<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JANUARY 20, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
WORLDS INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEW JERSEY
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
7370
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
22-1848316
(I.R.S. EMPLOYER IDENTIFICATION NO.)
15 UNION WHARF
BOSTON, MASSACHUSETTS 02109
617-725-8900
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
THOMAS KIDRIN
C/O WORLDS INC.
15 UNION WHARF
BOSTON, MASSACHUSETTS 02109
617-725-8900
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
Copies to:
IRVING ROTHSTEIN, ESQ.
HELLER, HOROWITZ & FEIT, P.C.
292 MADISON AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 685-7600
FACSIMILE: (212) 696-9459
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
At the desire of security holders after the effective date of the registration
statement
<PAGE> 2
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ___ _____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ___ _____________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ___ _____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ___
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SECURITY PRICE (1) FEE
---------- ---------- --------- --------- ---
<S> <C> <C> <C> <C>
Common Stock, $.001 Par Value 5,264,000 $ 1.00(2) $5,264,000 $1,595.15
Common Stock, $.001 Par Value(3)(4) 109,625 $ 1.00 $ 109,625 $ 33.22
Common Stock, $.001 Par Value(3)(4) 50,000 $ 5.00 $ 250,000 $ 75.76
Common Stock, $.001 Par Value(4)(5) 150,000 $ 0.67 $ 100,500 $ 30.45
------ ---------- ---------
Total $5,474,125 $1,734.58
---------- ---------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to rule 457 under the Securities Act of 1933.
(2) As of the date of filing, there is no market for the registrant's
securities. This price represents the price last paid by investors for
the registrant's securities.
(3) To be issued upon exercise of currently outstanding Common Stock
Purchase Warrants.
(4) Pursuant to Rule 416, there is also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Warrants or the Unit Purchase Option.
(5) To be issued upon exercise of currently outstanding stock options.
iii
<PAGE> 4
SUBJECT TO COMPLETION
DATED JANUARY 16, 1998
---------------------
WORLDS INC.
----------------------
5,573,625 SHARES OF COMMON STOCK
The holders of 5,573,625 shares of Common Stock, $.001 par value (the
"Common Stock") of Worlds Inc. (the "Company" or "Worlds"), which includes
150,000 shares of Common Stock underlying currently outstanding stock options
(the "Option Shares") and 159,625 shares of Common Stock underlying currently
outstanding warrants (the "Warrant Shares") (collectively, the "Selling Security
Holders") offer their securities for resale pursuant to this Prospectus.
The Common Stock is not actively traded, and while the Company intends
to use its best efforts to have it quoted on the OTC Bulletin Board, there can
be no assurance that such securities will be accepted for quotation or, if
accepted, that an active trading market will develop. See "Risk Factors."
The proceeds from the sale of the securities offered by the Selling
Security Holders will not inure to the benefit of the Company, but rather to
such holders. See "Selling Security Holders." However, the Company will receive
the proceeds of the exercise prices of the Option Shares and the Warrant Shares
($.67 per Option Share and $1.00 per Warrant Share for 109,625 warrants and
$5.00 per Warrant Share for 50,000 warrants) if the same are exercised.
The Securities offered hereby may be sold from time to time directly by
the Selling Security Holder. Alternatively, the Selling Security Holders may
from time to time offer such Securities through underwriters, dealers or agents.
The distribution of the securities by the Selling Security Holders may be
effected in one or more transactions that may take place on the over-the-counter
market, including ordinary broker's transactions, privately-negotiated
transactions or through sales to one or more broker-dealers for resale of such
shares as principals at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Security Holders in connection with such sales of the securities.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AS DESCRIBED HEREIN. SEE
"RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THE PROSPECTUS IS JANUARY __, 1998.
<PAGE> 5
The Company intends to furnish to its stockholders annual reports
containing audited financial statements examined and reported upon by an
independent certified public accounting firm. The Company's fiscal year end is
currently September 30. However, the Company intends shortly to change its
fiscal year end to December 31. While the Company has not filed a Registration
Statement with the Securities and Exchange Commission to register under, and be
subject to the reporting requirements of, the Securities Exchange Act of 1934,
the Company has voluntarily filed documents required thereunder and expects to
subject itself shortly to the reporting requirements.
ADDITIONAL INFORMATION
The Company has filed with the headquarters office of the Securities
and Exchange Commission located at 450 Fifth Street, N.W., Washington, D.C.
20549, a Registration Statement on Form SB-2 under the Securities Act of 1933
with respect to the securities offered hereby. This Prospectus filed as part of
such Registration Statement does not contain all the information set forth in,
or annexed as exhibits to, the Registration Statement. For further information
pertaining to the securities offered hereby and the Company, reference is made
to the Registration Statement and the exhibits thereto. The Registration
Statement and exhibits thereto may be inspected at the Headquarters Office of
the Securities and Exchange Commission located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at certain of the Commission's regional offices
at the following addresses: 7 World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may be obtained from the Public Reference Section of the SEC,
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. at prescribed rates. The
Commission also maintains a Web Site that contains reports, proxy and
information statements and other information regarding registrants such as the
Company, that file electronically with the Commission. This material can be
found at http://www.sec.gov.
PROSPECTIVE PURCHASERS SHOULD READ THIS PROSPECTUS CAREFULLY BEFORE MAKING ANY
INVESTMENT DECISION REGARDING THE COMPANY, AND SHOULD PAY PARTICULAR ATTENTION
TO THE INFORMATION CONTAINED IN THIS PROSPECTUS UNDER THE HEADING "RISK FACTORS"
AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. IN ADDITION, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN ADVISORS
IN ORDER TO UNDERSTAND FULLY THE CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
THE COMPANY, ORIGINALLY CALLED ACADEMIC COMPUTER SYSTEMS, INC., AS CURRENTLY
CONSTITUTED IS THE RESULT OF THE ACQUISITION THROUGH MERGER (THE "MERGERS') OF
WORLDS INC. AND WORLDS ACQUISITION CORP., BOTH FORMER DELAWARE CORPORATIONS.
ACCORDINGLY, THE COMPANY WHICH PRIOR TO THE MERGERS WAS INACTIVE WITH NO
OPERATIONS, NOW OPERATES THE BUSINESS FORMERLY OPERATED BY WORLDS INC. AND
REFERENCES HEREIN TO THE COMPANY'S BUSINESS, MEANS THE PRE-MERGER BUSINESS OF
WORLDS INC.
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SUMMARY
BACKGROUND
- ----------
The Company today is the result of the mergers of Worlds Inc., a
Delaware corporation ("Worlds") with and into Worlds Acquisition Corp., a
Delaware corporation ("WAC"). The resulting entity then merged with and into
Academic Computer Systems, Inc., a New Jersey corporation, which changed its
name to Worlds Inc. Thus, the Company is really Academic Computer Systems, Inc.
with a new name carrying on the business previously performed by Worlds. In a
related transaction, an aggregate of $4,385,000 was raised to date in a private
offering.
BUSINESS
- --------
The Company is engaged in marketing one or more three-dimensional
("3D") web sites intended to be directed to and used by the music industry. The
Company intends to produce interactive music related content that is targeted to
the music buying and computer using public, and intends to deliver its content
directly to its customers on-line in embedded CD+ (also known as enhanced CDs)
albums and singles of recording artists.
THE OFFERING
- ------------
The Company is registering hereby 5,573,625 shares of its common stock,
par value $.001, including 309,625 shares underlying currently outstanding
derivative securities, all on behalf of selling security holders. The Company
will not receive any proceeds from the sale of these securities.
RISK FACTORS
- ------------
Purchasers of the securities offered hereby should be aware that the
securities are highly speculative and involve a very high degree of risk and,
therefore, should not be purchased by investors who cannot afford the loss of
their entire investment. In addition to the general risks of investing, the
Company's securities may be particularly risky based upon the fact that the
Company (i) is undercapitalized to complete its business plan; (ii) is involved
in a very competitive and idiosyncratic industry; (iii) plans to use the
Internet as its medium; (iv) has not completed development of its projected
product; and (v) has no market established for the trading of its securities.
Prospective investors should carefully review and consider the factors set forth
under "Risk Factors" as well as the other information herein.
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<PAGE> 7
RISK FACTORS
THE PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK, INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISKS DESCRIBED BELOW.
BEFORE PURCHASING THE SECURITIES OFFERED HEREBY, EACH PROSPECTIVE INVESTOR
SHOULD CONSIDER CAREFULLY THE GENERAL INVESTMENT RISKS ENUMERATED ELSEWHERE IN
THIS PROSPECTUS AND THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS.
DEVELOPMENT STAGE COMPANY. The Company is still a development stage company. The
Company has limited experience in developing and commercializing new products
based on innovative technologies, and there is limited information available
concerning the potential performance of its software or market acceptance of its
proposed products. The Company will be subject to all of the risks,
uncertainties, expenses, delays, problems and difficulties typically encountered
in the establishment of a new business and the development and commercialization
of new products. There can be no assurance that unanticipated expenses, problems
or technical difficulties will not occur which would result in material delays
in product commercialization or that the Company's efforts will result in
successful product commercialization. See "Business."
LIMITED REVENUES; SIGNIFICANT AND CONTINUING LOSSES; GOING CONCERN. Following
the Mergers, the business of the Company is substantially premised upon the
pre-Merger business of Worlds. Since its inception, Worlds has generated limited
revenues. Worlds incurred losses of $1,188,133, $7,582,832, and $10,186,954 for
fiscal years ended December 31, 1994, 1995, and 1996, respectively, and
$2,049,577 for the period ended September 30, 1997 or an accumulated deficit
since inception in April 1994 through September 30, 1997 of $21,000,496. The
Company will not generate any meaningful revenues, if ever, until after it
successfully completes development and market testing of its three dimensional
("3D") music web sites(s), obtain(s) contracts with a significant number of
record companies, record labels and artists and attracts and retains a
significant number of advertisers and subscribers. There can be no assurance
that the Company will be able to obtain contracts with a significant number of
record companies, record labels and artists, and attract and retain a sufficient
number of advertisers and subscribers to generate meaningful revenues or achieve
profitable operations or that its 3D music site(s) will prove to be commercially
viable. 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 can be operated profitably in the future. Worlds Inc.'s
independent auditors have included an explanatory paragraph in their report
dated September 15, 1997 stating that recurring losses during the development
stage raise substantial doubt about its ability to continue as a going concern.
See "Financial Statements."
NEED FOR SUBSTANTIAL ADDITIONAL FINANCING. The Company's capital requirements
relating to the development and commercialization of Worlds Platinum, the
Company's 3D related Internet software technology, and its other activities have
been and will continue to be significant. The Company is dependent on the
proceeds of 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 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
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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. See "Business."
UNCERTAINTY OF PRODUCT DEVELOPMENT. Although considerable time and financial
resources were expended in the development of Worlds Platinum, the product has
yet to be completed. There can be absolutely no assurance that problems will not
develop or that this product will ever be completed, which would have a material
adverse effect on the Company. The Company has not yet undertaken third-party
testing of the basic platform or the development or testing of any system
enhancements. The Company will be required to commit considerable time, effort
and resources to finalize such development and adapt its software to satisfy
specific requirements of potential customers. Continued system refinement,
enhancement and development efforts are subject to all of the risks inherent in
the development of new products and technologies, including unanticipated
delays, expenses, technical problems or difficulties, as well as the possible
insufficiency of funds to satisfactorily complete development, which could
result in abandonment or substantial change in product commercialization. There
can be no assurance that product development efforts will be successfully
completed on a timely basis, or at all, that the Company will be able to
successfully adapt its software to satisfy specific requirements of potential
customers, or that unanticipated events will not occur which would result in
increased costs or material delays in product development or commercialization.
The Company has only conducted limited tests of such software. Consequently,
there can be no assurance that such software will perform all of the functions
for which it has been designed or prove to be sufficiently reliable in
widespread commercial use. In addition, technologies as complex as those planned
to be incorporated into the Company's product may contain errors which only
become apparent subsequent to commercial use. Remedying such errors could delay
the Company's plans and cause it to incur substantial additional costs.
NEED TO INTEGRATE OTHER TECHNOLOGIES. The Company's 3D Internet related music
sites require the integration of other technologies into its Worlds Platinum
technology platform. In this regard, there can be absolutely no assurance that
any and/or all of these other technologies that are needed to supplement the
Company's core technology will be available; and even if available, there can be
absolutely no assurance these other technologies can be acquired on favorable
economic terms. Furthermore, there can be absolutely no assurance that these
other technologies can successfully be integrated with and/or into the Company's
Worlds Platinum technology.
NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE AND COMMERCIALIZATION STRATEGY.
The Company's planned 3D music site(s) represent a new business concept. As is
typical in the case of a new business concept, demand and market acceptance for
a newly introduced product is subject to a high level of uncertainty. Achieving
market acceptance for this new concept will require significant efforts and
expenditures by the Company to create awareness and demand by record companies,
record labels, recording artists, music buyers, and Internet consumers. The
Company's prospects will be significantly affected by its ability to
successfully develop and maintain relationships with recording artists and
record companies, which will promote their services using the Company's 3D music
site(s) and, at the same time, attract significant numbers of advertisers and
subscribers. Any lack or lessening of demand by record buyers or Internet
consumers would have an adverse effect on market acceptance for the Company's
product. The Company has not yet commenced significant marketing activities and
has limited experience and limited financial, technical, personnel and other
resources to independently undertake extensive marketing activities.
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<PAGE> 9
The Company's marketing strategy and preliminary and future marketing plans may
be unsuccessful and are subject to change as a result of a number of factors,
including progress or delays in the Company's marketing efforts, changes in
market conditions (including the emergence of potentially significant related
market segments for applications of the Company's technology), and the nature of
possible license and distribution arrangements which may or may not become
available to it in the future and economic, regulatory and competitive factors.
To the extent that the Company is able to enter into satisfactory marketing and
distribution arrangements in the future, it will be largely dependent on the
efforts of the recording artists and record labels and on the marketability and
sales of their products. There can be no assurance that the Company's strategy
will result in successful product commercialization or that the Company's
efforts will result in initial or continued market acceptance for the Company's
proposed products. See "Business."
COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The markets that the Company intends to
enter are characterized by intense competition and an increasing number of new
market entrants who have developed or are developing potentially competitive
products. The Company will face competition from numerous sources, including
prospective record labels which may develop and market their own competitive
products and services, online and Internet service providers, and others with
the technical capabilities and expertise which would encourage them to develop
and commercialize competitive products or services. There are over 50 companies
collaborating to establish standardization of the Virtual Reality Modeling
Language ("VRML") for 3D usage on the Internet. To the best of the Company's
knowledge, at least two other companies are developing 3D music sites for record
labels, while almost all major record companies have one or more 2D music sites
now established on the Internet. Certain of such competitors have substantially
greater financial, technical, marketing, distribution, personnel and other
resources than the Company, permitting such companies to implement extensive
marketing campaigns, both generally and in response to efforts by additional
competitors to enter into new markets and market new products and services. In
addition, the markets for the Company's proposed products are characterized by
rapidly changing technology and evolving industry standards which could result
in product obsolescence or short product life cycles. Accordingly, the ability
of the Company to compete will be dependent upon the Company's ability to
complete development and introduce Worlds Platinum into the marketplace in a
timely manner, to continually enhance and improve its software and to
successfully develop and market new products. There can be no assurance that the
Company will be able to compete successfully, that competitors will not develop
technologies or products that render the Company's products obsolete or less
marketable or that the Company will be able to successfully enhance its products
or develop new products. See "Business."
CAPACITY CONSTRAINTS; SYSTEM FAILURE AND SECURITY RISKS. The Company's
operations will depend upon the capacity, reliability and security of its system
infrastructure. The Company currently has limited system capacity and will be
required to continually expand its system infrastructure to accommodate
significant numbers of users and music sites they may wish to access.
Development and/or expansion of the Company's system infrastructure will require
substantial financial, operational and managerial resources. The Company intends
to lease and contract computer equipment to develop and/or expand system
capacity. There can be no assurance that the Company will be able to expand its
system infrastructure to meet potential demand on a timely basis, at a
commercially reasonable cost, or at all. Failure by the Company to develop
and/or expand its system infrastructure on a timely basis would have a material
adverse effect on the Company. In addition, the Company will be highly dependent
upon Web browsers and online service providers for access to the Company's
services. The Company's system infrastructure will also be vulnerable to
computer viruses, break-ins and similar disruptions from unauthorized tampering
with the Company's computer systems. Computer viruses or problems caused by
third parties could lead to material interruptions, delays or cessation in
service to its customers.
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<PAGE> 10
RISKS ASSOCIATED WITH THE MUSIC INDUSTRY. The following are certain specific
risks related to doing business in the music industry:
o The record industry experienced an overall reduction in growth during
1996 which is expected to continue. During 1996, several of the
country's largest record store chains and hundreds of independent
music shops either declared bankruptcy or went out of business and
sales of prerecorded music decreased over 1995. Industry analysts
suggest several factors, including a glut of products in the market,
as being responsible.
o Each recording is an individual artistic work, and its commercial
success is primarily determined by consumer taste, which is
unpredictable and constantly changing. Accordingly, there can be no
assurance as to the financial success of any particular release, the
timing of such success or the popularity of any particular artist.
There can be no assurance that any of the prerecorded music products
in which the Company inserts its technology will produce revenue for
the Company or, if they do, that such revenue will be sufficient to
recoup any costs incurred by the Company. See "Business."
o A record label's decision to purchase new products and technology is
often lengthy and requires the approval of a significant number of
parties. The period in which a record company distributes the
Company's software to its customers may also be lengthy, depending
upon the level of acceptance and usage by its recording artists and
management which could delay the Company's plans in particular
markets. See "Business."
RISKS RELATING TO THE INTERNET. The Company plans to market its products on the
Internet. Following are certain specific risks related to conducting business on
the Internet:
o Use of the Internet by consumers is in a relatively early stage, and
market acceptance of the Internet as a medium for commerce and
advertising is subject to uncertainty. The rapid growth of global
commerce and the exchange of information on the Internet and other
online networks is relatively new and still evolving, making it
difficult to predict whether the Internet will prove to be a viable
commercial marketplace. Consumer concern over Internet security has
been, and could continue to be, a barrier to commercial activities
requiring consumers to send their credit card information over the
Internet. The Company believes that its future success will depend on
its ability to significantly increase revenues which, in turn, may be
materially dependent upon the development and widespread acceptance of
the Internet and online services as a medium for commerce and
advertising.
o The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure,
such as reliable network backbones, or complimentary services, such as
high speed modems and security procedures for financial transactions.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of
traffic. There can be no assurance that the Internet infrastructure
will continue to be able to support the demands placed on it by
sustained growth. In addition, the viability of the Internet may prove
uncertain due to delays in the development and adoption of new
standards and protocols, the inability to handle increased levels of
Internet activity or due to increased government regulation. If use of
the Internet does not continue to grow, or if the necessary Internet
infrastructure or
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<PAGE> 11
complementary services are not developed to effectively support growth
that may occur, the Company's business, results of operations and
financial condition would be materially adversely affected.
o In order for the Company to generate advertising revenues, advertisers
and advertising agencies must direct a portion of their budgets to the
Internet and, specifically, to the Company's Internet websites. To
date, sales of Internet advertising represent only a small percentage
of total advertising sales. There can be no assurance that advertisers
and advertising agencies will accept the Internet as a medium. If
Internet advertising is not widely accepted by, or if the Company is
not successful in generating significant advertising revenues from,
advertisers and advertising agencies, the Company's business, results
of operations and financial condition could be materially adversely
affected. See "Business."
POTENTIAL LIABILITY AND INSURANCE. While the Company intends to acquire all
licenses and other rights of which it is aware are necessary to conduct its
business without violating any copyrights, due to the nature of its business,
the Company could become involved in litigation regarding the musical content
transmitted over its system which could create adverse publicity, significant
defense costs and substantial damage awards against the Company. In addition,
because music content materials may be downloaded and may be subsequently
distributed to others, there is a potential that claims will be made against the
Company for defamation, negligence, copyright or trademark infringement or other
theories based on the nature and content of such materials. The Company also
could be exposed to liability in connection with the selection of materials that
may be accessible over its system. Claims could be made against the Company if
material deemed inappropriate for viewing by children could be accessed. While
the Company carries insurance policies, the Company's insurance may not cover
potential claims of this type or may not be adequate to cover liability that may
be imposed or related defense costs. There can be no assurance that the Company
will not face claims resulting in substantial liability for which the Company is
partially or completely uninsured. Any partially or completely uninsured claim
against the Company, if successful and of sufficient magnitude, would have a
material adverse effect on the Company.
PROPRIETARY INFORMATION. The Company regards certain computer software developed
by Worlds Inc. prior to the Mergers as proprietary and will continue to attempt
to protect it with copyrights, trade secret laws, proprietary rights agreements
and internal nondisclosure agreements and safeguards. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop know-how or obtain access to the Company's know-how or
software codes, concepts, ideas and documentation. Furthermore, there can be no
assurance that nondisclosure agreements with the Company's employees will
adequately protect the Company's trade secrets. Although the Company believes
that its proposed products do not and will not infringe patents or violate
proprietary rights of others, it is possible that infringement of existing or
future patents or proprietary rights of others have occurred or may occur. In
the event the Company's proposed products infringe patents or proprietary rights
of others, the Company may be required to modify the design of its proposed
products or obtain a license. There can be no assurance that the Company will be
able to do so in a timely manner, upon acceptable terms and conditions or at
all. The failure to do any of the foregoing could have a material adverse effect
upon the Company. In addition, there can be no assurance that the Company will
have the financial or other resources necessary to enforce or defend a patent
infringement action and the Company could, under certain circumstances, become
liable for damages, which also could have a material adverse effect on the
Company.
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DEPARTURE OF WORLDS INC.'S MANAGEMENT; PREVIOUS CESSATION OF OPERATIONS. In
March 1997, Worlds Inc.'s senior management, including its president, senior
vice president for business development, and general legal counsel, resigned. As
a result of their departure and the lack of comprehensive records within Worlds
Inc., much of the institutional knowledge of Worlds Inc.'s operations, financial
affairs, technical projects, and other related items and matters prior to the
Merger is difficult to assess. These matters could have a materially adverse
effect on the Company's business. There may also be potential claims against the
Company of which it is currently unaware. In addition, contemporaneous with the
departure of Worlds Inc.'s management, substantially all of Worlds Inc.'s
personnel were discharged and until recently, the Company has not had the
financial resources to hire new personnel. Consequently, Worlds Inc.'s relations
with customers, vendors and shareholder have been severely disrupted and the
Company may be required to expend significant funds and management resources in
dealing with Worlds Inc.'s old customers, vendors and shareholders.
LIABILITIES RESULTING FROM THE MERGERS. By operation of law, following the
Mergers, the liabilities (including contingent liabilities that later develop)
of Worlds Inc. and Worlds Acquisition Corp., are the liabilities of the Company.
Prior to the Mergers there were several outstanding claims against Worlds Inc.
that may result in active litigation. Although to the best of the Company's
knowledge, no legal proceeding other than those referenced under "Business-Legal
Proceedings" herein have been instituted, potential claims may exist in the
areas of unpaid taxes, unpaid wages and expenses to employees and consultants,
unpaid accrued vacation pay and indemnification claims by certain entities and
individuals against Worlds Inc. The Company has also been informed that certain
former employees and consultants of Worlds Inc. may assert claims against the
Company based on alleged grants of options or other equity interests in Worlds.
DEPENDENCE ON KEY PERSONNEL; NEED FOR QUALIFIED MANAGEMENT PERSONNEL; MANAGEMENT
LACK OF INTERNET EXPERIENCE. The success of the Company will be dependent on the
personal efforts of Thomas Kidrin, its President. Although the Company intends
to enter into an employment agreement with Mr. Kidrin which will expire in
December 2000 and the Company intends to obtain "key-man" insurance on his life
in the amount of $1,000,000, the loss of his services could have a material
adverse effect on the Company's proposed business plan and prospects. At present
the Company is understaffed and success of the Company is dependent upon its
ability to hire and retain additional qualified management, marketing,
technical, financial, and other personnel. Competition for qualified personnel
is intense and there can be no assurance that the Company will be able to hire
or retain additional qualified personnel. Any inability to attract and retain
qualified management and other personnel would have a material adverse effect on
the Company. While senior managers and the Board members have substantial
business, financial and technical experience, with the exception of one Board
member, none of the senior managers or the Board members has direct experience
with Internet marketing, sales or technology. This lack of Internet experience
could lead the Company to make flawed strategic judgments or decisions that
could adversely affect the Company.
CONTROL BY SMALL GROUP INCLUDING MANAGEMENT. The former stockholders of Worlds
Acquisition Corp., two of whom are on the Company's Board of Directors and one
of which is an executive officer, beneficially own, in the aggregate,
approximately 51.5% of the outstanding shares of the Company's Common Stock.
Accordingly, such persons, acting together, are in a position to control the
Company, elect all of the Company's directors, cause an increase in the
authorized capital or the dissolution, merger or sale of the assets of the
Company, and generally to direct the affairs of the Company. See "Management"
and "Principal Shareholders."
9
<PAGE> 13
NO TRADING MARKET; LARGE OVERHANG OF SECURITIES. There is no present trading
market for the Company's shares of Common Stock, nor has there been any such
market for at least the past five years. No assurances can be given that a
trading market will develop for the Company's securities, or if developed, that
it will continue. In the absence of a trading market, a purchaser of the
securities in this offering may encounter difficulties in attempting to sell or
otherwise dispose of these shares notwithstanding their registration under the
Act. In addition to the 5,264,000 shares and 309,625 shares underlying
derivative securities being registered hereunder, there are an additional
2,400,000 shares that will be freely tradeable beginning December 4, 1998 and an
additional 8,000,000 shares that will be tradable subject to certain volume
restrictions on such date.
PENNY STOCK REGULATION. Broker-dealer practices in connection with transactions
in "penny stocks" are regulated by certain penny stock rules adopted by the
Securities and Exchange Commission (the "SEC"). Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and, if the broker dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally,
those persons with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse), must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. Consequently,
these requirements may have the effect of reducing the level of trading
activity, if any, in the secondary market for a security that becomes subject to
the penny stock rules. If the Company's securities become subject to the penny
stock rules, investors in this Offering may find it more difficult to sell their
shares.
NO DIVIDENDS. To date, the Company has not paid any cash dividends on its stock
and the Company does not expect to declare or pay dividends on the Common Stock
in the foreseeable future. In addition, the payment of cash dividends may be
limited or prohibited by the terms of any future loan agreements. See
"Description of Securities - Dividend Policy."
CONSENT DECREE OF FOUNDER. In June 1994, Steven Greenberg, a founder of and
consultant to Worlds Acquisition Corp. and the Company's largest single
shareholder with approximately 29% of the outstanding shares, settled a civil
proceeding instituted against him by the SEC in which the SEC alleged that he
had engaged in certain insider trading activities prohibited by the Federal
securities laws. The settlement, embodied in a consent decree in which Mr.
Greenberg neither admitted nor denied the SEC's allegations, required Mr.
Greenberg to make a monetary payment to the SEC. See "Management-Directors,
Executive Officers and Consultant."
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS. The Company's By-Laws, as
amended to date, includes provisions to limit, to the fullest extent permitted
by New Jersey law, the personal liability of directors of the Company for
monetary damages arising from a breach of their fiduciary duties as directors.
The ByLaws also includes provisions to the effect that (subject to certain
exceptions) the Company shall indemnify any director or officer to the extent
permitted under New Jersey law as it may from time to time be in effect. In
addition, the Company's By-Laws require the Company to indemnify, to the fullest
extent permitted by
10
<PAGE> 14
law, any director, officer, employee, or agent of the Company for acts which
such person reasonably believes are not in violation of the Company's corporate
purposes as set forth in its Certificate of Incorporation. As a result of such
provisions in the By-Laws of the Company, stockholders may be unable to recover
damages against the directors, officers, and other agents of the Company for
actions taken by them which constitute negligence, gross negligence, or a
violation of their fiduciary duties, which may reduce the likelihood of
stockholders instituting derivative litigation against directors, officers, and
others and may discourage or deter stockholders from suing directors, officers,
employees, and agents of the Company for breaches of their duty of care, even
though such action, if successful, might otherwise benefit the Company and its
stockholders. See "Management-Indemnification of Directors and Officers."
11
<PAGE> 15
SELECTED FINANCIAL INFORMATION
The following selected financial data for Worlds as of December 31,
1996, and for the period from April 26, 1994 to December 31, 1994 and for the
years ended December 31, 1995 and 1996 is derived from Worlds' audited financial
statements included elsewhere herein. The financial data as at September 30,
1997 and for the nine months ended September 30, 1997 and 1996 and for the
cumulative period from April 26, 1994 to September 30, 1997 has not been audited
by independent auditors. However, in the opinion of Worlds' management such
financial data includes all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the information set forth therein.
Interim results are not necessarily indicative of results for the entire year.
The following Statement of Operations data does not include any pro
forma financial information regarding WAC or the Company since such information
is deemed immaterial to the Worlds financial position. The financial statements
of the Company and WAC are attached hereto and reflect from inception to
September 30, 1997, on an unaudited basis, no revenue, total expenses of
$167,955, and a stockholders' equity of $36,045 for WAC and for the year ended
September 30, 1997, on an audited basis, revenues of $186,525, total expenses
and taxes of $73,093, and a stockholders' equity of $562,408 for the Company.
The following data should be read in conjunction with the financial
statements of Worlds, including notes thereto, and other financial information
included elsewhere herein.
Statement of Operations Data
<TABLE>
<CAPTION>
Cumulative from
April 26, 1994 For the Year Ended April 26, 1994 For the Nine Months
(Inception) through December 31 December 31 (inception) to Ended September 30
September 30, 1997 1996 1995 December 31, 1994 1997 1996
------------------ ---- ---- ----------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $ 6,015,069 $ 3,784,019 $ 1,822,232 $ 279,720 $ 69,098 $ 2,690,264
Total Cost and Expenses 27,060,533 13,362,784 9,561,265 1,461,300 2,675,184 10,292,544
Operating Loss (21,045,464) (9,578,765) (7,679,033) (1,181,580) (2,606,086) (7,602,280)
Other Income and
(Expenses) (208,365) (493,189) 96,201 447 188,176 (240,202)
Net Loss Before Taxes and
Extraordinary Item (21,253,829) (10,071,954) (7,582,832) (1,181,133) (2,417,910) (7,842,482)
Income Taxes (120,000) (115,000) (0) (0) (5,000) (77,840)
Net Loss Before
Extraordinary Item (21,373,829) (10,186,954) (7,582,832) (1,181,133) (2,422,910) (7,920,322)
Extraordinary Item-Gain
On Debt Settlement 373,333 ----- ----- ----- 373,333 -----
Net Loss $(21,000,496) $(10,186,954) $(7,582,832) $(1,181,133) $(2,049,577) $(7,920,322)
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------------------------
Proforma as
Actual Proforma(1) Adjusted(2)
------ ----------- -----------
<S> <C> <C> <C>
Working Capital (Deficit) $ (4,041,203) $ (3,757,750) $ 2,209,926
Total Assets 343,644 1,274,864 4,494,084
Total Liabilities 4,246,386 4,579,153 4,109,697
Stockholders' Equity (Deficit) $ (3,902,742) $ (3,304,289) $ 384,387
</TABLE>
- -------------------------
(1) Proforma assumes combination of Worlds, WAC and Academic at September 30,
1997 immediately prior to the Mergers and private offering. (See "Pro
Forma Consolidated Balance Sheet.")
(2) Adjusted to reflect the proceeds from private offering memorandum, less
commissions and expenses of the offering, the Mergers and certain
reclassifications. (See "Pro Forma Consolidated Business Sheet.")
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Since 1975 the Company has been inactive with no operations and its
only income has come from interest and dividends. Following the Mergers, the
Company is engaged in the business and operations formerly conducted by Worlds
Inc. 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 the financial condition and results of the operations
of Worlds Inc.'s pre-Mergers operations. Similarly, the BUSINESS section below
will also contain a discussion of the former business of the pre-Mergers Worlds
Inc. During these two sections, references to "the Company" shall, unless
required by the context, mean pre-Mergers Worlds Inc.
Background
- ----------
Worlds Inc., was formed in April 1994 to design, develop and
commercialize 3D multi-user tools and technologies for the Internet market. From
inception through 1997, the Company'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, the Company
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, the Company introduced its first commercial toolset for
developing 3D multi-user applications. In the first quarter of 1997, after an
unsuccessful effort to raise capital, the Company became insolvent and released
most of its personnel, and management sought to sell the Company and/or its
technology.
The Company has not generated significant revenues, and 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 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.
The Company classified its expenses into three broad groups: (i)
research and development; (ii) cost of revenues; and (iii) selling, general and
administration. 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.
Results of Operations
- ---------------------
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1997.
In the first quarter of 1997 the Company was insolvent and had failed
to raise any additional capital. In January and February the majority of the
Company's personnel were released and most of its management team resigned.
Normal operations of the Company ceased and significant wind down costs were
incurred. In March, the board of directors appointed
13
<PAGE> 17
Regent Pacific, a firm with experience in crisis management, as acting general
manager of the Company. The Seattle network operations center and Active Worlds,
an earlier generation of the Company's technology, were both sold, resulting in
gross proceeds of approximately $345,000.
Revenue decreased by $2,621,264 to $69,098 for the nine months ended
September 30, 1997 from $2,690,264 for the nine months ended September 30, 1996.
The decrease was caused primarily by the lack of any production revenue during
the period, the nominal revenue for the period was derived from bandwidth and
Worlds Chat CD sales.
Costs of revenue decreased by $4,452,917 to $29,556 for the nine months
ended September 30, 1997 from $4,482,473 for the nine months ended September 30,
1996. The decrease was directly attributable to the decrease in revenue for the
period.
Research and development costs decreased by $1,533,883 to $401,345 for
the nine months ended September 30, 1997 from $1,935,228 for the nine months
ended September 30, 1996. This was a result of a significant reduction in
research and development effort and personnel.
Selling, general and administrative expenses decreased by $1,630,560 to
$2,244,283 for the nine months ended September 30, 1997 from $3,874,843 for the
nine months ended September 30, 1996. This decrease was due to reduction in
personnel as the Company ceased normal operations.
The Company's interest expense increased by $62,104 to $71,339 for the
nine months ended September 30, 1997 from $9,234 for the nine months ended
September 30, 1996. This was attributable to interest on $1,650,000 in loans
received by the Company in December 1996 and January 1997 from existing
shareholders.
As a result of the foregoing, the Company incurred a net loss of
$2,049,577 for the nine months ended September 30, 1997, compared to $7,920,322
for the nine months ended September 30, 1996, a decrease of 74%.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1996.
Revenue increased by 101% from $1,882,232 for the year ended December
31, 1995 to $3,784,019 for the year ended December 31, 1996. This increase was
primarily attributable to an increase in the number of production projects and
the licensing revenue from these projects.
Costs of revenue increased by 35% from $4,445,582 for the year ended
December 31, 1995 to $6,014,432 for the year ended December 31, 1996. The
increase in costs was related to the increased number of production projects and
the high costs relative to revenue, associated with the network operations
center.
Research and Development costs increased by 8% from $2,257,082 for the
year ended December 31, 1995 to $2,446,724 for the year ended December 31, 1996.
All software development costs consisting primarily of salaries and related
costs were expensed as incurred in accordance with Financial Accounting
Standards Board (FASB) Statement No.
86.
Selling, general and administrative expenses were $4,901,628 for the
year ended December 31, 1996 compared to $2,858,601 for the year ended December
31, 1995, an increase of 71%. The increase was attributable to several factors,
including the addition of new management personnel, increased marketing efforts,
new office facilities and increased legal costs.
Other income and expenses includes interest earned from investment
capital and interest charged on finance leases. Lawsuit settlement expenses in
1996 are primarily associated with claims asserted by ex-employees.
14
<PAGE> 18
As a result of the foregoing, Worlds incurred a net loss of $10,071,954
for the year ended December 31, 1996 compared to $7,582,832 for the year ended
December 31, 1995, an increase of 33%.
Year ended December 31, 1995 compared with Period ended December 31, 1994
Worlds was incorporated in April 1994 and did not raise significant
capital until January of 1995. Operations in 1994 were of a much smaller scale,
rendering comparisons difficult.
Revenue increased by 573% from $279,720 for the period ended December
31, 1994 to $1,882,232 for the year ended December 31, 1995. This increase was
primarily attributable to an increase in the number of production projects.
Costs of revenue increased by 465% from $787,030 for the period ended
December 31, 1994 to $4,445,582 for the year ended December 31, 1995. The
increase in costs was related to the increased number of production projects.
1995 costs includes a $750,000 license for animation software.
Research and Development costs increased by 874% from $231,637 for the
period ended December 31, 1994 to $2,257,082 for the year ended December 31,
1995. The company significantly geared up its development efforts upon the
securing of equity investment. All software development costs consisting
primarily of salaries and related costs were expensed as incurred in accordance
with Financial Accounting Standards Board (FASB) Statement No. 86.
Selling, general and administrative expenses were $2,858,601 for the
year ended December 31, 1995 compared to $442,633 for the period ended December
31, 1994, an increase of 546%. This increase was primarily attributable to the
Worlds' increasing its efforts across all departments.
In 1995, other income and expenses includes interest earned from
investment capital and interest charged on finance leases.
As a result of the foregoing, Worlds incurred a net loss of $7,582,832
for the year ended December 31, 1995 compared to $1,181,133 for the period ended
December 31, 1994, an increase of 542%.
Liquidity and Capital Resources
- -------------------------------
Net cash used by the Company's operating activities from inception to
September 30, 1997 was $16,671,952. At September 30, 1997, the Company had a
working capital deficit of $4,041,203.
On December 3, 1997, Worlds Inc. merged with and into WAC.
Contemporaneously, WAC, closed the first round of a private placement of its
common stock (the "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 Worlds Inc. into WAC and the subsequent merger of WAC with and into
Academic are sometimes hereinafter collectively referred to herein as the
"Mergers."
The terms of the Mergers called for the issuance, in exchange for all
of the previously outstanding shares of Worlds Inc. and WAC, of an aggregate of
14,625,000 shares of Academic's common stock distributed, as follows: 8,400,000
to the former shareholders of WAC; 2,000,000 to the former shareholders of
Worlds Inc.; 3,800,000 to the investors in WAC's private placement offering and;
425,000 as a financial advisory fee to International Capital Growth, Ltd. Prior
to the Mergers, there were 907,700 shares of Academic outstanding, which shares
continue to remain outstanding and held by the pre-Mergers shareholders.
Effective December 31, 1997, the Company closed on an additional $585,000 of
gross proceeds from the
15
<PAGE> 19
Offering, of which it netted $529,000, and issued an additional 585,000 shares
of Common Stock. The total issued and outstanding shares of the Company after
the Mergers is therefore 16,117,700 shares.
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 the Offering and other
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 the 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 the Offering or otherwise
currently available to the Company. In addition, as a result of the Mergers by
operation of law, the Company assumed the Company'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.
There can be no assurance that the Company will be able to raise any
proceeds in addition to the amounts from the Offering or otherwise obtain the
substantial additional capital necessary to permit the Company to attract and
retain a sufficient number of subscribers or that any assumptions relating to
its business plans will prove to be accurate. While the Company hopes to
reschedule a final closing under the Offering on January 31, 1998, the Company
has no current arrangements with respect to, or sources of, additional financing
and there can be no assurance that any such financing, particularly the
significant amounts of financing that would be required, will be available to
the Company on commercially reasonable terms, or at all. Any additional proceeds
raised under the Offering is not likely to provide the significant funds
required by the Company. 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. Based upon its current
projections, the Company believes it currently has sufficient funds to operate
for at least the next twelve months.
USE OF PROCEEDS
Purchase of the Warrant Shares and the Option Shares hereby would
generate approximately $500,500 in net proceeds to the Company. The Company
intends to use such funds for working capital. No assurance can be given that
any or all of the Warrant Shares or Option Shares will be purchased and that
these funds will become available to the Company. The Company will not realize
any funds from the sale of Common Stock by the Selling Securityholders.
16
<PAGE> 20
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.
17
<PAGE> 21
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>
18
<PAGE> 22
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.
19
<PAGE> 23
BUSINESS
Prospective investors are directed to the first paragraph in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OVERVIEW
The Company is engaged 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
prior to the Mergers.
The Company intends to (i) produce interactive, 3D, music related
websites, (ii) 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, and (iii) provide the Company's
proprietary 3D toolsets to aid programmers in the creation of unique 3D user
experiences on the Internet.
The Company is currently developing the combination of its 3D Internet
technology with the extra available capacity on the CD to create an interactive
experience for the CD purchaser. By utilizing the Company's technology
distributed on a CD+ (a standard CD with its excess memory carrying a "bonus" as
an enhancement), a consumer using the CD ROM drive of the consumer's computer
with Internet access or services provider could enter into the interactive 3D
world or site of the recording artist, be able to interact with other fans
utilizing voice or text chat via the PC, visit the artist's merchandise shops,
visit secret rooms of the artist, see and hear advance videos and record clips
of the artist, and enter special VIP areas that would offer free concert
tickets, among other things.
Worlds under its previous management, and the record labels in their
use of CD+, have not been able to generate meaningful revenues from their
products or services. The Company perceives an opportunity to combine Worlds'
technology with a unique distribution methodology in CD+ which, if successfully
implemented, could possibly generate revenues, and in some instances, revenue
sharing with recording labels and artists, from VIP on-line subscriber
membership which will enable subscribers to enter special areas, selling
merchandise of the artist on the site, and advertising on the sites.
WORLDS' HISTORY
Worlds was formed with the intention of selling or licensing its 3D
servers, 3D browsers, and 3D toolsets to aid programmers in the creation of
unique 3D user experiences on the Internet that would be sold or offered as
turnkey solutions, such as custom production of 3D environments on the Internet.
Worlds expected that it would host newly created 3D environments on its own
servers and charge license fees to the owners of such 3D environments. This
market did not develop as rapidly as Worlds had anticipated. Until meaningful 3D
Internet license fees could be developed using Worlds' technology, Worlds
entered the custom production business to showcase its 3D Internet technology,
hiring as many as 60 full- time artists and independent contractors,
integrators, and producers to help create 3D virtual Internet environments for
companies such as, among others, Steven Spielberg's Starbright Worlds, IBM, Visa
International, MGM, Disney, and Tandem Computers Inc. ("Tandem").
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<PAGE> 24
In December 1996, after almost all of Worlds' funds had been depleted,
including approximately $17 million in equity financing, Pearson Inc. and Tandem
loaned Worlds $1.5 million to continue Worlds' operations until such time as new
capital could be invested in Worlds or Worlds could be acquired.
Recognizing the extent of its poor and rapidly deteriorating financial
condition, in late 1996, Worlds began substantial layoffs to reduce costs. In
March 1997, Worlds' Board of Directors decided to retain an outside crisis
management organization as Worlds' general manager, which, after Board approval,
determined to proceed with the Merger Agreement.
From inception in April 1994 through 1997, Worlds' 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, Worlds 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, Worlds introduced its first commercial toolset for
developing 3D multi- user applications. From inception through the date of the
Mergers, Worlds generated revenues of only approximately $4 million and had an
accumulated deficit of approximately $21 million.
The Company will not generate any meaningful revenues until after the
company successfully completes development and market testing of Worlds Platinum
(also known as "Gamma," the Company's newest 3D toolset, as further described
below) and its 3D Internet music sites, and attracts and retains a significant
number of subscribers. 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
number of subscribers to generate meaningful revenues or achieve profitable
operations or that its products and services will prove to be commercially
viable.
THE MARKET
Currently, the World Wide Web is almost entirely two dimensional
("2D"), in part, because the high speed data transmission technology required to
receive detailed 3D images is not yet available to the average Internet user.
However, much of the data required for interactive 3D images is template or
dynamic toolkit data that is reasonably constant and can be distributed to a
user off-line on a CD ROM, allowing the transmission of data on-line through the
Internet to provide the updatable, interactive, variable portion of the user's
3D experience.
The CD+ appears to be an optimal medium to distribute the Company's 3D
data. The traditional audio CD sold at record stores has excess storage
capacity. Since the audio CD is the same medium as the CD that runs on the CD
ROM drive of a personal computer ("PC"), the CD+ can be used to run computer
programs on the user's PC. Many recently manufactured PCs also have sound
production capability that allows the user to play the audio portion on the CD+
on the PC.
By utilizing the Company's technology distributed on a CD+, a consumer
could enter into the interactive 3D world or site of the recording artist, be
able to interact with other fans utilizing voice or text chat via the PC, visit
the artist's merchandise shops, visit secret rooms of the artist, see and hear
advance videos and record clips of the artist, and enter special VIP areas that
would give away free concert tickets, among other things. The Company believes
these services could generate revenues from consumer subscriptions, purchases,
and advertising. While a number of recording artists have released CD+s for use
exclusively on PCs, to the best of the Company's knowledge, no record company or
artist has yet released a CD+, with a high level of interactive entertainment
and on-line extension capability.
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MARKET ENTRY STRATEGY
The Company plans to enter the market in two phases. First, the Company
plans to develop proprietary 3D music sites for record companies, record labels,
and recording artists designed to generate revenues from advertising,
merchandise sales and VIP Tier Level subscription sales. Second, the Company
plans to seek strategic alliances with computer manufacturers, and
telecommunication, video game and merchandise sale companies through contracts,
joint ventures, business combinations and/or technology licensing structured to
generate fee and royalty revenue.
In order for the Company to develop sales, it is imperative that
relationships be developed between the Company and record companies, record
labels (which are either owned and/or distributed by the record companies or
independently owned), and the recording artist or group and their management
companies.
In addition to numerous independent record companies, there are six
major record companies that operate worldwide Warner Bros. Music, Sony Music,
Polygram, BMG Entertainment Universal Music Group (MCA), and EMI. These
companies in the aggregate sold approximately 800 million units in the U.S. and
2.5 billion units worldwide in 1996. The record companies typically create and
finance new labels which might be owned, in whole or in part, by them,
manufacture and distribute recorded music for company and/or independently owned
labels, and provide marketing and technical assistance to their owned and/or
distributed labels. The individual record label's primary responsibility is to
sign, develop, and create records by the recording artist or group, which is
then turned over to the record company for manufacture and distribution.
While it is best to have the full commitment and support of the record
companies, labels and artists in implementing the Company's 3D artist site
program on an enhanced CD or CD+, the Company believes that record company
support is the most important because with their commitment to a particular
effort or format, the record company can give the Company access to labels it
either owns and/or distributes and the hundreds of artists that record for these
labels. Toward this end, during the second and third quarters of 1997 and prior
to the Mergers, management had numerous conversations and/or meetings with
representatives and/or high level management and/or executives from all six
major record companies. The Company believes it has received a positive response
to its concept and online artist's prototype from each of the companies and
intends to continue discussions with each of them.
3D INTERNET ENVIRONMENTS; VIRTUAL REALITY MODELING LANGUAGE ("VRML")
The technology to deliver Internet-based 3D experiences to a user's
desktop has only been developed over the past three years. This new technology
received a boost from an early standardization effort called Virtual Reality
Modeling Language ("VRML") which increased consumer and developer awareness of
the medium. The VRML effort evolved into a consortium of approximately 55
companies (including Worlds), all with competing interests and underlying
technologies.
VRML is supposed to deliver rich and dynamic 3D experiences over the
Internet, viewable through the most commonly used Web browsers. However, VRML
based Internet experiences and the companies developing these tools and
technologies have not yet achieved significant market penetration for several
reasons. To date, the user's experience with VRML has been unsatisfactory. VRML
is slow in rendering images, has a long download time, confusing user interfaces
and scene description language that is difficult to manipulate, and because its
lacks standards for support of other media within the scene, the user
experiences are less dynamic. Adequate VRML performance also requires high-end
PCs,
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precluding effective use by average consumers with less advanced PCs. A new
version of VRML, VRML 2.0 was just released at the end of 1997 with enhanced
performance characteristics address some of VRML's performance problems. If and
when VRML appears to be on the verge of overcoming its current limitations, the
Company believes that its proprietary technology can be made VRML compliant. The
Company believes that the VRML standard will ultimately overcome its limitations
but, the current problems make a proprietary solution such as the Company's
technology attractive for the Company's intended use of 3D Internet technology.
Worlds spent the last two years attempting to solve VRML's performance
and production quality problems and has, in management's opinion, reduced, at
least for the intended use of the Company, the barriers to the adoption of 3D
multi-user environments on the Internet. Worlds' technical solutions deliver
user experiences that are rendered considerably faster than equivalent VRML
browsers. Typical Worlds environments are highly textured, object and behavior
rich with a multi-user component that the Company believes delivers user
experiences far more interesting than what many VRML environments provide today.
THE COMPANY'S TECHNOLOGY
Worlds Platinum
The Worlds Platinum Development Kit is the Company's third generation
and newest 3D toolset, and is expected to be completed in the first half of
1998. The Company believes that Worlds Platinum will deliver a considerably
faster frame rate for user experiences and, in some cases, a meaningful
productivity increase in art production and integration over its previous
generation production tools.
The Worlds Platinum Development Kit has substantial elements written in
Sun Microsystem's programming language, Java, including the WorldsBrowser
Platinum and the WorldsShaper Platinum so the Company expects that it can be
made portable across Windows and UNIX Platforms because of Java's platform
independence.
o WorldsShaper Platinum: The WorldsShaper Platinum is an advanced
compositing 3D building tool that integrates pre-existing or custom
content, such as 3D models created in Kinetix' 3D Studio, textures or
images created in Adobe's Photoshop, or .midi or .wave sound files, with
foundation world architectural geometry and interactive behaviors and
actions written in Java. The architectural building blocks for creating
worlds, the flexibility and power of integrating professional modeling
and imaging tools, and the extensibility via Java make the WorldsShaper
Platinum a tool well-suited for rapid world creation. Additional
Application Programming Interfaces for more sophisticated, programmatic
control of the spaces will also be included. Initially, the WorldsShaper
Platinum will only output in the Company's proprietary file format. If
demand and market needs warrant, WorldsShaper Platinum's extensibility
might be expanded to include support for ActiveX enabled scripting
languages.
o WorldsServer Platinum: The WorldsServer Platinum is the server software
that the Company anticipates will be used to control and operate its
future on-line virtual community, Worlds of Worlds, that is currently in
development. If the Company is successful in developing this concept, the
WorldsServer Platinum is being designed to manage the registration and
authentication of users, the locations of users within the 3D
environment, the physical structure of the 3D environment, all
information regarding objects that are "shared" by the participants and
any of the interactions between the users, such as text chat. It is
currently proposed that the server will come in
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configurations that support 5, 20, 50, 100, 500, 1,000, and 1,000+
simultaneous users and is hoped to be available with a variety of add-on
modules which, among other features, are intended to include, user
tracking, encryption, person-to-person and multi-person voice
conversations, streaming audio, electronic commerce transactions, and
custom avatars. Additionally, the WorldsServer Platinum will include
generalization of a "Bot" API to enable the use of Artificial
Intelligence inference engines.
o WorldsBrowser Platinum: The WorldsBrowser Platinum is used to access the
3D environments created with the Worlds Platinum Development Kit. The
browser is optimized for speed, delivering 10 - 20 frame rates per second
in highly textured virtual worlds. After its initial introduction, the
Company may make the browser an ActiveX control for Microsoft's Internet
Explorer and a plug-in for the Netscape Navigator.
o Worlds Platinum Libraries: The Worlds Platinum Libraries are composed of
sample worlds, textures, models, avatars, actions, sensors, sounds,
motion sequences, and other behaviors. The Worlds Platinum Libraries will
be made available as part of the WorldsShaper Platinum and can easily be
customized by the user or extended by adding new library elements.
The markets for the Company's products are characterized by rapidly
changing technology and evolving industry standards, often resulting in product
obsolescence or short product life cycles. Accordingly, the ability of the
Company to compete will be dependent on the Company's ability to complete
development of Worlds Platinum in a timely manner. There can be no assurance
that competitors will not develop technologies or products that render the
Company's products obsolete or less marketable or that the Company will be able
to successfully enhance its products or develop new products.
Worlds Chat 1.0 Gold
The Company also owns its own proprietary online 3D Internet chat site
known as Worlds Chat. Worlds Chat is the 3D environment originally created by
Worlds and launched in 1996 to test its technologies and to learn about user
behaviors and preferences in 3D environments. Worlds Chat enhances users' chat
experiences by allowing users to see a representation of each other in the form
of highly textured characters, known as avatars, and to explore a 3D environment
together. Avatars can be created by the individual or chosen from pre-defined
figures chosen from the Worlds library. Users communicate with each other
through text chat. The client interface for the Worlds Chat environment was
originally distributed through a free download and later was sold on CD ROM
which has a greater selection of avatars, persistent users names, and access to
six virtual worlds (over 500 rooms, compared to 100 available in the free demo
version).
The Company believes that the user base to Worlds Chat site will be a
valuable asset. Although Worlds has no current plans to build advertising or
subscription revenues through this site, such revenues may be possible in the
future.
COMPETITION
The markets in which the Company is currently operating and those it
intends to enter are characterized by intense competition and an increasing
number of new market entrants which have developed or are developing competitive
products. The Company will face competition from numerous sources, including
prospective customers which may develop and market their own competitive
products and services, software companies, and online and Internet service
providers. The Company believes that competition will be based primarily on ease
of use, features (including communications capabilities and content) and price.
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In addition, certain companies have developed or may be expected to
develop technologies or products in related market segments which could compete
with certain technologies or products being developed by the Company. The
Company expects that such companies, as well as other companies (including
established and newly formed companies), may attempt to develop products
directly competitive with Worlds Platinum. Certain of such competitors have
substantially greater financial, technical, marketing, distribution personnel
and other resources than the Company, permitting such companies to implement
extensive marketing campaigns.
Technologically, the market targeted by the Company is sought after by
a combination of numerous recent start-ups and well established 3D graphics
companies. Each company has a slightly different focus and each claims a
different combination of product offerings. The Company's product solution
includes three major components: tools for building 3D worlds (known as
shapers), servers for distributing those worlds and making those worlds
multi-user, and browsers that enable end-users to enter and experience those
worlds. Many of the competitors in this market have adopted the VRML and VRML
2.0 scene description language as their file format and have limited their
expertise and scope to only one of the above categories.
The most competitive environment is in the area of 3D world building
tools. Competitors in this area can be grouped into two categories: newcomers,
who are developing tools to create real-time, networked virtual worlds, and 3D
modeling companies, which have been successful in more traditional multimedia
application development and distribution. Companies in the former category
include Paragraph (recently acquired by Silicon Graphics), Superscape, OZ
Interactive, Dimension X (recently acquired by Microsoft), New Fire, Virtus,
VREAM, Sense8, Sony, and Electric Communities. Many 3D modeling companies have
been extending their products to import and export VRML files that would enable
them to be used in real-time networked applications. These companies include
Kinetix (Autodesk), SGI, Microsoft, Macromedia, and Caligari.
Multi-user virtual world servers is a somewhat less competitive area
with companies such as OnLive! and Black Sun currently having a product
available. Other have announced their intention of bringing to market multi-user
servers.
Each of the above mentioned organizations or technologies, as well as
possibly others not now known to the Company in some way competes with the
Company. The competition may be through entry into the same markets as the
Company, or through technology that either obviates Company's advantages or
lowers the barrier to entry in one of the Company's markets.
EMPLOYEES
As of December 31, 1997, the Company had four full time employees, of
whom one is an executive officer, two are engaged in product development, and
one is engaged in financial activities. The Company has also re-established
relationships with at least five independent contractors (software
developers/programmers) who until early 1997 were performing technological
development work on its Worlds Platinum platform.
The Company intends to hire up to twelve additional employees, at least
two of whom will be in the area of artist/integration production of music sites,
and up to three of whom will be in artist relations and/or administration. It is
possible that one or more of the people who might be hired for one or more of
these positions will be retained as independent consultants.
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The Company's employees are not represented by a labor union. The
Company believes that its relations with its employees are good.
FACILITIES
The Company's facilities are located in approximately 2,500 square feet
of leased office space in San Francisco, California and 2,500 square feet of
leased office space in Boston, Massachusetts. The lease in San Francisco is on a
month by month basis at $2,500 per month and in Boston the lease expires in
September 2000 and provides for an annual rental of approximately $50,000.
LEGAL PROCEEDINGS
Worlds (and since the Mergers, 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 in connection with the use of the Worlds'
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 pursuant to the settlement agreement. 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 the Company anticipates the settlement will be concluded and
will not have a materially adverse effect on the Company. In December 1997 the
Company received a favorable court ruling in San Francisco Superior Court which
the Company and counsel believe will result in an overall resolution of both the
San Francisco Superior Court and U.S. District lawsuits.
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. The Company is also
informed that certain employees and consultants may assert claims based on
alleged grants of options or other equity interest formerly held in Worlds and
there is the possibility of further claims made by individuals and entities who
may assert that they were misled in connection with their work or financial
dealings with Worlds. While it is not possible to quantify the extent of risk of
such claims, management believes that all such claims in the aggregate will not
have a material adverse effect upon the Company.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CONSULTANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael J. Scharf 55 Chairman of the Board
Thomas Kidrin 45 President, Chief Executive Officer, Treasurer and
Director
Kenneth A. Locker 49 Director
</TABLE>
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MICHAEL J. SCHARF has been Chairman of the Board since December 3, 1997. Prior
to the Mergers, Mr. Scharf was Chairman and Secretary of Worlds Acquisition
Corp. ("WAC") since June 4, 1997, and a Director since inception. Since 1993 he
has been Chairman and President of Niagara Corporation, a company engaged in the
manufacturing and distribution of steel bars. From 1983 until 1989, Mr. Scharf
was Chairman and Chief Executive Officer of Edgcomb Corporation, the largest
independent distributor of steel in the United States. Mr. Scharf received an A.
B. degree from Princeton University and an M. B. A. from Harvard Business
School. From 1989 (when Edgcomb was sold) until 1993 (when Niagara was founded)
Mr. Scharf managed his personal investments.
THOMAS KIDRIN has been President, Chief Executive Officer and Treasurer since
December 3, 1997. Prior to the Mergers, Mr. Kidrin was President of WAC since
its inception, Treasurer since June 4, 1997 and a Director since inception. He
has been engaged in developing the business plan and prototype for the Company's
business for over one year. From 1991 to 1996, Mr. Kidrin was a founder,
director, and President of UC Television Network Corp., a company engaged in the
design and manufacture of interactive entertainment/advertising networks in
public venues.
KENNETH A. LOCKER has been a Director since December 3, 1997 and prior to the
Mergers was a Director of WAC since June 4, 1997. Since 1996 he has been
Executive Producer for MGM Interactive where he is responsible for creating and
implementing the MGM Interactive online business strategy. From 1994 to 1996,
Mr. Locker was a founder and Vice President of Worlds. From 1993 to 1994, Mr.
Locker was Senior Program Consultant for Ziff Davis Communications. From 1990 to
1993, Mr. Locker was Executive Vice President and Head of Production for RHI
Entertainment which at the time was 50% owned by New Line Cinema. Mr. Locker is
also on the Board of Directors of Softbank Forums, Inc., a division of Softbank
Corp.
STEVEN A. GREENBERG was a founder of World Acquisition Corp. and was
substantially involved in the implementation of the early and current stages of
its business. It is anticipated that Mr. Greenberg will remain involved in the
Company as a consultant. From 1991 until the present, Mr. Greenberg has been a
financial consultant and private investor. On or about June 30, 1994, Mr.
Greenberg entered into a settlement agreement in the form of a consent decree
with the SEC, settling SEC allegations against him of federal securities law
violations. Mr. Greenberg neither admitted nor denied the allegations in such
civil action. See "Risk Factors - Consent Decree of Founder." The Company's
Board of Directors is aware of the SEC's civil lawsuit and Mr. Greenberg's
settlement thereof and understands that several factors come into play in
settling a pending legal action, not the least of which is the curtailment of
ongoing litigation costs.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company intends to enter into an employment agreement with its
President, Thomas Kidrin that will expire December 2000. The agreement, among
other things, will provide for base compensation payable to Mr. Kidrin of
$175,000 in the first year, and bonuses to be determined. The agreement will
also provide for employment on a full-time basis and contain a provision that
Mr. Kidrin will not compete or engage in a business competitive with the Company
for a period of one year after termination.
The Company intends to enter into a month-to-month consulting agreement
with Steven A. Greenberg, a founder of WAC. The agreement will provide for
monthly compensation of $15,000 plus reimbursement of reasonable expenses
actually incurred. In addition to providing consulting services, Mr. Greenberg
will also make his offices and support staff available to Company employees.
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<PAGE> 31
1997 STOCK OPTION PLAN
The Board of Directors and stockholders of the Company have 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 ("SARs") in tandem with, or
independently of, stock options. Any SARs granted will not be counted against
the 1,000,000 limit.
The purpose of the Option Plan is to make options (both "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified options) and "stock
appreciation rights" (with non-qualified options only, if in tandem) available
to officers, directors and other key employees and/or consultants of the Company
in order to give such individuals a greater personal interest in the success of
the Company and, in the case of employees, an added incentive to continue and
advance in their employment.
The Option Plan is currently administered by the majority vote of a
Committee (the "Committee") appointed by the Board of Directors and comprised of
at least two "independent" members of the Board, or alternatively, by the entire
Board, who are not eligible to receive options, other than pursuant to a
formula, it being intended that such plan shall qualify under Rule 16b-3 as
promulgated pursuant to the Securities Exchange Act of 1934, as amended. With
specified limitations, the Committee may amend the terms of the Option Plan.
The Committee will designate those persons to receive grants under the
Option Plan and determine the number of options and/or SARs, as the case may be,
to be granted and the price payable for the shares of Common Stock thereunder.
The price payable for the shares of Common Stock under each option will be fixed
by the Committee at the time of the grant, but, for incentive stock options,
must be not less than 100% (110% if the person granted such option owns more
than 10% of the outstanding shares of Common Stock) of the fair market value of
Common Stock at the time the option is granted. The Committee will also
determine the term and vesting schedule of all options and SARs granted,
provided that no option may be exercisable later than ten years after the date
of grant (or five years in the case of a 10% stockholder). The Committee may
also institute divesting schedules. All options are payable in cash or check, by
delivery of a secured personal interest bearing note, or by delivery of shares
of Common Stock equal in value to the cost of the options.
There are currently 165,000 non-plan stock options outstanding at an
exercise price of $.50, which vest in equal amounts over a three year period,
including 60,000 to one of the Company's outside directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws includes certain provisions permitted pursuant to
the New Jersey Business Corporation Act ("NJBCA"), whereby officers and
directors of the Company are to be indemnified against certain liabilities.
These provisions of the By-Laws have no effect on any director's liability under
Federal securities laws or the availability of equitable remedies, such as
injunction or recession, for breach of fiduciary duty. The Company believes that
these provisions will facilitate the Company's ability to continue to attract
and retain qualified individuals to serve as directors and officers of the
Company.
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At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification might
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company, excluding Mr. Scharf, will be
reimbursed for reasonable travel and lodging expenses incurred in attending
meetings of the Board of Directors and any committee on which they may serve, as
well as $2,000 per Board meeting. The Company estimates total Board related
expenses, including travel, lodging, and director's fees, will be approximately
$40,000 per year.
COMPENSATION OF EXECUTIVE OFFICERS
During the fiscal year ended September 30, 1997, no executive officer,
director or employee received any compensation of any kind.
CERTAIN TRANSACTIONS
During June 1997, prior to the Mergers, Worlds Acquisition Corp. sold
400,000 shares of its common stock to Michael Scharf for an aggregate
consideration of $200,000. At the time of its formation in April 1997, Mr.
Scharf and other founders of Worlds Acquisition Corp. purchased stock at its par
value.
See "Management - Employment and Consulting Agreements" for a
discussion of agreements between the Company and Messrs. Kidrin and Greenberg.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1997, information
regarding the beneficial ownership of the Company's Common Stock based upon the
most recent information available to the Company for (i) each person known by
the Company to own beneficially more than five (5%) percent of its outstanding
Common Stock, (ii) each of its officers and directors, and (iii) all of its
officers and directors as a group. Each stockholder's address is c/o the
Company, 15 Union Wharf, Boston, MA 02109.
<TABLE>
<CAPTION>
Shares Owned Beneficially
and of Record
-------------
Name No. of Shares % of Total
---- ------------- ----------
<S> <C> <C>
Michael J. Scharf (1) 1,900,000 12.23%
Thomas Kidrin (2) 1,600,000 10.30%
Kenneth A. Locker (3) -0- N/A
Steven A. Greenberg 4,500,000 28.97%
All Officers and Directors
as a Group (3 persons) 3,500,000 22.53%
</TABLE>
(1) Chairman.
(2) President, Chief Executive Officer, Secretary and a Director.
(3) Director.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 14A:3-5 of the NJBCA, as amended, authorizes the Company to
indemnify any director or officer under certain prescribed circumstances and
subject to certain limitations against certain costs and expenses, including
attorneys' fees actually and reasonably incurred in connection with any action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which such person is a party by reason of being a director or officer of the
Company if it is determined that such person acted in accordance with the
applicable standard of conduct set forth in such statutory provisions. The
Company's By-Laws contains provisions providing for the indemnification of
directors and officers to the full extent permitted by New Jersey Law.
The Company may also purchase and maintain insurance for the benefit of
any director or officer which may cover claims for which the Company could not
indemnify such person.
30
<PAGE> 34
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore unenforceable.
DESCRIPTION OF SECURITIES
The Company has authorized capital stock consisting of 30,000,000
shares of Common Stock, par value $.001 per share. As of the date of this
Prospectus, 16,117,700 shares of Common Stock are issued and outstanding.
The following is a brief descriptions of the securities offered hereby.
The rights of the holders of shares of the Company's capital stock are
established by the Company's Certificate of Incorporation, the Company's Bylaws
and New Jersey Law. The following statements do not purport to be complete or
give full effect to statutory or common law, and are subject in all respects to
the applicable provisions of the Certificate of Incorporation, Bylaws and state
law.
The holders of Common Stock have no preemptive or subscription rights
in later offerings of Common Stock and are entitled to share ratably (i) in such
dividends as may be declared by the Board of Directors out of funds legally
available for such purpose and (ii) upon liquidation, in all assets of the
Company remaining after payment in full of all debts and obligations of the
Company and any preferences granted in the future to any preferred stock. The
Company has not paid any dividends on the Common Stock.
Holders of Common Stock are entitled to one vote for each share held
and have no cumulative voting rights. Accordingly, the holders of more than 50%
of the issued and outstanding shares of Common Stock entitled to vote for
election of directors can elect all the directors if they choose to do so. All
shares of Common Stock now outstanding, including the shares of Common Stock
which are the subject of this Offering, are fully paid and nonassessable. The
Board of Directors is authorized to issue additional shares of Common Stock
within the limits authorized by the Company's Certificate of Incorporation
without stockholder action.
SHARES AVAILABLE FOR FUTURE SALE
The Company currently has 16,117,700 shares of Common Stock outstanding
(up to approximately 16,879,200 shares if all the currently outstanding options,
warrants and convertible notes are exercised or converted). Of these shares,
453,700 shares are freely tradeable without restriction or further registration
under the Securities Act of 1933, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company) which will be subject to the limitations of Rule 144 adopted
under the Securities Act. In addition, another 2,825,000 shares of Common Stock
will be tradeable pursuant to Rule 144 on December 4, 1998, provided none of
such shareholders becomes an "affiliate" prior to such date. All of the
remaining 8,000,000 shares of Common Stock are "restricted securities," as that
term is defined under Rule 144 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate of the
Company), who has owned restricted shares of Common Stock beneficially for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of outstanding
shares of the same class (approximately 16,117 shares assuming only the existing
shares are outstanding) or the average weekly trading volume of
31
<PAGE> 35
the Company's Common Stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person who has not been an affiliate of the
Company for at least the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least two years is entitled to
sell such shares under Rule 144 without regard to any of the limitations
described above.
Of the 16,117,700 shares of Common Stock currently outstanding, 453,700
are currently freely tradeable and 5,264,000 are being registered herewith.
As of January 13, 1998, there were 602 record holders of the Common
Stock.
CERTAIN MARKET INFORMATION
Currently there is, and at all times for at least the last five-years
there was, no active market for the Company's Common Stock. The Company intends
to take all necessary steps to cause its Common Stock to be traded on the
Bulletin Board or in the Pink Sheets. No assurance can be given that the
Company will be successful or that an active trading market will ever develop.
See "Risk Factors."
DIVIDEND POLICY
The Company has paid no dividends and does not expect to pay dividends
on its Common Stock in the foreseeable future as it intends to retain earnings
to finance the growth of its operations.
TRANSFER AGENT
The Company has engaged Continental Stock Transfer & Trust Company, 2
Broadway, New York, New York 10004, to act as Transfer Agent for the Company's
Common Stock.
The Securities offered hereby may be sold from time to time directly by
the Selling Security Holder. Alternatively, the Selling Security Holders may
from time to time offer such Securities through underwriters, dealers or agents.
The distribution of the Securities by the Selling Security Holders may be
effected in one or more transactions that may take place on the over-the-counter
market, including ordinary broker's transactions, privately-negotiated
transactions or through sales to one or more broker-dealers for resale of such
shares as principals at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Security Holders in connection with such sales of Securities. The
Selling Security Holders and intermediaries through whom such Securities are
sold may be deemed "underwriters" within the meaning of the Securities Act with
respect to the Securities offered, and any profits realized or commission
received may be deemed underwriting compensation. The Selling Security Holders
may also transfer the Securities pursuant to applicable exemptions from
registration under the Securities Act including Rule 144 under such Act.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereto, any person engaged in a distribution of the
Securities of the Company offered by this Prospectus may not simultaneously
engage in market-making activities with respect to such securities of the
Company during the applicable "cooling off" period (nine
32
<PAGE> 36
days) prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Security Holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Regulation M and Rule 10b-7, in
connection with transactions in such Securities, which provisions may limit the
timing of purchases and sales of such Securities by the Selling Security
Holders.
There are no current or future plans, arrangements or understandings of
or known by the Company with respect to transactions of the Selling Security
Holders, including transactions involving short selling. The Selling Security
Holders are not obligated to sell the Securities through any particular broker.
SELLING SECURITY HOLDERS
The Company is registering the shares of Common Stock (the "Reoffer
Shares") purchased by investors in private placement offering; shares held by a
pre-Merger control shareholder of the Company; and 309,625 shares of Common
Stock underlying currently outstanding Stock options and warrants. Other than
the costs of preparing this Prospectus and a registration fee to the SEC, the
Company is not paying any costs relating to the sales by the Selling Security
Holders.
Each of the Selling Security Holders and intermediaries to whom such
securities may be sold may be deemed to be an "underwriter" of the Company's
Common Stock offered hereby, as that term is defined under the Act. Each of the
Selling Security Holders may sell the Reoffer Shares from time to time for his
own account in the open market at the prices prevailing therein, or in
individually negotiated transactions at such prices as may be agreed upon. The
net proceeds from the sale of the Reoffer Shares by the Selling Security Holders
will inure entirely to their benefit and not to that of the Company.
Except as indicated below, none of the Selling Security Holders has
held any position or office, or had any material relationship with the Company
or any of its predecessors or affiliates within the last three years, and none
of the Selling Security Holders will own any of the outstanding Common Stock of
the Company after completion of the offering of such shares.
The Reoffer Shares may be offered for sale from time to time by them in
regular brokerage transactions in the over-the-counter market, or, either
directly or through brokers or to dealers, or in private sales or negotiated
transactions, or otherwise, at prices related to the then prevailing market
prices. Thus, they may be required to deliver a current prospectus in connection
with the offer or sale of the Reoffer Shares. In the absence of a current
prospectus, if required, these shares may not be sold publicly without
restriction unless held for two years, or after one year subject to volume
limitations and satisfaction of other conditions. The Selling Security Holders
have been advised that Rules 10b-6 and 10b-7 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934 will be
applicable to their sales of Reoffer Shares. These rules contain various
prohibitions against trading by persons interested in a distribution and against
so-called "stabilization" activities.
The Selling Security holders might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Act and any profit on the resale of
the Reoffer Shares as principal might be deemed to be underwriting discounts and
commissions under the Act.
Any sale of Reoffer Shares by Selling Stock Holders through
broker-dealers may cause the broker-dealers to be considered as participating in
a distribution and subject to Rule 10b-6 promulgated under the Securities
Exchange Act of 1934, as amended. If any such transaction were a "distribution"
for purposes of Rule 10b-6, then such broker-dealers might
33
<PAGE> 37
be required to cease making a market in the Company's equity securities for
either two or nine trading days prior to, and until the completion of, such
activity.
34
<PAGE> 38
<TABLE>
<CAPTION>
Names Shares Held Shares Shares Owned
Offered After Sale
============================================= ============== ============= ============
<S> <C> <C> <C>
Barrington Capital Group, L.P. 120,000 120,000 0
Harvey Bibicoff 60,000 60,000 0
Harvey R. Brice 30,000 30,000 0
Cameo Trust Corporation Limited 24,000 24,000 0
Cameo Trust Corporation Limited 120,000 120,000 0
Cameo Trust Corporation Limited 60,000 60,000 0
Cass & Co. - Magnum Capital Growth Fund 120,000 120,000 0
Cass & Co. - Magnum Tech Fund 100,000 100,000 0
Cass & Co. - Magnum US Equity Fund 240,000 240,000 0
Steven Chrust & Sharon Chrust JTWROS 60,000 60,000 0
Steven Chrust IRA 60,000 60,000 0
CML Strategic Investment Fund, Ltd. 20,000 20,000 0
Dine Investors, L.P. 60,000 60,000 0
Engel Investors 240,000 240,000 0
James C. Gale, Trustee
F/B/O Ariana J. Gale 30,000 30,000 0
Leo I. George 120,000 120,000 0
Jay Gottlieb 30,000 30,000 0
Greenberg & Panish APC defined Benefits
Pension Plan dated 2/1/88 30,000 30,000 0
David Greenberg IRA 30,000 30,000 0
Susan Greenberg 60,000 60,000 0
John J. & Lenore Heckler JTWROS 30,000 30,000 0
Paul Hochhauser 60,000 60,000 0
Intergalactic Growth Fund, Inc. 120,000 120,000 0
Ronald Koenig(1) 60,000 60,000 0
Laurick Trust 30,000 30,000 0
John M. Liviakis 25,000 25,000 0
Mercantile Capital, LLC 120,000 120,000 0
Robert E. Mullane 120,000 120,000 0
Napier Brown Holdings, Ltd. 120,000 120,000 0
Patricia Bartlett Nemes 30,000 30,000 0
Christiane Olsen 60,000 60,000 0
Palestra Partners LP 120,000 120,000 0
David A. Rees 120,000 120,000 0
Rosebud Capital Growth Fund, Ltd. 110,000 110,000 0
S-A Capital LLC 30,000 30,000 0
</TABLE>
35
<PAGE> 39
<TABLE>
============================================= ============== ============= ============
<S> <C> <C> <C>
Marvin M. Shiller 40,000 40,000 0
Murray Slimowitz 60,000 60,000 0
Murray Slimowitz, IRA 60,000 60,000 0
Tore Staubo 60,000 60,000 0
Michael & Marjorie Stern JTWROS 240,000 240,000 0
Peter Stern Family Trust 180,000 180,000 0
U.A.D. 8/21/90
Cowen & Company custodian
FBO William G. Walters, IRA (29-
98054) 60,000 60,000 0
Raphael & Bella Wizman JTWROS 15,000 15,000 0
International Capital Growth, Ltd.(2) 534,625 534,625 0
John Cattier(3) 50,000 50,000 0
Unity Venture Capital Associates Ltd.(4) 94,000 94,000 0
Summit Bank as Trustee
Hannah S. and Samuel A. Cohn.
MemorialFoundation Under Agreement of
Trust Dated 8/17/94 60,000 60,000 0
Summit Bank as Trustee
Cynthia J. Cohn Under Agreement of
Trust Dated 12/29/89 60,000 60,000 0
Joseph F. & Linda Galvin 40,000 40,000 0
Heidrun Eckes - Chantre 360,000 360,000 0
Elizabeth G. Konaxis 40,000 40,000 0
Robert B. Prag 25,000 25,000 0
Lawrence Burstein (5) 140,000 140,000 0
Jerome Baron 7,200 7,200 0
Murdoch & Company 18,000 18,000 0
Cricket Services 23,400 23,400 0
Richard Kress & Cheryl Kess JTTEN 2,700 2,700 0
Stephen Verchick 21,600 21,600 0
Richard Braver 2,700 2,700 0
Bear Stearns Securities Corp. f/b/o Dan
Brecher-- IRA 6,300 6,300 0
Barry Ridings 3,600 3,600 0
Carl L. Norton 5,400 5,400 0
Financiera E Inyersionista Salles S.A. 7,200 7,200 0
Ian Barnett 2,700 2,700 0
Henry Rothman 3,600 3,600 0
Donald Rabinovitch 3,150 3,150 0
David Vozick 3,150 3,150 0
Jonathan Rothschild 900 900 0
Ira Roxland 3,600 3,600 0
</TABLE>
36
<PAGE> 40
<TABLE>
============================================= ============== ============= ============
<S> <C> <C> <C>
Equity Interest Inc. 900 900 0
Domaco venture Capital 900 900 0
The Sagres Group Ltd. 3,600 3,600 0
Heptagon Investments Ltd.(6) 45,000 45,000 0
Steven Milner (7) 60,800 60,800 0
Charles L. Greenberg & Donna Greenberg,
JTWROS (8) 120,000 120,000 0
Tucker Anthony C/F Charles L. Greenberg,
IRA Rollover Dtd 1/8/97(8) 120,000 120,000 0
Cowen & Co. Custodian for Stanley
Hollander (9) 78,000 78,000 0
Norman Leben 9,000 9,000 0
Heptagon Capital Management Inc. 900 900 0
Michael Karfunkel 20,700 20,700 0
George Karfunkel 20,700 20,700 0
Jay M. Haft 6,300 6,300 0
Credo Interactive Inc.(10) 50,000 50,000 0
Joseph G. and Lillian P. Matulich (11) 16,000 16,000 0
</TABLE>
(1) Chairman and CEO of International Capital Growth, Ltd.
(2) Includes 109,625 shares of Common Stock underlying currently exercisable
warrants. Placement Agent for the Offering.
(3) Consists of shares of Common Stock underlying currently exercisable stock
options. Director of the Company prior to the Merger. An affiliate of Cricket
Services and Chairman of Heptagon investment Ltd., an affiliate of Heptagon
Capital Management Inc.
(4) Prior to the Mergers, this entity was a control shareholder. This entity's
president was the president of the Company prior to the Mergers.
(5) President of Unity Venture Capital Associates Ltd. and a Director of the
Company prior to the Mergers. Includes 50,000 shares underlying currently
exercisable stock options.
(6) An affiliate of Heptagon Capital Management Inc.
(7) Director of the Company prior to the Mergers. Includes 50,000 shares
underlying currently exercisable stock options.
(8) Brother of Steven A. Greenberg, the Company's principal shareholder.
(9) Executive Vice President of International Capital Growth, Ltd. Includes
shares held in an IRA account for his benefit.
(10) Consists of shares of Common Stock underlying currently exercisable
warrants.
(11) Parents of a Senior Vice President of International Capital Growth, Ltd.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by the law firm of Heller, Horowitz & Feit, P.C.,
New York, New York.
Irving Rothstein, Esq. is a member of the law firm of Heller, Horowitz
& Feit, P.C., counsel to the Company. As of September 15, 1997, Mr. Rothstein
was appointed an Assistant Secretary of the Company. This is purely an
administrative position and Mr. Rothstein was appointed solely to assist, and to
ease the burdens of, the executive officers
37
<PAGE> 41
of the Company in the execution of various documents and/or certificates on
behalf of the Company. Neither Mr. Rothstein nor his law firm receive any
additional compensation for these efforts.
EXPERTS
The audited financial statements of the Company as of September 30,
1996 and 1997 and for the fiscal years then ended are included herein and in the
registration statement in reliance upon the report of Lipner, Gordon & Co., LLP,
independent certified accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. Also included
herein and in the registration statement are audited financial statements of
Worlds Inc. as of December 31, 1996 and 1995, and Inception, April 26, 1994 to
December 31, 1994 and Inception, April 26, 1994 to December 31, 1996, and
audited financial statements of Worlds Acquisition Corp. from Inception, April
8, 1997 to June 30, 1997, in reliance upon the reports of BDO Seidman, LLP,
independent certified accountants, appearing elsewhere herein (both of which
contain an explanatory paragraph about the ability of the Companies to continue
as going concerns), and upon the authority of said firm as experts in accounting
and auditing.
38
<PAGE> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
PERIOD FROM APRIL 8, 1997 (INCEPTION)
TO SEPTEMBER 30, 1997
<PAGE> 71
WORLDS ACQUISITION CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
PERIOD FROM APRIL 8, 1997 (INCEPTION)
TO SEPTEMBER 30, 1997
F-1
<PAGE> 72
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> 73
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> 74
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> 75
- --------------------------------------------------------------------------------
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
ACADEMIC COMPUTER SYSTEMS, INC.
COMPARATIVE FINANCIAL STATEMENTS
--------------------------------
SEPTEMBER 30, 1997, 1996 AND 1995
Index to Financial Statements
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements:
Independent Auditors' Report ................................ F-2
Balance Sheets at September 30, 1997 and 1996 ............... F-3
Statement of Income for the Years Ended
September 30, 1997, 1996 and 1995 ......................... F-4
Statement of Retained Earnings for
the Years Ended September 30, 1997, 1996 and
1995 ...................................................... F-5
Statement of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995 ......................... F-6
Notes to Financial Statements ............................... F-7, 8
Independent Auditors' Report on Schedules ................... F-9
Schedule I - Marketable Securities for the Years
Ended September 30, 1996 .................................. F-10, 11
</TABLE>
Index to Financial Statements
F-1
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Academic Computer Systems, Inc.
We have audited the accompanying balance sheets of Academic Computers,
Inc. as of September 30, 1997 and 1996, and the related statements of income,
retained earnings, and cash flows for the years ended September 30, 1997, 1996
and 1995. 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 audits 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 Academic Computers,
Inc. as of September 30, 1997 and 1996 and the results of its operations and its
cash flows for the years then ended, and for the year ended September 30, 1995,
in conformity with generally accepted accounting principles.
/S/ LIPNER, GORDON & CO. LLP.
Great Neck, New York
December 23, 1997
F-2
<PAGE> 86
ACADEMIC COMPUTER SYSTEMS, INC.
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
ASSETS
===============================
September 30,
1997 1996
-------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes 1b and 2) $613,175 $167,657
Interest receivable - 2,770
Prepaid federal income tax - 418
-------- --------
Total current assets 613,175 170,845
Long-term assets:
Marketable securities (Note 3) - 408,191
-------- --------
$613,175 $579,036
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Federal income taxes payable $ 42,388 $ -
NJ corporation taxes payable 3,129 1,795
Accounts payable and accrued expenses 5,250 1,250
-------- --------
Total current liabilities 50,767 3,045
-------- --------
Commitments and contingencies (Note 4) - -
Deferred taxes payable (Note 5) - 38,437
Stockholders' equity:
Common stock, par value of $.05 per share;
authorized 1,250,000 shares; issued 910,000
shares at September 30, 1997 and 1996 45,500 45,500
Additional paid-in capital 312,571 312,571
Unrealized gain on securities reported at fair
value (Notes 3 and 5) - 88,578
Retained earnings 206,493 93,061
-------- --------
564,564 578,147
Less treasury stock - at cost (2,300 shares) ( 2,156) ( 2,156)
-------- --------
562,408 575,991
-------- --------
$613,175 $579,036
======== ========
</TABLE>
The accompanying notes are an integral part hereof.
F-3
<PAGE> 87
ACADEMIC COMPUTER SYSTEMS, INC.
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
Year Ended
September 30,
-----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income (Note 3):
Interest $ 6,724 $ 8,690 $ 2,671
Dividends 6,465 22,746 25,348
Gain on sale of securities 173,336 - 9,116
-------- ------- -------
186,525 31,436 37,135
-------- ------- -------
Costs and expenses:
Operational costs, general and
administrative expenses 27,567 3,929 3,701
Interest expense - 70 -
-------- ------- -------
27,567 3,999 3,701
-------- ------- -------
Income before provision for income taxes 158,958 27,437 33,434
-------- ------- -------
Provision for income taxes:
Federal 43,638 2,442 2,795
State 1,888 372 494
-------- ------- -------
45,526 2,814 3,289
-------- ------- -------
Net income $113,432 $24,623 $30,145
======== ======= =======
Earnings per share (based on weighted
average of the number of shares
outstanding) $ .12 $ .03 $ .03
======= ======= =======
Average number of common shares
outstanding 907,700 907,700 907,700
======= ======= =======
</TABLE>
The accompanying notes are an integral part hereof.
F-4
<PAGE> 88
ACADEMIC COMPUTER SYSTEMS, INC.
STATEMENT OF RETAINED EARNINGS
------------------------------
<TABLE>
<CAPTION>
Year Ended
September 30,
-----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Earnings at beginning $ 93,061 $68,438 $38,293
Net income 113,432 24,623 30,145
-------- ------- -------
Earnings at end $206,493 $93,061 $68,438
======== ======= =======
</TABLE>
The accompanying notes are an integral part hereof.
F-5
<PAGE> 89
ACADEMIC COMPUTER SYSTEMS, INC.
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Year Ended
September 30,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows derived from operating activities:
Interest and dividends received $ 15,959 $ 29,637 $ 27,477
Cash paid to suppliers ( 23,567) ( 5,184) ( 2,950)
Income taxes paid ( 1,386) ( 6,171) ( 365)
---------- ---------- ----------
Net cash provided (used) by operating activities ( 8,994) 18,282 24,162
---------- ---------- ----------
Cash flows derived from investing activities:
Proceeds from sales/redemptions of securities 1,054,601 - 17,446
Purchases of securities ( 600,089) - ( 795)
---------- ---------- ----------
Net cash provided by investing activities 454,512 - 16,651
---------- ---------- ----------
Net increase in cash and cash equivalents 445,518 18,282 40,813
Cash and cash equivalents at beginning of year 167,657 149,375 108,562
---------- ---------- ----------
Cash and cash equivalents at end of year $ 613,175 $ 167,657 $ 149,375
========== ========== ==========
Reconciliation of net income to net cash provided (used) by
operating activities:
Net income $ 113,432 $ 24,623 $ 30,145
Adjustments to reconcile net income to net cash
provided by operations:
(Increase) decrease in interest
receivable 2,770 ( 2,002) ( 542)
(Increase) decrease in prepaid
federal income tax 418 ( 418) 128
Increase (decrease) in accounts
payable and accrued expenses 4,000 ( 1,000) 750
Increase in federal income taxes payable 42,388 - -
Increase (decrease) in taxes payable 1,334 ( 2,921) 2,797
(Gains) on sales/redemptions of securities ( 173,336) - ( 9,116)
---------- ---------- ----------
Net cash provided (used) by operating activities ($ 8,994) $ 18,282 $ 24,162
========== ========== ==========
Supplementary information:
Interest paid $ - $ - $ -
Federal income taxes paid 832 1,430 -
</TABLE>
The accompanying notes are an integral part hereof.
F-6
<PAGE> 90
ACADEMIC COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
---------------------------------
1. Statement of Significant Accounting Policies:
a) The Company's only income had been from interest and dividends
received on its investment portfolio. It records its investment income
on the accrual basis. There were no operating activities during the
periods of these statements.
b) Money market funds are considered to be cash equivalents.
c) Use of estimates - management uses estimates and assumptions in
preparing financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were
assumed in preparing the financial statements.
2. Concentration of Credit Risk:
As of September 30, 1997, the Company had $610,081 on deposit with the
Bank of New York. Funds deposited with a single financial institution are
insured for up to $100,000 in the aggregate by the Federal Deposit
Insurance Corporation (FDIC). Should the financial institution become
unable to meet its obligations, Academic Computer Systems, Inc. could
incur a loss of $510,081.
3. Marketable Securities:
For the years ended September 30, 1995 and thereafter, the Company has
adopted Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Under
SFAS No. 115, debt and equity securities are classified into three
categories: trading, available-for-sale, and held-to-maturity.
Management determines the appropriate classification of its investments
at the time of purchase, and reevaluates such determination at each
balance sheet date. The Company has categorized its marketable securities
as available-for-sale. SFAS No. 115 requires available-for-sale
securities to be carried at fair value with unrealized gains and
unrealized losses reported as a separate component of shareholders'
equity. Realized gains and losses are determined on a specific
identification basis. A decline in market value of any available-for-sale
security below cost that is deemed other than temporary is charged to
earnings, resulting in the establishment of a new cost basis for the
security.
Marketable securities classified as available-for-sale securities at
September 30, 1996 are included in Schedule I.
At September 30, 1997, the Company had liquidated its investment in
marketable securities. Realized gains on the sale of marketable securities
amounted to $173,336 and are reflected in the statement of income.
4. Commitments and Contingencies:
The Company's income tax returns have not been audited by the Internal
Revenue Service.
F-7
<PAGE> 91
ACADEMIC COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996 AND 1995
5. Deferred Taxes:
Temporary differences arise from unrealized gains on securities that are
reported as an adjustment to stockholders' equity for financial reporting
but are not recorded in the tax return until the securities are sold. The
Company uses the liability method for calculating the deferred tax
provision and charges the tax effect directly to stockholders' equity.
The deferred taxes relate solely to the available-for-sale securities,
and, as such, have no effect on the components of net income (see Note 2).
6. Subsequent Events:
On December 3, 1997, Worlds Inc. ("Worlds") merged with and into Worlds
Acquisition Corp. ("WAC"). Contemporaneously, WAC closed the first round
of a private placement of its common stock (the "Offering"), raising
gross proceeds of $3.8 million, and WAC merged with and into the Company,
an inactive corporation with approximately $600,000 of assets, all in the
form of cash or cash equivalents. Thereafter, the Company changed its
name to Worlds Inc. The merger of Worlds into WAC and the subsequent
merger of WAC with and into the Company are sometimes hereinafter
collectively referred to herein as the "Mergers" and the entity resulting
therefrom is sometimes hereinafter referred to as the "Combined Entity".
The terms of the Mergers called for the issuance, in exchange for all of
the previously outstanding shares of Worlds and WAC, of an aggregate of
14,625,000 shares of the Company's common stock distributed, as follows:
8,400,000 to the former shareholders of WAC; 2,000,000 to the former
shareholders of Worlds; 3,800,000 to the investors in WAC's financing;
and 425,000 as a financial advisory fee to International Academic Capital
Growth, Ltd. Prior to the Mergers, the Company had 907,700 shares of
Academic outstanding, which shares continue to remain outstanding and
held by the pre-Merger shareholders. The total issued and outstanding
shares of the Combined Entity after the Mergers is therefore 15,532,700
shares.
F-8
<PAGE> 92
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
-----------------------------------------
In connection with our audit of the financial statements of Academic
Computer Systems Inc. as of September 30, 1996, we also audited the supporting
schedule of marketable securities. In our opinion, this schedule presents
fairly, when read in conjunction with the related statements, the financial data
required to be set forth therein.
/S/ LIPNER, GORDON & CO. LLP.
Great Neck, NY
December 23, 1997
F-9
<PAGE> 93
ACADEMIC COMPUTER SYSTEMS,INC.
SCHEDULE I - MARKETABLE SECURITIES
----------------------------------
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Number of
Shares Value Based on
or Units of Current Market
Principal Quotations Unrealized
Name of Issuer and Amount Cost/ At Gain/(Loss)
Title of Security Bonds and Adjusted Balance Sheet On
- ----------------- Notes Basis Date Securities
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rapid American Corp. Sub.
Deb. 7% 1994 $10,000 $ 100 $ - ($ 100)
Metromedia International
Sub Deb. 9-1/2% 1998 -
(Formerly Actava Group Inc.) 9,000 6,100 8,944 2,844
Zenith Electronics Corp.
Conv. Sub. Deb. 6-1/4%
2011 20,000 8,117 16,750 8,633
Fedders Corp. Sub. Deb. Conv.
8-1/2% 2012 (Formerly NYCOR
Inc., CV EX PFD) 80,000 61,605 72,800 11,195
AM Annuity Group Inc. - common -
(Formerly STI Group Inc.) 508 shares 2,398 6,795 4,397
Barrett Resources Corp., New 2,000 shares 8,007 70,500 62,493
Fleet Financial Group Inc.
Depository SH Reptg 1/4
PFD. IV Pref. 2,000 shares 51,757 51,500 ( 257)
Chase Manhattan Corp. PFD
(Formerly Chemical Banking
Corp. 10.96 PFD) 1,000 shares 29,395 29,625 230
Barclays Bank PLC Amern Dep.
Shs. UTS SR D 1,000 shares 29,271 28,750 ( 521)
-------- -------- --------
Sub total 196,750 285,664 88,914
</TABLE>
F-10
<PAGE> 94
ACADEMIC COMPUTER SYSTEMS,INC.
SCHEDULE I - MARKETABLE SECURITIES
----------------------------------
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Number of
Shares Value Based on
or Units of Current Market
Principal Quotations Unrealized
Name of Issuer and Amount Cost/ At Gain/(Loss)
Title of Security Bonds and Adjusted Balance Sheet On
- ------------------ Notes Basis Date Securities
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sub total (carried forward) $196,750 $285,664 $ 88,914
Williams Cos. Inc. $2.21 Cum.
Pfd. 1,000 shares 25,000 26,000 1,000
American Banknote Corp. (formerly
United States Banknote Corp.) 1,000 shares 5,238 4,625 ( 613)
Corestates Financial Corp. common
(formerly Constellation
Bancorporation) 413 shares 7,254 17,862 10,608
LTV Corp. New 59 shares 615 686 71
LTV Corp. New WTS Ser A
expire 6/28/98 24 warrants 57 27 ( 30)
Cyprus Amax Minerals common
(formerly Amax, Inc.) 500 shares 12,122 10,750 ( 1,372)
Alumax, Inc. common 500 shares 12,122 16,750 4,628
Amax Gold common 300 shares 2,226 1,687 ( 539)
Glendale Federal Bank common 2,000 shares 14,255 35,500 21,245
Greyhound Lines, Inc. common 2,560 shares 5,537 8,640 3,103
-------- -------- --------
$281,176 $408,191 $127,015
======== ======== ========
</TABLE>
F-11
<PAGE> 95
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAD BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information.......................................................... 2
Summary......................................................................... 3
Risk Factors.................................................................... 4
Selected Financial Information.................................................. 12
Management's Discussion and Analysis of Financial Conditions and
Results of Operations...................................................... 13
Use of Proceeds................................................................. 15
Pro Forma Consolidated Balance Sheet............................................ 17
Business........................................................................ 20
Management...................................................................... 26
Security Ownership of Certain Beneficial Owners and Management.................. 30
Disclosure of Commission Position on Indemnification For
Securities Act Liability................................................... 30
Description of Securities....................................................... 31
Selling Security Holders........................................................ 33
Legal Matters................................................................... 37
Experts......................................................................... 37
Index to Financial Statements...................................................
</TABLE>
UNTIL _________________ (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE> 96
5,573,625 SHARES OF COMMON STOCK
WORLDS INC.
PROSPECTUS
JANUARY __, 1998
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14A:3-5 of the New Jersey Business Corporation Act, as amended,
authorizes the Registrant to indemnify any director or officer under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorneys' fees actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Registrant if it is determined that such
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions. Article VI of the Registrant's By-Laws extends such
indemnities to the full extent permitted by New Jersey law.
The Registrant may also purchase and maintain insurance for the benefit
of any director or officer which may cover claims for which the Registrant could
not indemnify such persons.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated expenses in connection
with the offering described in the Registration Statement, all of which will be
borne by the Registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission Fee...................... $ 1,735
Accountants' Fees........................................... $ 22,000
Legal Fees.................................................. $ 25,000
Blue Sky Qualification, Fees and Expenses................... $ 15,000
Printing and engraving...................................... $ 20,000
--------
TOTAL.............................................. $ 83,735
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Effective December 3, 1997, Worlds Acquisition Corp. ("WAC") merged
into the Registrant and the Registrant issued an aggregate of 14,200,000 shares
of its Common Stock to the former stockholders of WAC. None of the stockholders
of WAC received any consideration other than shares of the Registrant. This
issuance of securities was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
On December 31, 1997 the Registrant sold a total of 4.875 Units of its
securities, each Unit consisting of 120,000 shares of Common Stock, for an
aggregate of 585,000 shares at $1.00 per share, for a total purchase price of
$120,000 per Unit, to five accredited persons and one non-accredited person in a
private offering exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. The Registrant received gross proceeds of $585,000 from
this offering.
On November 21, 1997, the Registrant issued 425,000 shares of its
Common Stock as a financial advisory fee to its investment banker. The issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS
<S> <C>
3.1 Certificate of Merger
3.2 By-Laws
4.1 Specimen Common Stock Certificate*
</TABLE>
<PAGE> 98
<TABLE>
<S> <C>
5 Opinion of Heller, Horowitz & Feit, P.C.
10.1 Merger Agreement between Worlds Acquisition Corp. and
Academic Computer Systems, Inc.**
23.1 Consent of Heller, Horowitz & Feit, P.C.
(included in the Opinion filed as Exhibit 5)
23.2 Consent of BDO Seidman, LLP
23.3 Consent of Lipner, Gordon & Co., LLP
</TABLE>
- ---------------
* To be filed by Amendment
** Incorporated by reference from the Company's Current Report on Form 8-K dated
December 3, 1997.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceedings) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-2
<PAGE> 99
The Company will provide to the Representative of the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Representative to
permit prompt delivery to each purchaser.
II-3
<PAGE> 100
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this registration
statement or amendment to be signed on its behalf by the undersigned, in the
City of Boston and State of Massachusetts on the 16th day of January, 1998.
WORLDS INC.
By: /s/ THOMAS KIDRIN
-------------------------------
Thomas Kidrin
President, Chief Executive Officer
and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement or amendment was signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ THOMAS KIDRIN President, CEO, Treasurer January 16, 1998
- ---------------------------
Thomas Kidrin
Chairman
- ---------------------------
Michael J. Scharf
/s/ KENNETH A. LOCKER Director January 16, 1998
- ---------------------------
Kenneth A. Locker
</TABLE>
<PAGE> 101
EXHIBIT INDEX
3.1 Certificate of Merger
3.2 By-Laws
5 Opinion of Heller, Horowitz & Feit, P.C.
23.2 Consent of BDO Seidman, LLP
23.3 Consent of Lipner, Gordon & Co., LLP
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF MERGER
OF
WORLDS ACQUISITION CORP.
AND
ACADEMIC COMPUTER SYSTEMS, INC.
INTO
ACADEMIC COMPUTER SYSTEMS, INC.
Under Section 14A:10-4 of the
New Jersey Business Corporation Act
Pursuant to the provisions of Section 14A:10-4 of the New
Jersey Business Corporation Act, the undersigned hereby certify:
FIRST: That the following Plan of Merger has been duly
approved by the Board of Directors of each of the constituent corporations:
(a) The name of each of the constituent corporations
is Worlds Acquisition Corp. (De dom) and Academic
Computer Systems, Inc. (NJ Dom) and the name of the
surviving corporation is Academic Computer Systems,
Inc. (NJ Dom)
(b) The terms and conditions of the proposed merger
and the manner and basis of converting the shares of
each constituent corporation are as follows:
As part of the merger, the certificate of
incorporation of the Academic Computer Systems, Inc.
as the corporation surviving the Merger shall be
amended to increase the authorized shares of common
stock to 30,000,000 shares of the par value of $.001,
and change the name of the corporation to Worlds
Inc., (ii) each outstanding share of common stock of
Academic Computer Systems, Inc. shall be converted
into one share of common stock of the surviving
corporation, (iii) each outstanding share of common
stock of Worlds Acquisition Corp. shall be converted
into one share of common stock of the surviving
corporation and (iv) options, warrants and other
rights to purchase shares of common stock of Academic
Computer Systems, Inc. and World Acquisition Corp.,
respectively, shall be converted into identical
options, warrants and other rights to purchase the
same number of shares of common stock of the
surviving corporation with the same exercise price.
SECOND: As to each corporation, the number of shares entitled
to vote, and the number and designation of the shares of any class or series
entitled to vote as a class or series, are:
<PAGE> 2
<TABLE>
<CAPTION>
Total Designation Number of
Number of Class or Shares
of Shares Series Entitled of Such Class
Name of Entitled to Vote as a Class or Series
Corporation to Vote or Series (if any) (if any)
- ----------- ------- ------------------ --------
<S> <C>
Worlds Acquisition Corp. 8,400,000
Academic Computer
Systems, Inc. 907,700
</TABLE>
As to each corporation, the number of shares voted for and
against the Plan, respectively, and the number of share of any class or series,
entitled to vote as a class or series voted for and against the Plan are:
<TABLE>
<CAPTION>
Class
Name of Total Shares Total Shares or
Corporation Voted For Voted Against Series
- ----------- --------- ------------- ------
<S> <C> <C> <C>
Worlds Acquisition Corp. 8,000,000 -0- Common
Academic Computer
Systems, Inc. 454,000 -0- Common
</TABLE>
THIRD: The applicable provisions of the law of Delaware under
which Worlds Acquisition Corp. was organized have been compiled with in respect
to the merger.
IN WITNESS WHEREOF, each of the corporations, parties hereto,
has caused these Certificates to be executed on its behalf by its President.
Dated: November 21, 1997
WORLDS ACQUISITION CORP.
/s/
----------------------------------
Thomas Kidrin, President
ACADEMIC COMPUTER SYSTEMS, INC.
/s/
----------------------------------
Lawrence Burstein, President
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
ACADEMIC COMPUTER SYSTEMS, INC.
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. A meeting of stockholders shall be held
annually for the election of directors and the transaction of such other
business as is related to the purpose or purposes set forth in the notice of
meeting on such date as may be fixed by the Board of Directors, or if no date is
so fixed on the second Tuesday in April in each and every year, unless such day
shall fall on a legal holiday, in which case such meeting shall be held on the
next succeeding business day, at such time and at such place as may be fixed by
the Board of Directors.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose may be called by the Board of Directors, the Chairman of the Board,
the President or the Secretary, and shall be called by the Chairman of the
Board, the President or the Secretary at the written request of the holders of
record of a majority of the outstanding shares of the Corporation entitled to
vote at such meeting. Special meetings shall be held at such time as may be
fixed in the call and stated in the notices of meeting or waiver thereof. At any
special meeting only such business may be transacted as is related to the
purpose or purposes for which the meeting is convened.
SECTION 3. Place of Meetings. Meetings of stockholders shall be held at
such place, within or without the State of New Jersey or the United States of
America, as may be fixed in the call and stated in the notice of meeting or
waiver thereof.
SECTION 4. Notice of Meetings: Adjourned Meetings. Notice of each
meeting of stockholders shall be given in writing and shall state the place,
date and hour of the meeting. The purpose or purposes for which the meeting is
called shall be stated in the notices of each special meeting and of each annual
meeting at which any business other than the election of directors is to be
transacted.
<PAGE> 2
A copy of the notice of any meeting shall be given, personally or by
mail, not less then ten (10) nor more than sixty (60) days before the date of
the meeting, to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed given when deposited in the United States mail, with
postage thereon prepaid, directed to the stockholder at his address as it
appears on the record of stockholders.
When a meeting is adjourned for less than thirty (30) days in any one
adjournment, it shall not be necessary to give any notice of the adjourned
meeting if the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted on the original date
of the meeting. When a meeting is adjourned for thirty (30) days or more, notice
of the adjourned meeting shall be given as in the case of an original meeting.
SECTION 5. Waiver of Notice. The transactions of any meeting of
stockholders, however called and with whatever notice, if any, are as valid as
though had at a meeting duly held after regular call and notice, if: (a) all the
stockholders entitled to vote are present in person or by proxy and no objection
to holding the meeting is made by anyone so present, and if, either before or
after the meeting, each of the persons entitled to vote, not present in person
or by proxy, signed a written waiver of notice, or a consent to the holding of
the meeting, or an approval of the action taken as shown by the minutes thereof.
Whenever notice is required to be given to any stockholder, a written
waiver thereof signed by such stockholder, whether before or after the time
thereon stated, shall be deemed equivalent to such notice. Attendance of a
person at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when such stockholder attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of any meeting of stockholders need be
specified in any written waiver of notice thereof.
SECTION 6. Qualification of Voters. Except as may be otherwise provided
in the Certificate of Incorporation, every stockholder of record shall be
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders for every share standing in his name on the record of stockholders.
SECTION 7. Quorum. At any meeting of the stockholders the
presence, in person or by proxy, of the holders of a majority of
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<PAGE> 3
the shares entitled to vote thereat shall constitute a quorum for the
transaction of any business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any stockholders.
The stockholders present may adjourn the meeting despite the absence of
a quorum.
SECTION 8. Proxies. Every stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy.
Every proxy must be executed by the stockholder or his
attorney-in-fact. No proxy shall be valid after the expiration of three (3)
years from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the stockholder executing it, except as
otherwise provided therein and as permitted by law. Except as otherwise provided
in the proxy, any proxy holder may appoint in writing a substitute to act in his
place.
SECTION 9. Voting. Except as otherwise required by law, directors shall
be elected by a plurality of the votes cast at a meeting of stockholders by the
holders of shares entitled to vote in the election.
Whenever any corporate action, other than the election of directors, is
to be taken by vote of the stockholders at a meeting, it shall, except as
otherwise required by law or the Certificate of Incorporation, be authorized by
a majority of the votes cast thereat, in person or by proxy.
SECTION 10. Action Without A Meeting. Whenever stockholders are
required or permitted to take any action at a meeting or by vote, such action
may be taken without a meeting, without prior notice and without a vote, by
consent in writing setting forth the action so taken, signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
SECTION 11. Record Date. The Board of Directors is authorized to fix a
day not more than sixty (60) days nor less than ten (10) days prior to the day
of holding any meeting of
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stockholders as the day as of which stockholders entitled to notice of and to
vote at such meeting shall be determined; and only stockholders of record on
such day shall be entitled to notice or to vote at such meeting.
SECTION 12. Inspectors of Election. The Chairman of any meeting of the
stockholders may appoint one or more Inspectors of Election. Any Inspector so
appointed to act at any meeting of the stockholders, before entering upon the
discharge of his or her duties, shall be sworn faithfully to execute the duties
of an Inspector at such meeting with strict impartiality, and according to the
best of his or her ability.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Power of Board and Qualification of Directors. The business
and affairs of the Corporation shall be managed by the Board of Directors.
SECTION 2. Number of Directors. The number of directors constituting
the entire Board of Directors shall be such number not less than one (1) nor
more than nine (9) as may be fixed from time to time by resolution adopted by
the stockholders or by the Board.
SECTION 3. Election and Term of Directors. At each annual meeting of
stockholders, directors shall be elected to serve until the next annual meeting.
SECTION 4. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors, the Chairman of the
Board, the President or the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein; and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 5. Removal of Directors. Any or all of the directors may be
removed with or without cause by vote of the stockholders.
SECTION 6. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason except the removal
of directors by stockholders without cause may be filled by vote of a majority
of the directors then in
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<PAGE> 5
office, although less than a quorum exists, or may be filled by the
stockholders. Vacancies occurring as a result of the removal of directors by
stockholders, without cause, shall be filled by the stockholders. A director
elected to fill a vacancy or a newly created directorship shall be elected to
hold office until the next annual meeting of stockholders.
SECTION 7. Executive and Other Committee of Directors. The Board of
Directors, by resolution adopted by a majority of the entire Board, may
designate from among its members an executive committee and other committees,
each consisting of one or more directors, and each of which, to the extent
provided in the resolution, shall have all the authority of the Board to the
full extent authorized by law and including the power and authority to declare a
dividend or to authorize the issuance of stock.
The Board of Directors may designate one or more directors as alternate
members of any such committee, who may replace any absent member or members at
any meeting of such committee.
SECTION 8. Compensation of Directors. The Board of Directors shall have
authority to fix the compensation of directors for services in any capacity, or
to allow a fixed sum plus expenses, if any, for attendance at meetings of the
Board or of committees designated thereby.
SECTION 9. Interest of Director in a Transaction. (a) No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board or committee thereof
which authorized the contract or transaction, or solely because his or their
votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee, in
good faith, authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested directors, even though the
disinterested directors be less than as quorum; or
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and
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<PAGE> 6
the contract or transaction is specifically approved, in good faith, by
vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorized the contract or transaction.
ARTICLE III
MEETINGS OF THE BOARD
SECTION 1. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and places, within or without the State
of New Jersey, or the United States of America, as may from time to time be
fixed by the Board.
SECTION 2. Special Meetings; Notice; Waiver. Special meetings of the
Board of Directors may be held at any time, place, within or without the State
of New Jersey or the United States of America, upon the call of the Chairman of
the Board, the President or the Secretary, by oral, telegraphic or written
notice, duly given to or sent or mailed to each director not less than two (2)
days before such meeting. Special meetings shall be called by the Chairman of
the Board, the President or the Secretary on the written request of any two
directors.
Notice of a special meeting need not be given to any director who
submits a signed waiver or notice whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any
special meeting of the Board of Directors.
SECTION 3. Quorum; Action by the Board; Adjournment. At all meetings of
the Board of Directors, a majority of the whole Board shall constitute a quorum
for the transaction of business, except that when the number of directors
constituting the whole Board shall be an even number, one-half of that number
shall constitute a quorum.
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<PAGE> 7
The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the Board, except
as may be otherwise specifically provided by law or by the Certificate of
Incorporation or by these By-Laws.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place.
SECTION 4. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board, or any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes or proceedings of the Board or committee, whether done before or after
the action so taken.
SECTION 5. Action Taken by Conference Telephone. Members of the Board
of Directors or any committee thereof may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE IV
OFFICERS
SECTION 1. Officers. The Board of Directors shall elect a President,
one or more Vice Presidents, a Secretary and a Treasurer of the Corporation and
from time to time may elect or appoint such other officers as it may determine.
Any two or more offices may be held by the same person.
Securities of other corporations held by the corporation may be voted
by any officer designated by the Board and, in the absence of any such
designation, by the President, any Vice President, the Secretary, or the
Treasurer.
The Board may require any officer to give security for the faithful
performance of his duties.
SECTION 2. President. The President shall be the chief executive and
chief operating officer of the Corporation with all the rights and powers
incident to that position.
SECTION 3. Vice President. The Vice Presidents shall perform such
duties as may be prescribed or assigned to them by the Board of Directors, the
Chairman of the Board or President. In the
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<PAGE> 8
absence of the President the first-elected Vice President shall perform the
duties of the President. In the event of the refusal or incapacity of the
President to function as such, the first-elected Vice President shall perform
the duties of the President until such time as the Board of Directors elects a
new President. In the event of the absence, refusal or incapacity of the
first-elected Vice President, the other Vice Presidents, in order of their rank,
shall so perform the duties of the President; and the order of rank of such
other Vice Presidents shall be determined by the designated rank of their
offices or, in the absence of such designation, by seniority in the office of
Vice President; provided that said order or rank may be established otherwise by
action of the Board of Directors.
SECTION 4. Treasurer. The Treasurer shall perform all the duties
customary to that office, and shall have the care and custody of the funds and
securities of the Corporation. He shall at all reasonable times exhibit his
books and accounts to any director upon application, and shall give such bond or
bonds for the faithful performance of his duties with such surety or sureties as
the Board of Directors from time to time may determine.
SECTION 5. Secretary. The Secretary shall act as secretary of and shall
keep the minutes of the Board of Directors and of the stockholders, have the
custody of the seal of the Corporation and perform all of the other duties usual
to that office.
SECTION 6. Assistant Treasurer and Assistant Secretary. Any Assistant
Treasurer or Assistant Secretary shall perform such duties as may be prescribed
or assigned to him by the Board of Directors, the Chairman of the Board, or the
President. An Assistant Treasurer shall give such bond or bonds for the faithful
performance of his duties with such surety or sureties as the Board of Directors
from time to time may determine.
SECTION 7. Term of Office: Removal. Each officer shall hold office for
such term as may be prescribed by the Board. Any officer may be removed at any
time by the Board with or without cause. The removal of an officer without cause
shall be without prejudice to his contract rights, if any. The election or
appointment of an officer shall not, of itself, create contract rights.
SECTION 8. Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
ARTICLE V
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SHARE CERTIFICATES
SECTION 1. Form of Share Certificates. The shares of the Corporation
shall be represented by certificates, in such form as the Board of Directors may
from time to time prescribe, signed by the Chairman of the Board, the President,
or a Vice President, and by the Secretary, an Assistant Secretary, the Treasurer
or an Assistant Treasurer, and shall be sealed with the seal of the Corporation
or a facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation or its employees. In case any such
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
SECTION 2. Lost Certificates. In case of the loss, theft, mutilation or
destruction of a stock certificate, a duplicate certificate will be issued by
the Corporation upon notification thereof and receipt of such proper indemnity
or assurances as the Board of Directors may require.
SECTION 3. Transfer of Shares. Transfers of shares of stock shall be
made upon the books of the Corporation by the registered holder in person or by
duly authorized attorney, upon surrender of the certificate or certificates for
such shares properly endorsed.
SECTION 4. Registered Stockholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends or
other distributions and to vote as such owner, and to hold such person liable
for calls and assessments, and shall not be bound to recognize any equitable or
legal claim to or interest in such shares on the part of any other person.
ARTICLE VI
INDEMNIFICATION
SECTION 1. Actions by or in the Right of the Corporation. Any person
made a party to an action by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he, his testator or intestate,
is or was a Director or
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officer of the Corporation shall be indemnified by the Corporation against the
reasonable expenses, including attorneys fees, actually and necessarily incurred
by him in connection with the defense of such action or in connection with an
appeal therein, to the fullest extent permitted by the New Jersey Business
Corporation Act or any successor thereto.
SECTION 2. Action or Proceeding Other Than by or in The Right of the
Corporation. Any person made or threatened to be made a party to an action or
proceeding other than one by or in the right of the Corporation to procure a
judgment in its favor, whether civil or criminal, including an action by or in
the right of any other corporation of any type or kind, domestic or foreign,
which any Director or officer of the Corporation served in any capacity at the
request of the Corporation, by reason of the fact that he, his testator or
intestate, was a Director or officer of the Corporation, or served such other
corporation in any capacity, shall be indemnified by the Corporation against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such Director or officer acted in good
faith for a purpose which he reasonably believed to be in the best interests of
the Corporation and, in criminal actions or proceedings, in which he had no
reasonable cause to believe that his conduct was unlawful. The termination of
any such civil or criminal action or proceeding by judgment, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not in
itself create a presumption that any such Director or officer did not act in
good faith for a purpose which he reasonably believed to be in the best
interests of the Corporation or that he had reasonable cause to believe that his
conduct was unlawful.
SECTION 3. Opinion of the Counsel. In taking any action or making any
determination pursuant to this Article, the Board of Directors and each
Director, officer or employee, whether or not interested in any such action or
determination, may rely upon an opinion of counsel selected by the Board.
SECTION 4. Other Indemnification; Limitation. The Corporation's
obligations under this Article shall not be exclusive or in limitation of but
shall be in addition to any other rights to which any such person may be
entitled under any other provision of these By-Laws, or by contract, or as a
matter of law, or otherwise. All of the provisions of this Article VI of the
By-Laws shall be valid only to the extent permitted by the Certificate of
Incorporation and the laws of the State of New Jersey.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and shall be in such form as the Board of
Directors may from time to time determine.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be the
twelve month period prescribed by the Board of Directors.
SECTION 3. Checks and Notes. All checks and demands for money and notes
or other instrument evidencing indebtedness or obligations of the Corporation
shall be signed by such officer or officers or other person or persons as shall
be authorized from time to time by the Board of Directors.
ARTICLE VIII
AMENDMENTS
SECTION 1. Power to Amend. By-Laws of the Corporation may be adopted,
amended or repealed by the Board of Directors, subject to amendment or repeal by
the stockholders entitled to vote thereon.
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<PAGE> 1
EXHIBIT 5
<TABLE>
<S> <C> <C>
HELLER, HOROWITZ & FEIT, P.C.
JACOB W. HELLER ATTORNEYS AT LAW COUNSEL
RICHARD F. HOROWITZ 292 MADISON AVENUE ROBERT C. MALABY
ELI FEIT NEW YORK, N.Y. I00I7
LAWRENCE J. TOSCANO (2I2) 685-7600 CABLE ADDRESS
STUART A. BLANDER HELLFEITER, N.Y.
SIGMUND S. WISSNER-GROSS
MAURICE W. HELLER TELECOPIER
ALAN A. HELLER (2I2) 696-9459
IRVING ROTHSTEIN
WORLD WIDE WEB
MAY ORENSTEIN HTTP://WWW.HHANDF.COM
LOUIS A. BRILLEMAN
JOEL C. HAIMS WRITERS E-MAIL
CLIFFORD J. BOND [email protected]
ALLEN M. EISENBERG
JOSEPH H. CARLISLE
</TABLE>
January 16, 1998
Worlds Inc.
15 Union Wharf
Boston, MA 02109
Gentlemen:
As counsel for your Company, we have examined your Articles of
Incorporation, By-Laws, such other corporate records, documents and proceedings
and such questions of law as we have deemed relevant for the purpose of this
opinion.
We have also, as such counsel, examined the Registration
Statement (the Registration Statement) of your Company on Form SB-2, covering
the registration under the Securities Act of 1933, as amended, of the proposed
offer and resale of (i) up to 5,264,000 shares of Common Stock, par value $.001
(the Common Stock), (ii) 159,625 shares of Common Stock underlying Warrants,
and (iii) 150,000 shares of Common Stock underlying options, all of which are
being registered on behalf of selling stockholders (collectively, items (i) -
(iii), the Registered Securities). Our review has also included the exhibits
and forms of prospectus (the Prospectus) for the resale of the Registered
Securities.
On the basis of such examination, we are of the opinion that:
1. The Company is a corporation duly authorized and validly
existing and in good standing under the laws of the State of New Jersey, with
corporate power to conduct the business which it conducts as described in the
Registration Statement.
2. The Common Stock identified above in item (i) has been duly
and validly issued and is nonassessable, and as to the Common Stock identified
in items (ii) and (iii), subject to the payment therefore pursuant to their
terms, will be duly and validly issued as fully paid and nonassessable shares of
Common Stock of the Company.
<PAGE> 2
Heller, Horowitz & Feit, P.C.
Worlds Inc.
January 16, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/S/
------------------------------
HELLER, HOROWITZ & FEIT, P.C.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Worlds Acquisition Corp.
Boston, Massachusetts
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement our report dated September 15, 1997 (except as to
Note 7, which is as of December 31, 1997), relating to the financial statements
of Worlds Acquisition Corp. (a development stage enterprise) which is contained
in that Prospectus, for the period April 8, 1997 (inception) to June 30, 1997.
Our report contains an explanatory paragraph regarding the Company's ability to
continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
New York, New York
January 16, 1998
<PAGE> 2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Worlds Inc.
San Francisco, California
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement our report dated September 15, 1997 (except as to
Note 9, which is as of December 31, 1997), relating to the financial statements
of Worlds Inc. (a development stage enterprise) which is contained in that
Prospectus, 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 and for the period from inception (April 26, 1994) to December
31, 1994 and from inception (April 26, 1994) to December 31, 1996. Our report
contains an explanatory paragraph regarding the Company's ability to continue as
a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
San Francisco, California
January 16, 1998
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD OF LIPNER, GORDON & CO.]
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Worlds, Inc.
Boston, Massachusetts
We hereby consent to the use in the Registration Statement (Form SB-2) of our
report dated December 23, 1997, relating to the financial statements of Academic
Computer Systems, Inc. for the years ended September 30, 1997 and 1996 which is
contained in the Prospectus of that Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Registration Statment.
/s/ Lipner, Gordon & Co., LLP
-----------------------------
Lipner, Gordon & Co., LLP
Great Neck, New York
January 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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