technologies for the Internet market. The
Company is in the development stage and, as
such, has not generated significant revenues
from operations.
BASIS OF PRESENTATION The accompanying financial statements have been
prepared assuming that the Company will
continue as a going concern. The Company 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 9, on December 3, 1997, the
Company consummated a merger agreement with
Worlds Acquisition Corporation ("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.
INTERIM FINANCIAL
STATEMENTS The accompanying balance sheet as of September
30, 1997 and the statements of operations and
cash flows for each of the nine months ended
September 30, 1996 and 1997 have not been
audited. However, in the opinion of management,
they include all adjustments necessary for a
fair presentation of the financial position and
the results of operations for the periods
presented. The results of operations for the
nine months ended September 30, 1997 are not
necessarily indicative of results to be
expected for any future period.
F-11
<PAGE> 15
WORLDS INC.
(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 Company's management
made significant reductions in operations in
February 1997 that are reflected in the
Company's unaudited financial statements as of
and for the nine months ended September 30,
1997. In March 1997, the Company 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. The Company decided in
December 1996 to close its Seattle operations
resulting in a $110,000 charge to operations
for the year ended December 31, 1996.
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 or
the present value of the leased equipment, as
appropriate. Depreciation is calculated using
the straight-line method over the estimated
useful lives or lease terms, if applicable, of
the assets, which range from two to five years.
Maintenance and repairs are expensed as
incurred and improvements are capitalized.
F-12
<PAGE> 16
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
REVENUE RECOGNITION Revenue from 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.
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.
CONCENTRATION OF CREDIT
RISK The Company provides consulting services to
corporate customers in a variety of industries.
For the period from April 26, 1994 (inception)
to December 31, 1994, three customers accounted
for 69% of the Company's revenues. For the
years ended December 31, 1995 and 1996, five
customers accounted for 91% and 74% of the
Company's revenues, respectively.
F-13
<PAGE> 17
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
SUMMARY OF ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS Effective January 1, 1996, the Company 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
Company has elected to continue to account for
stock-based compensation under APB No. 25 (see
Note 5).
F-14
<PAGE> 18
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. DEVELOPMENT STAGE
COMPANY 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 Company, as of September 30,
1997, has incurred recurring losses totaling
$21,000,496 since inception, has a working
capital deficit of $4,041,203 and a
stockholders' deficit of $3,902,742. As
discussed in Note 9, on December 3, 1997, the
Company consummated a merger agreement with
WAC, a company which had completed a private
placement offering of securities whereby
$4,385,000 of gross proceeds was raised.
The Company anticipates, however, that it
currently has only a portion of the funds
necessary to permit the Company 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 permit the
Company to pursue its business plan or that any
assumptions relating to its business plan will
prove to be accurate. The Company has no
current arrangements with respect to, or
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-15
<PAGE> 19
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
2. PROPERTY AND
EQUIPMENT A summary of property and equipment as of
December 31, 1996 and 1995, and September 30,
1997, is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------- September 30,
1995 1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computers, software and
equipment $565,041 $1,013,308 $650,557
Leasehold improvements 194,263 170,320 -
- -----------------------------------------------------------------------------------------
759,304 1,183,628 650,557
Less: Accumulated
depreciation and
amortization 163,318 492,217 385,430
- -----------------------------------------------------------------------------------------
$595,986 $ 691,411 $265,127
- -----------------------------------------------------------------------------------------
</TABLE>
Equipment under capital leases included above
was $290,495 as of December 31, 1996 and 1995,
and $-0- as of September 30, 1997.
3. NOTES PAYABLE
<TABLE>
<CAPTION>
December 31,
-------------------------------------- September 30,
1995 1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bridge loan payable to
stockholders $ - $1,000,000 $1,650,000
Technology obligation 710,000 600,000 186,666
- -----------------------------------------------------------------------------------------
710,000 1,600,000 1,836,666
Less: Current portion 120,000 1,120,000 1,710,000
- -----------------------------------------------------------------------------------------
Long-term portion $590,000 $ 480,000 $ 126,666
- -----------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE> 20
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
On December 13, 1996, the Company received a
Bridge Loan totaling $1,000,000 from two
preferred stockholders. Additional advances of
$650,000 were made under the Bridge Loan during
the nine month period ended September 30, 1997
($500,000 in January 1997 and $50,000 in June
1997 were received from the same preferred
stockholders; and $100,000 was received in May
1997 from an affiliated person of a
stockholder). These advances under the Bridge
Loan were granted in return for convertible
promissory notes and options at $0.88 per share
on 500,000 shares of the Company's common stock
held by a founder and officer of the Company as
of December 31, 1996 (825,000 shares at
September 30, 1997). Such options remain
exercisable for 36 months, but will terminate
immediately upon the consummation of an initial
public offering of the Company's capital stock
or any consolidation or merger by the Company
or any sale, conveyance or disposition of all
or substantially all of the assets of the
Company; such an event occurred on December 3,
1997 when the Company consummated a merger
(Note 9). The loan bears interest at a rate of
9% from the date of the advances. Accrued
interest is approximately $4,000 at December
31, 1996 and $71,000 at September 30, 1997.
In June 1997, the Company renegotiated the
terms of the Bridge Loan to convert it to a
three year loan bearing interest at 7.5% and
the option to convert into common stock based
on the conversion price of $4.375, $5.00 and
$5.625 in each of the three years following
consummation of the merger of Worlds Inc. into
Worlds Acquisition Corp. (see Note 9).
On January 3, 1995, the Company purchased
technology for $750,000 under a license
agreement with Kinetic Effects, Inc. and Simon
Fraser University of British Columbia ("SFU").
At December 31, 1996, the Company had an
obligation to make monthly payments of $10,000
($6,667 to SFU and $3,333 to Kinetic Effects,
Inc.) through November 2000. The purchased
technology was charged to research and
development expense in 1995. This obligation
has been renegotiated
F-17
<PAGE> 21
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
downward in August 1997 to $186,648, $3,333
payable monthly over 56 months to Kinetic
Effects, Inc. Kinetic Effects, Inc. is an
entity affiliated with a prior officer and
current shareholder of the Company. In
September 1997, the Company renegotiated the
terms with SFU. In exchange for exclusivity on
the technology, $373,333 of the debt was
forgiven and has been included as an
extraordinary item in the statement of
operations for the nine months ended September
30, 1997.
4. LEASE COMMITMENTS The Company leases its facilities and other
equipment under non-cancelable operating lease
and capital lease agreements. Rent expense was
$1,487,227 and $599,715 for the years ended
December 31, 1996 and 1995, respectively.
Future minimum lease payments under these
agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, leases leases
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1997 $109,929 $443,726
1998 33,109 -
- -----------------------------------------------------------------------------------------
Total minimum lease payments 143,038 443,726
Less: Amount representing imputed
interest (20,026) -
Less: Sublease income - (8,990)
Less: Unamortized advance payments
held in other current assets - (51,693)
- -----------------------------------------------------------------------------------------
$383,043
------------------
Present value of net minimum capital lease
payments 123,012
Less: Current installments of obligations
under capital lease (94,539)
- -----------------------------------------------------------------------------------------
Obligations under capital lease, excluding
current installments $ 28,473
- -----------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE> 22
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Equipment was leased from a preferred
stockholder under both operating and capital
leases. The related outstanding capital leases
at December 31, 1995 and 1996 were $179,737 and
$123,012, respectively. The operating lease
commitments at December 31, 1995 and 1996 were
approximately $927,000 and $378,000,
respectively. In June 1997, the Company and the
preferred stockholder agreed that a total of
$364,000 is owed by the Company on the prior
operating and capital lease obligations which
is recorded in accounts payable at September
30, 1997. This obligation to the preferred
stockholder was reduced to $250,000 during
December 1997 upon completion of the merger and
private placement discussed in Note 9. The gain
of $114,000 from reduction of such obligation
will be included as an extraordinary item in
the statement of operations for the period
ended December 31, 1997.
5. STOCKHOLDERS' DEFICIT Preferred Stock
Each share of Series A and Series B preferred
stock is convertible, at the option of the
holder, into fully paid shares of common stock.
The conversion rate is based upon the original
purchase price, subject to adjustments for
stock dividends, stock splits, and capital
reorganizations and price based antidilution,
currently one-to-one.
Each share of Series A and Series B preferred
stock automatically converts to common stock
upon the affirmative vote of the majority of
the outstanding preferred stock or the closing
of an underwritten public offering of shares of
the Company's common stock resulting in total
proceeds of at least $15,000,000. The holders
of the preferred stock are entitled to one vote
on an "as if converted" basis.
F-19
<PAGE> 23
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Holders of Series A and Series B preferred
stock are entitled to receive dividends, prior
and in preference to any declaration or payment
of any dividends on common stock, at the rate
of $0.39 for Series A and $0.79 for Series B
per share per annum. Such dividends are not
cumulative, except in the event that the
Company does not enter into an initial public
offering of at least $15,000,000 in proceeds to
the Company on or before May 31, 1998, in which
case the dividends are cumulative effective May
31, 1998, and are payable when and if declared
by the Company's Board of Directors in cash
legally available for distribution, or in
stock, if no cash is legally payable. As of
December 31, 1996, no dividends have been
declared.
In the event of liquidation, consolidation,
merger, or winding up of the Company prior to
conversion, holders of preferred stock are
entitled to receive, in preference to the
holders of common stock, an amount equal to
their liquidation amount or a pro rata share of
the remaining assets, based on their ownership
of the Company. As of December 31, 1996, the
aggregate liquidation preference was
approximately $16,657,000. (See Note 9).
A Series A preferred stock investor also has a
stock warrant which provides the right to
purchase shares of Series A preferred stock
sufficient to bring its holdings on a fully
diluted basis to 21% of the Company's shares.
The warrant expires in the event of a qualified
public offering or when the holder of preferred
stock no longer chooses to exercise its
existing antidilution rights. The warrant is
exercisable at fair market value at date of
exercise. As a result of the merger described
in Note 9, such warrants were extinguished.
Common Stock
Prior to the mergers described in Note 9, the
Company had reserved 4,500,000 shares of common
stock for issuance under the 1994 Amended and
Restated Stock Option Plan (the "Plan"), which
authorized the granting of incentive and
nonstatutory stock options to employees and
consultants of the Company. Under this Plan,
the Company's Board of Directors would grant
stock options at prices not less than 85% of
fair value. The options were all immediately
exercisable and were subject to vesting at
times and in increments as specified by the
Company's Board of Directors. Options generally
vested over three years and expired 10 years
from date of grant.
F-20
<PAGE> 24
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The following table summarizes the stock option
activity:
<TABLE>
<CAPTION>
Options Options outstanding
available ---------------------------------------
for grant Shares Price per share
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options authorized 2,000,000 - $ -
Options granted (1,702,501) 1,702,501 .01
- -----------------------------------------------------------------------------------------
Balance, December 31,
1994 297,499 1,702,501 .01
Options authorized 1,500,000 - -
Options granted (1,189,254) 1,189,254 .01-.43
Options exercised - (1,861,853) .01-.20
Options canceled 60,000 (60,000) .20
- -----------------------------------------------------------------------------------------
Balance, December 31,
1995 668,245 969,902 .01-.43
Options authorized 1,000,000 - -
Options granted (1,171,000) 1,171,000 .43-.88
Options exercised - (261,386) .20-.88
Options canceled 489,704 (489,704) .20-.88
- -----------------------------------------------------------------------------------------
Balance, December 31,
1996 986,949 1,389,812 .20-.88
- -----------------------------------------------------------------------------------------
Balance, September 30,
1997 986,949 1,389,812 .20-.88
- -----------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1996, 415,868 options were
vested.
The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and
related Interpretations in accounting for the
Plan. Under APB Opinion No. 25, because the
exercise price of the Company's stock options
equals or exceeds the market price of the
underlying stock on the date of grant, no
compensation cost is recognized. Compensation
or other expense is recorded based on intrinsic
value (excess of current price over exercise
price on date of grant) for employees, and fair
value of the option awards for others.
F-21
<PAGE> 25
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
FASB Statement No. 123, "Accounting for
Stock-Based Compensation", requires the Company
to provide pro forma information regarding net
loss as if compensation cost for the Company's
stock option plans had been determined in
accordance with the fair value based method
prescribed in FASB Statement No. 123. The
Company estimates the fair value of each stock
option at the grant date by using the minimum
value approach with the following
weighted-average assumptions used for grants in
1995 and 1996, respectively; no dividend yield
for any year; near-zero volatility for both
years; risk-free interest rates of 6.65% and
6.6%; and expected lives ranging from 1 month
to 3 years.
Under the accounting provisions of FASB
Statement No. 123, the Company's net loss would
have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Nine months
Year ended December 31, ended
-------------------------------------- September 30
1995 1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss:
As reported $(7,582,832) $(10,186,952) $(2,049,577)
Pro forma (7,717,271) (10,320,197) (2,049,577)
- -----------------------------------------------------------------------------------------
</TABLE>
As a result of the mergers described in Note 9,
the Plan and all options thereunder were
terminated and a new stock option plan, as
described in Note 9, was adopted.
F-22
<PAGE> 26
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
6. INCOME TAXES From its inception, the Company has generated
losses for both financial reporting and tax
purposes. As of December 31, 1996, the
Company's net operating losses for Federal
income tax purposes were approximately $16.6
million, and expire between the years 2009 and
2011. For state income tax purposes, as of
December 31, 1996, the Company had net
operating loss carryforwards of approximately
$12.7 million for the State of California which
will expire 2002. As of December 31, 1996, the
combined Federal and state tax benefit of the
net operating loss carryforwards is
approximately $6.4 million and the deferred tax
asset relating to accounting differences for
depreciation, certain accrued expenses and
technology costs was approximately $0.4
million. This deferred tax asset totaling $6.8
million has been completely offset by a
valuation allowance since management cannot
determine that it is more likely than not that
the deferred tax asset can be realized. The use
of such net operating loss carryforwards will
be subject to annual limits if the Company has
incurred an "ownership change". In general, an
ownership change occurs if, during any
three-year test period, the aggregate of all
increases in percentage ownership by
stockholders is more than 50%. Upon completion
of the merger discussed in Note 9, such an
"ownership change" occurred.
The provision for income taxes for the year
ended December 31, 1996 and the nine months
ended September 30, 1997 consists of:
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, September 30,
1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Foreign income taxes withheld $105,000 $ -
State income taxes - current 10,000 5,000
- -----------------------------------------------------------------------------------------
$115,000 $5,000
- -----------------------------------------------------------------------------------------
</TABLE>
The Company has $156,000 in research credits
available to reduce future Federal income taxes
which expire between the years 2009 and 2011.
F-23
<PAGE> 27
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
7. RELATED PARTY
REVENUE For the period from April 26, 1994 (inception)
to December 31, 1994, the Company had revenue
totaling $113,000 from one preferred
stockholder and one common stockholder. For the
year ended December 31, 1995, $827,390 of
revenue was attributable to two preferred
stockholders and one common stockholder, and
for the year ended December 31, 1996,
$1,276,780 of revenue was attributable to three
preferred stockholders.
8. LITIGATION, CLAIMS
AND CONTINGENCIES In 1996, the Company incurred lawsuit
settlement expenses totalling $509,200, of
which $164,200 is included in accrued
liabilities at December 31, 1996. These
settlement expenses relate principally to
claims by former employees and are exclusive of
legal fees included in general and
administrative expenses in the accompanying
financial statements.
The Company is currently a defendant in two
lawsuits filed by a former employee. One suit
filed in December 1995 in San Francisco
Superior Court alleges various contract and
tort claims for wrongful termination and seeks
damages ranging from $500,000 to $2,000,000. A
second suit filed in January 1997 in U. S.
District Court, Northern District of
California, asserts claims for damages of
$200,000 against the Company in connection with
the use of the Company's name on the World Wide
Web. Pursuant to mediation in July 1996, the
Company executed a settlement agreement in
connection with the wrongful termination case
and paid the former employee $225,000 in 1996.
In February 1997, the Company executed an
amendment to the July 1996 settlement involving
a proposed settlement of both cases. The
proposed settlement has not been completed but,
in December 1997, the Company received a
favorable ruling in San Francisco Superior
Court which the Company and counsel believe
will result in an overall resolution of the two
lawsuits for a maximum additional liability of
$150,000 which amount had originally been
accrued at December 31, 1996.
F-24
<PAGE> 28
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Although, to the best of the Company's
knowledge, no legal proceedings other than
those referenced above have been instituted,
current management has been informed that
potential claims may exist in the areas of
unpaid taxes, unpaid wages and expenses to
employees and consultants, unpaid vacation pay,
and indemnification claims by certain entities
and individuals against the Company. The
Company is also informed that certain employees
and consultants may assert claims against the
Company based on alleged grants of options or
other equity interests in the Company. While it
is not possible at present to quantify the
extent or risk of such matters, the Company's
management believes that all such potential and
unasserted claims in the aggregate will not
have a material adverse effect on the Company's
financial position.
9. SUBSEQUENT EVENTS (a) The Mergers
On December 3, 1997, the Company was merged
with and into 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 the
WAC's securities (the "Private Placement").
All of the common and preferred stock of the
Company were exchanged for 2,000,000 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 Company. At September 30,
1997, WAC had not yet commenced any formal
business operations and all activity to that
date related to its formation and the
negotiation of its fundraising transactions.
During the period ended September 30, 1997,
WAC advanced the Company $100,000 for
working capital. Such advance is noninterest
bearing with no fixed repayment terms.
Academic was an inactive company with no
operations. Academic voluntarily reported
under
F-25
<PAGE> 29
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
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 or in the Pink Sheets.
(b) 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 its 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 (the "Initial
Private Placement Closing") and, on December
31, 1997, the Combined Entity sold 4.85
Units with gross proceeds of $585,000. 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"). In the event that WAC does not use
its best efforts to file the registration
statement with the SEC within 60 days of the
Initial Private Placement Closing and have
the registration statement declared
effective by the SEC within 120 days
thereafter, it has agreed, upon the
occurrence of each such event, to issue to
purchasers of the Units one warrant to
purchase one share of common stock, at an
exercise price of $1, for each three Private
Placement Shares.
F-26
<PAGE> 30
WORLDS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(c) Stock Option Plan
As a result of the Mergers, WAC now has a
Stock Option Plan (the "Option Plan") as an
incentive for, and to encourage share
ownership by, its officers, directors and
other key employees and/or consultants and
potential management of possible future
acquired companies. The Option Plan provides
that options to purchase a maximum of
1,000,000 shares of common stock (subject to
adjustment in certain circumstances) may be
granted under the Option Plan. The Option
Plan also allows for the granting of stock
appreciation rights ("SARs") in tandem with,
or independently of, stock options. Any SARs
granted will not be counted against the
1,000,000 limit.
F-27
<PAGE> 31
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
PERIOD FROM APRIL 8, 1997 (INCEPTION)
TO SEPTEMBER 30, 1997
<PAGE> 32
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
PERIOD FROM APRIL 8, 1997 (INCEPTION)
TO SEPTEMBER 30, 1997
F-1
<PAGE> 33
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS:
Balance sheets F-4
Statements of operations F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
Notes to financial statements F-8 - F-13
F-2
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Worlds Acquisition Corp.
Boston, Massachusetts
We have audited the accompanying balance sheet of Worlds Acquisition Corp. (a
development stage enterprise) as of June 30, 1997, and the related statements of
operations, stockholders' equity and cash flows for the period from April 8,
1997 (inception) to June 30, 1997. 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 audit.
We conducted our audit 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 audit provides 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 Worlds Acquisition Corp. at
June 30, 1997 and the results of its operations and its cash flows for the
period from April 8, 1997 (inception) to June 30, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming Worlds
Acquisition Corp. will continue as a going concern. The Company has a working
capital deficit whereby current liabilities exceed its current assets (cash)
which raises substantial doubt about its ability to continue as a going concern.
As discussed in Note 7 (Subsequent Events) and Note 1 (Basis of Presentation),
the Company completed a private placement raising gross proceeds of $4,385,000
and consummated a merger agreement with a development stage enterprise, Worlds
Inc. The financial statements do not include any adjustments resulting from the
private placement and merger transactions.
BDO Seidman, LLP
New York, New York
September 15, 1997 (except as to Note 7,
which is as of December 31, 1997)
F-3
<PAGE> 35
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
BALANCE SHEETS
September 30, 1997
June 30, 1997 (unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 57,824 $ 3,045
- ---------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 57,824 3,045
DEFERRED PRIVATE PLACEMENT COSTS (NOTE 3) - 215,000
ADVANCE TO WORLDS INC. (NOTE 4) 100,000 100,000
- ---------------------------------------------------------------------------------------------------------------
$ 157,824 $ 318,045
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Due to stockholder $ 11,724 $ 11,724
Accrued expenses 93,276 270,276
- ---------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 105,000 282,000
- ---------------------------------------------------------------------------------------------------------------
COMMITMENTS (NOTE 5)
STOCKHOLDERS' EQUITY (NOTES 6 AND 7):
Common stock, $.001 par value - shares authorized
80,000,000; outstanding 8,400,000 8,400 8,400
Additional paid-in capital 195,600 195,600
Deficit accumulated during the development stage (151,176) (167,955)
- ---------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 52,824 36,045
- ---------------------------------------------------------------------------------------------------------------
$ 157,824 $ 318,045
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 36
- --------------------------------------------------------------------------------
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Cumulative
April 8, 1997
April 8, 1997 July 1, 1997 to (inception) to
(inception) to September 30, September 30,
June 30, 1997 1997 (unaudited) 1997 (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General and administrative expenses, primarily
professional fees $ 151,176 $ 16,779 $ 167,955
- ---------------------------------------------------------------------------------------------------------------------------------
Net loss for the period $(151,176) $ (16,779) $ (167,955)
- ---------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ (.02) $ (.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 8,400,000 8,400,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 37
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Period from April 8, 1997 (inception) to September 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Common stock during the Total
--------------------------------- Additional development stockholders'
Shares Amount paid-in capital stage equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founding stockholders 8,400,000 $8,400 $195,600 $ - $ 204,000
Net loss for the period April 8
to June 30, 1997 - - - (151,176) (151,176)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 8,400,000 8,400 195,600 (151,176) 52,824
Net loss for the period July 1
to September 30, 1997
(unaudited) - - - (16,779) (16,779)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997
(UNAUDITED) 8,400,000 $8,400 $195,600 $(167,955) $ 36,045
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 38
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
April 8, 1997
April 8, 1997 July 1, 1997 to (inception) to
(inception) to September 30, September 30,
June 30, 1997 1997 (unaudited) 1997 (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(151,176) $ (16,779) $(167,955)
Adjustment to reconcile net loss to net cash
used in operating activities:
Increase in deferred private placement costs - (215,000) (215,000)
Increase in accrued expenses 93,276 177,000 270,276
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (57,900) (54,779) (112,679)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advance to Worlds Inc. (100,000) - (100,000)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock to
founding stockholders 204,000 - 204,000
Loan from stockholder 11,724 - 11,724
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 215,724 - 215,724
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 57,824 (54,779) 3,045
CASH, BEGINNING OF PERIOD - 57,824 -
- ---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 57,824 $ 3,045 $ 3,045
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 39
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES Income Taxes
Worlds Acquisition Corp. (the "Company") follows
Statement of Financial Accounting Standards No.
109 ("SFAS 109"), "Accounting for Income Taxes."
SFAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets
and liabilities for the expected future tax
consequences of events that have been recognized
in the Company's financial statements or tax
returns. The Company has net operating loss
carryforwards of approximately $168,000
available to reduce any future income taxes. The
tax benefit of these losses, approximately
$67,000, has been offset by a valuation
allowance due to the uncertainty of its
realization.
Net Loss Per Share
Net loss per common share is computed on the
basis of the weighted average number of common
shares outstanding during the period.
Use of Estimates
The preparation of the 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.
Basis of Presentation and Development Stage
Risks
The Company has a working capital deficit
(current liabilities exceed current assets)
which raises substantial doubt about its ability
to continue as a going concern.
As discussed in Note 7, the Company completed a
private placement raising gross proceeds of
$4,385,000 and consummated a merger agreement
with a development stage enterprise, Worlds
Inc., a Delaware corporation ("Worlds"). Worlds
has not generated significant revenues from
operations and had an accumulated deficit from
inception to September 30, 1997 of approximately
$21,000,000.
F-8
<PAGE> 40
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
The Company anticipates, however, 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 has no
current arrangements with respect to, or 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.
2. ORGANIZATION AND
BUSINESS OPERATIONS The Company was incorporated 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 Worlds, which merged with and into the
Company on December 3, 1997 in a series of
related transactions (see Note 6). At September
30, 1997, the Company had not yet commenced any
formal business operations and all activity to
that date related to the Company's formation and
the negotiation of transactions described in
Note 7. The Company's fiscal year-end is
December 31.
F-9
<PAGE> 41
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
3. DEFERRED PRIVATE
PLACEMENT COSTS As of September 30, 1997, the Company had
incurred expenses of $215,000 in connection with
its proposed private placement. As discussed in
Note 7, the private placement occurred in
December 1997 at which time such costs will be
charged to stockholders' equity.
4. ADVANCE TO WORLDS
INC. During the period ended September 30, 1997, the
Company advanced Worlds $100,000 for working
capital. Such advance is noninterest bearing
with no fixed repayment terms.
5. COMMITMENTS (a) During September 1997, the Company commenced
leasing of office space in Boston under a
noncancelable operating lease expiring in
September 2000. Minimum rentals under this
lease are approximated as follows:
<TABLE>
<CAPTION>
Year ending December 31,
--------------------------------------------
<S> <C>
1997 (three months) $ 16,000
1998 48,000
1999 50,000
2000 34,000
--------------------------------------------
Total minimum payments $148,000
--------------------------------------------
</TABLE>
(b) The Company anticipates entering into an
employment agreement with its president that
calls for minimum annual compensation of
$175,000. Bonuses will be determined at the
discretion of the Board of Directors. The
agreement is anticipated to expire in
December 2000.
F-10
<PAGE> 42
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
6. COMMON STOCK (a) During the period ended September 30, 1997,
the Company issued 8,400,000 shares of
common stock (on a post-split basis), par
value $.001 per share, to founders of the
Company for a consideration of $204,000.
(b) On September 15, 1997, the Company's Board
of Directors approved a two-for-one split of
the common stock. The additional shares
resulting from the stock split were
distributed on September 15, 1997 to all
stockholders of record at the close of
business on September 15, 1997. The balance
sheets as of June 30, and September 30, 1997
and the statements of stockholders' equity
for the period from April 8, 1997 to
September 30, 1997 reflect the retroactive
recording of the stock split as if it had
occurred on April 8, 1997. Further, all
references in the financial statements to
average number of shares outstanding and
related prices, per share amounts and stock
option data have been restated for all
periods to reflect the stock split.
(c) During September 1997, the Board of
Directors and stockholders of the Company
adopted a stock option plan (the "Option
Plan") as an incentive for, and to encourage
share ownership by, the Company's officers,
directors and other key employees and/or
consultants and potential management of
possible future acquired companies. The
Option Plan provides that options to
purchase a maximum of 1,000,000 shares of
common stock (subject to adjustment in
certain circumstances) may be granted under
the Option Plan. The Option Plan also allows
for the granting of stock appreciation
rights ("SAR's") in tandem with, or
independent of, stock options. Any SAR's
granted will not be counted against the
1,000,000 limit.
F-11
<PAGE> 43
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
7. SUBSEQUENT EVENTS (a) The Mergers
On December 3, 1997, Worlds was merged with
and into the Company in a series of related
transactions which included the simultaneous
merger of the Company with and into Academic
Computer Systems, Inc., a New Jersey
corporation ("Academic") (the "Mergers") and
a private offering of the Company's
securities (the "Private Placement"). All of
the common and preferred stock of Worlds
were exchanged for 2,000,000 shares of the
Company. Worlds was a development stage
company, had not generated significant
revenues from operations and had an
accumulated deficit from inception to
September 30, 1997 of approximately
$21,000,000. Academic was an inactive
company with no operations. Academic
voluntarily reported under the Securities
Exchange Act of 1934 (the "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 or in the Pink Sheets.
(b) The Private Placement
The Private Placement called for the Company
to offer for sale a maximum of 50 units (57
1/2 with the over-allotment) each consisting
of 120,000 shares of the Company'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
the Company's common stock at $1 per share
for every $40 of gross proceeds from the
sale of the Units. On November 21, 1997, the
Company sold 31.67 Units with gross proceeds
of $3,800,000 (the "Initial Private
Placement Closing") and on December 31,
1997, Combined Entity sold 4.85 Units with
gross proceeds of $585,000. The Company
agreed to include the shares of common stock
underlying the Units sold in the Private
Placement (the "Private Placement Shares")
in a
F-12
<PAGE> 44
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
registration statement to be filed with the
Securities and Exchange Commission (the
"SEC"). In the event that the Company does
not use its best efforts to file the
registration statement with the SEC within
60 days of the Initial Private Placement
Closing and have the registration statement
declared effective by the SEC within 120
days thereafter, the Company has agreed,
upon the occurrence of each such event, to
issue to purchasers of the Units one warrant
to purchase one share of common stock, at an
exercise price of $1, for each three Private
Placement Shares.
F-13
<PAGE> 45
PRO FORMA CONSOLIDATED BALANCE SHEET
The following sets forth the unaudited pro forma consolidated balance
sheet of Worlds Inc. ("Worlds"), Worlds Acquisition Corp. ("WAC") and Academic
Computer Systems Inc. ("Academic"), as if the Mergers had been effective as of
September 30, 1997. The merger agreements provide that all of the outstanding
shares of Worlds will be converted into shares of WAC and WAC will be merged
into Academic. The unaudited pro forma consolidated balance sheet has been
prepared to illustrate the estimated effects of the Mergers and was derived by
adjusting the historical balance sheets of Worlds, WAC and Academic as of
September 30, 1997 for certain transactions pursuant to the mergers described in
the notes to the unaudited pro forma consolidated balance sheet. The unaudited
pro forma consolidated balance sheet should be read in conjunction with the
financial statements of Worlds, WAC and Academic contained elsewhere herein. The
unaudited proforma consolidated balance sheet is not necessarily indicative of
the financial position of the combined company that would have occurred had the
Mergers occurred on September 30, 1997, nor is it necessarily indicative of
future financial position.
F-1
<PAGE> 46
WORLDS INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical
------------------------------------ Proforma
Proforma Adjustments Consolidated
Worlds WAC Academic Total Note Debit Credit as Adjusted
------------ ---------- ---------- ---------- --------------------------------- -------------
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash & cash equivlents $ 53,351 $ 3,045 $ 613,175 $ 669,571 (4) $ 3,008,220 $ $ 4,203,791
(5) 526,000
Trade receivables 149,684 149,684 149,684
Less: allowance for doubtful
accounts (149,684) (149,684) (149,684)
Prepaids & other current assets 25,166 25,166 25,166
------------ ---------- --------- ----------- ------------ ------------ -------------
Total Current Assets 78,517 3,045 613,175 694,737 3,534,220 0 4,228,957
Property & equipment, net 265,127 265,127 265,127
Advance to Worlds, Inc. 100,000 100,000 (3) 100,000 0
Deferred private placement costs 215,000 215,000 (4) 35,000 250,000 0
------------ ---------- --------- ----------- ------------ ------------ -------------
Total Assets $ 343,644 $ 318,045 $613,175 $1,274,864 $ 3,569,220 $ 350,000 $ 4,494,084
============ ========== ========= =========== ============ ============ =============
Liabilities & Stockholders'
Equity (Deficit)
Accrued liabilities $ 735,812 $ 270,276 $ 45,517 $1,051,605 (4) $ 130,000 $ 35,000 $ 368,149
(4) 160,456
(6) 314,000
(6) 114,000
Due to stockholder 11,724 11,724 11,724
Accounts payable 1,137,768 5,250 1,143,018 1,143,018
Advanced customer billings & 0
deferred revenue 436,140 436,140 436,140
Advance from WAC 100,000 100,000 (3) 100,000 0
Current portion, notes payable 1,710,000 1,710,000 (6) 1,650,000 60,000
------------ ---------- --------- ----------- ------------ ------------ -------------
Total Current Liabilities 4,119,720 282,000 50,767 4,452,487 2,468,456 35,000 2,019,031
Long-term portion, notes
payable 126,666 126,666 (6) 1,964,000 2,090,666
------------ ---------- --------- ----------- ------------ ------------ -------------
Total Liabilities 4,246,386 282,000 50,767 4,579,153 2,468,456 1,999,000 4,109,697
------------ ---------- --------- ----------- ------------ ------------ -------------
Preferred stock - series A & B 282 282 (1) 282 0
Common stock 553 8,400 45,500 54,453 (1) 553 2,000 16,118
(2) 44,592
(4) 3,800
(4) 425
(5) 585
Deferred compensation (8,183) (8,183) (1) 8,183 0
Additional paid-in-capital 17,105,102 195,600 312,571 17,613,273 (1) 17,105,102 1,998,000 6,444,966
(2) 248,929
(4) 425 3,164,876
(5) 525,415
Retained earnings (deficit) (21,000,496) (167,955) 206,493 (20,961,958) (1) 5,902,742 21,000,496 (6,076,697)
(2) 206,493
(4) 120,000
(6) 114,000
Less: treasury stock (2,156) (2,156) (2) 2,156 0
Total Stockholders'
------------ ---------- --------- ----------- ------------ ------------ -------------
Equity (Deficit) (3,902,742) 36,045 562,408 (3,304,289) 23,380,189 27,068,865 384,387
------------ ---------- --------- ----------- ------------ ------------ -------------
Total Liabilities & Stockholders'
Equity (Deficit) $ 343,644 $ 318,045 $613,175 $1,274,864 $25,848,645 $29,067,865 $ 4,494,084
============ ========== ========= =========== ============ ============ =============
</TABLE>
F-2
<PAGE> 47
WORLDS INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
On December 3, 1997 the merger agreements between Worlds, WAC and
Academic were consummated. In combining the entities and accounting for the
private placement closings that occurred on November 21 and December 31, 1997,
the following pro forma adjustments have been made to the unaudited pro forma
consolidated balance sheet at September 30, 1997.
(1) Represents the acquisition of Worlds by WAC, issuance of 2,000,000
shares of WAC to the former shareholders of Worlds and elimination of
Worlds equity accounts. The 2,000,000 shares of WAC were valued at the
private placement price at $1 per share ($2,000,000). The final
allocation of the purchase price is dependant upon certain valuations.
Accordingly the difference between the costs of the acquisition and the
underlying book value of Worlds (an excess purchase price over equity
of $5,902,742) has been allocated to purchased research and development
costs subject to completion of such valuations.
(2) Represents the merger of WAC and Academic.
(3) Represents the elimination of an intercompany advance from WAC to
Worlds.
(4) Represents net proceeds ($3,168,676, after commissions and expenses of
the offering) from the initial closing of private offering memorandum,
the issuance of 3,800,000 shares of WAC to investors and the issuance
of 425,000 shares of WAC to placement agent. Settlement of certain
accrued liabilities ($160,456), accrued private placement costs
($130,000) and payment of consulting fees ($120,000) were made at the
initial closing resulting in net cash received of $3,008,220.
(5) Represents net proceeds ($526,000, after commissions and expenses of
the offering) from the second closing of private offering memorandum
and the issuance of 585,000 shares of WAC to investors.
(6) Represents the reclassification from current liabilities to long-term
debt of Worlds liabilities of $1,964,000 and the write down of $114,000
of Worlds lease obligations as a result of the consummation of the
mergers.
F-3
<PAGE> 48
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: February 13, 1998
WORLDS INC.
By: /s/ Thomas Kidrin
_______________________
Thomas Kidrin,
President and CEO
3
