UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934:
For the Quarterly Period ended September 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from __________________ to __________________
Commission File number 0-24115
WORLDS.COM INC.
(formerly known as Worlds Inc.)
(not affiliated with Worldcom, Inc.)
(Exact name of registrant as specified in its charter)
New Jersey 22-184316
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
15 Union Wharf
Boston, Massachusetts 02109
-------------------------------------
(Address of principal executive offices)
(617) 725-8900
-------------------------
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
As of November 14, 2000, 19,204,177 shares of the Issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format (check one):
YES NO X
<PAGE>
Worlds.com, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at September 30, 2000 3
Statements of Operations for the Three Months and Nine Months
Ended September 30, 1999 and 2000 4
Statement of Stockholders' Equity (Deficit) for the
Period from December 31, 1998 to September 30, 2000 5-6
Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 2000 7
Notes to Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
PART II - OTHER INFORMATION 18-20
<PAGE>
Worlds.com, Inc.
BALANCE SHEET
September 30, 2000
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 715,172
Accounts receivable 183,546
Prepaid expenses and other current assets 267,523
Inventories 344,363
------------
Total current assets 1,510,604
DEPOSITS 25,000
PROPERTY, EQUIPMENT AND SOFTWARE
DEVELOPMENT, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION 1,329,968
INTANGIBLE ASSET - NET 708,763
------------
$ 3,574,335
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,346,470
Accrued expenses 688,671
Deferred revenue 730,454
Current maturities of notes payable 2,084,993
------------
Total current liabilities 4,850,588
LONG-TERM PORTION, NOTES PAYABLE 36,673
------------
Total liabilities 4,887,261
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value -
authorized, 65,000,000 shares;
issued, 19,204,177 shares 19,203
Additional paid-in capital 17,662,162
Accumulated deficit (18,994,291)
------------
(1,312,926)
------------
$ 3,574,335
=============
The accompanying notes are an integral part of this statement.
3
<PAGE>
Worlds.com, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 2000 1999 2000
---------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Net revenues $ 148,682 $ 404,946 $ 241,607 $ 918,710
Costs and expenses
Cost of revenues 98,428 127,401 168,783 339,713
Selling, general and
administrative 962,228 2,032,432 2,852,723 6,851,421
------------ ------------ ------------ ------------
Operating loss (911,974) (1,754,887) (2,779,899) (6,272,424)
------------ ------------ ------------ ------------
Other income (expense)
Interest income 20,053 14,992 38,019 83,045
Interest expense (33,284) (44,487) (102,206) (130,260)
------------ ------------ ------------ ------------
NET LOSS $ (925,205) $ (1,784,382) $ (2,844,086) $ (6,319,639)
============ ============ ============ ============
Loss per share (basic
and diluted) $ (.06) $ (.09) $ (.16) $ (.34)
============ ============ ============ ============
Weighted average common
shares outstanding
Basic and diluted 16,083,709 19,204,177 17,300,203 18,690,777
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Worlds.com, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from December 31, 1998 to September 30, 2000
(unaudited)
<TABLE>
Common stock Additional
------------------------- paid-in
Shares Amount capital
---------------- -------- ----------
<S> <C> <C> <C>
Balance, December 31, 1998 18,031,996 $ 18,032 $ 8,401,970
Issuance of warrants for consulting services (April 1999) 465,000
Contribution of 1,500,000 shares by founders to treasury (April 1999)
and subsequent cancellation (1,500,000) (1,500) 1,500
Exercise of stock options (April 1999) 75,000 75 74,925
Issuance of shares for content supply agreement (June 1999) 93,750 93 374,907
Issuance of shares to agent for content supply agreement (July 1999) 50,000 50 199,950
Sale of shares in private offering memorandum, net (June through
September 1999) 892,500 893 3,263,081
Issuance of options for consulting services and software development
costs (August and September 1999) 368,230
Issuance of shares for legal and consulting services (September 1999) 20,000 20 79,980
Cancellation of treasury shares (September 1999) (113,465) (113) (64,630)
Exercise of warrants (November 1999) 95,000 95 94,905
Issuance of shares for content supply agreement (December 1999) 93,750 93 374,907
Net loss for the year ended December 31, 1999
----------- ----------- -------------
Balance, December 31, 1999 17,738,531 17,738 13,634,725
Exercise of stock options (March 2000) 215,000 215 135,285
Sale of shares in private offering memorandum, net (March 2000) 976,597 976 3,242,981
Issuance of stock options for consulting and advertising services 138,231
(March 2000)
Sale of shares in private offering memorandum, net (April 2000) 142,049 142 464,858
Issuance of shares for Inventory (April 2000) 32,000 32 67,968
Adjustment to capitalize software for options (200,000)
Issuance of shares to agent for content supply agreement (July 2000) 100,000 100 143,650
Issuance of Stock options for consulting services (July through September 34,464
2000
Net loss for the nine months ended September 30, 2000 ----------- ----------- -------------
Balance, September 30, 2000 19,204,177 $ 19,203 $ 17,662,162
============ ============ ============
</TABLE>
(Continued on next page)
The accompanying notes are an integral part of this statement.
5
<PAGE>
Worlds.com, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from December 31, 1998 to September 30, 2000
(unaudited)
(continued)
<TABLE>
<CAPTION>
Deficit
accumulated Total
during the stockholders'
development Treasury equity
stage stock (deficit)
----------- ----------- -------------
<S> <C> <C> <C>
Balance, December 31, 1998 $ (9,335,152) $ (64,743) $ (979,893)
Issuance of warrants for consulting services (April 1999) 465,000
Contribution of 1,500,000 shares by founders to treasury (April 1999)
and subsequent cancellation
Exercise of stock options (April 1999) 75,000
Issuance of shares for content supply agreement (June 1999) 375,000
Issuance of shares to agent for content supply agreement (July 1999) 200,000
Sale of shares in private offering memorandum, net (June through
September 1999) 3,263,974
Issuance of options for consulting services and software development 368,230
costs (August and September 1999)
Issuance of shares for legal and consulting services (September 1999) 80,000
Cancellation of treasury shares (September 1999) 64,743
Exercise of warrants (November 1999) 95,000
Issuance of shares for content supply agreement (December 1999) 375,000
Net loss for the year ended December 31, 1999 (3,339,500) (3,339,500)
------------ --------- ------------
Balance, December 31, 1999 (12,674,652) 977,811
Exercise of stock options (March 2000) 135,500
Sale of shares in private offering memorandum, net (March 2000) 3,243,957
Issuance of stock options for consulting and advertising services 138,231
(March 2000)
Sale of shares in private offering memorandum, net (April 2000) 465,000
Issuance of shares for Inventory (April 2000) 68,000
Adjustment to capitalize software for options (200,000)
Issuance of shares to agent for content supply agreement (July 2000) 143,750
Issuance of Stock options for consulting services July through September 34,464
2000)
Net loss for the nine months ended September 30, 2000 (6,319,639) (6,319,639)
------------ --------- ------------
Balance, September 30, 2000 $(18,994,291) -- $ (1,312,926)
============ ========= ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
Worlds.com, Inc.
STATEMENTS OF CASH FLOWS
Nine months ended September 30,
(unaudited)
<TABLE>
<CAPTION>
1999 2000
------------ --------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (2,844,086) $(6,319,639)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 160,113 994,284
Consulting and advertising expense related to the issuance
of stock options and warrants 469,400 172,695
Issuance of shares for legal and consulting services 80,000
Changes in operating assets and liabilities
Accounts receivable (106,355) (6,331)
Inventories (104,040) (54,852)
Prepaid expenses and other current assets (106,838) (192,853)
Long term deposit (25,000)
Accounts payable and accrued expenses 172,833 853,662
Deferred revenue 230,454
----------------- -------------
Net cash used in operating activities (2,278,973) (4,347,580)
-------------- -----------
Cash flows from investing activities
Acquisition of property and equipment (23,178) (106,830)
Additions to software development costs (573,865) (496,055)
----------- -------------
Net cash used in investing activities (597,043) (602,885)
------------ -------------
Cash flows from financing activities
Proceeds from sale of common stock in private offering memorandum 3,263,974 3,708,957
Proceeds from exercise of options 75,000 135,500
------------ -----------
Net cash provided by financing activities 3,338,974 3,844,457
---------- ----------
Net increase (decrease) in cash and cash equivalents 462,958 (1,106,008)
Cash and cash equivalents, beginning of period 1,581,764 1,821,180
--------- ----------
Cash and cash equivalents, end of period $ 2,044,722 $ 715,172
============ ========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ -- $ --
Income taxes -- --
</TABLE>
Noncash investing and financing activities:
Issuance of an option to purchase 73,245 shares of common stock at $3.87 per
share to the placement agent in connection with the private placement in
March 2000.
Issuance of stock options for consulting and advertising services of $172,695
in the period ended September 30, 2000.
Issuance of stock valued at $68,000 for Inventory in April 2000.
Issuance of stock valued at $143,750 as an introduction fee.
The accompanying notes are an integral part of these statements.
7
<PAGE>
Worlds.com, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000 and 1999
(unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of Business
The Company designs, develops and markets three-dimensional ("3D")
music-oriented Internet sites on the World Wide Web. These web sites
utilize 3D technologies. The Company also sells music and sports-related
merchandise through its website.
Basis of Presentation
The accompanying financial statements are unaudited; however, in the
opinion of management, all adjustments necessary for a fair statement of
financial position and results for the stated periods have been included.
These adjustments are of a normal recurring nature. Selected information
and footnote disclosures have been prepared in accordance with generally
accepted accounting principles applicable to the interim financial
information and the rules and regulations promulgated by the Securities and
Exchange Commission. Results for interim periods are not necessarily
indicative of the results to be expected for an entire fiscal year. These
condensed financial statements should be read in conjunction with the
audited financial statements and accompanying notes for the Company for the
year ended December 31, 1999. In prior years, the Company was classified as
a development stage enterprise.
Software Development Costs
In accordance with the provisions of Statement of Financial Accounting
Standards No.86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," software development costs incurred by the
Company subsequent to establishing technological feasibility of the
resulting product or enhancement and until the product is available for
general release to customers are capitalized and carried at the lower of
unamortized cost or net realizable value. Net realizable value is
determined based on estimates of future revenues to be derived from the
sale of the software product reduced by the costs of completion and
disposing of the product.
$574,000 was capitalized and included in property, equipment and software
development during the nine months ended September 30, 1999 and $496,000
was capitalized in the nine months ending September 30, 2000. Amortization
of the costs capitalized commenced in the first quarter of 1999, based on
current and anticipated future revenues for each product or enhancement
with an annual minimum equal to straight-line amortization over the
remaining estimated economic life of the product or enhancement. Software
development costs are being amortized over a periods of between two and
three years. Amortization expense charged to operations for the nine months
ended September 30, 1999 and 2000 was $92,000 and $349,000, respectively.
8
<PAGE>
Worlds.com, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2000 and 1999
(unaudited)
NOTE 1 (continued)
Deferred Financing Costs
The Company has deferred costs associated with a planned offering aggregating
approximately $189,000, which are included in the accompanying balance sheet in
prepaid and other current assets. When the offering occurs these costs will be
offset against the proceeds. If the offering does not occur, these costs will be
expensed.
Loss Per Share
Basic and diluted loss per share is calculated by dividing the net loss by the
weighted average number of shares of common stock outstanding during each
period. The common stock equivalents, which would arise from the exercise of
stock options and warrants, are excluded from calculation of diluted loss per
share since their effect is antidilutive. Therefore, the amounts reported for
basic and diluted loss per share are the same.
Stock-Based Compensation
In the third quarter of 2000, the Company granted options to purchase an
aggregate of 840,000 shares of common stock to directors, officers and employees
of, and certain consultants to the Company at an exercise price of $2. In the
first quarter of 2000, the Company granted options to purchase an aggregate of
1,028,500 shares of common stock to directors, officers and employees of, and
certain consultants to the Company at exercise prices ranging from $3.00 to
$9.00. In connection with options issued to nonemployees, the Company recorded
consulting and advertising expense of approximately $173,000 for the fair market
value of the options using the Black-Scholes calculation.
In May 2000, the Company issued 32,000 shares of common stock to an employee in
connection with an inventory purchase agreement.
In July 2000, the Company issued 100,000 shares of common stock to a brokerage
agent in connection with the contract with British Telecommunications.
9
<PAGE>
Worlds.com, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2000 and 1999
(unaudited)
NOTE 2 - GOING CONCERN
As discussed in Note 3, the Company completed a private placement during
the first quarter of 2000, raising net proceeds of $3,243,957. In April of
2000, the Company raised an additional $465,000 through another private
placement of 142,045 shares of common stock. These proceeds were used for
operating expenses during the second and third quarters of 2000.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Since its inception, the Company
has had minimal revenues from operations. There can be no assurance that
the Company will be able to obtain the substantial additional capital
resources necessary to pursue its business plan or that any assumptions
relating to its business plan will prove to be accurate. The Company is
pursuing sources of additional financing and there can be no assurance that
any such financing will be available to the Company on commercially
reasonable terms, or at all. Any inability to obtain additional financing
will have a material adverse effect on the Company, including possibly
requiring the Company to significantly curtail or cease operations.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 3 - PRIVATE PLACEMENT
On March 31, 2000, the Company sold 976,598 shares of common stock through
a private placement. In connection with the Private Placement, the
placement agent received an option to purchase 73,245 shares of the
Company's common stock at $3.87 per share for five years. Cumulative net
proceeds, after commissions and expenses of the offering, aggregated
$3,243,957.
On April 7, 2000, the Company sold 142,045 shares of common stock through a
private placement. Cumulative net proceeds, after commissions and expenses
of the offering, aggregated $465,000.
In November 2000, the Company's Chairman, Steven Chrust, loaned the Company
$250,000. This loan is evidenced by a promissory note bearing interest at
the rate of 8% per annum and is payable in April 2001. In connection with
this loan, the Company also issued Mr. Chrust warrants to purchase 375,000
shares of its common stock at a per-share exercise price of $0.50 per
share. The principal of the loan will automatically convert into the
securities the Company sells in its next financing of at least $500,000 on
the same terms afforded the investors in such offering.
10
<PAGE>
Item 2. Management's Discussions and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to our
future prospects, developments and business strategies. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan,"
"predict," "project," "will" and similar terms and phrases, including references
to assumptions.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. These factors include, but are not limited to, changes that may occur
to general economic and business conditions; changes in current pricing levels
that we can charge for our services or which we pay to our suppliers and
business partners; changes in political, social and economic conditions in the
jurisdictions in which we operate; changes to regulations that pertain to our
operations; changes in technology that render our technology inferior or
obsolete or relatively more expensive; foreign currency fluctuations; changes in
the business prospects of our business partners and customers; increased
competition, including from our business partners; delays in the delivery of
broadband capacity to the homes and offices of persons who use our services;
general disruptions to Internet service; and the loss of customer faith in the
Internet as a means of commerce.
We are dependent on the availability of capital financings to fund our
operations and growth until such time as we can become profitable. We may never
become profitable, and sources of these financings may not be available when
needed on acceptable terms or at all. We currently have a significant amount of
debt coming due in December 2000. If we are unable to negotiate the extension of
the maturity dates of this debt, we will have to default on such debt, the
consequences of which could include our halting operations. Further, we will
need to obtain additional financing capital during the fourth quarter of 2000
and in 2001. If we are unable to obtain this financing, we may have to halt
operations.
You should also see Exhibit 99, "Risk Factors" in our 10-KSB for the year
ended December 31, 1999. If one or more of these risks or uncertainties
11
<PAGE>
materialize, or if underlying assumptions prove incorrect, our actual results
may vary materially from those expected, estimated or projected.
We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.
Overview
Our predecessor was formed in April 1994 to design, develop and
commercialize 3D multi-user tools and technologies for the Internet market. From
inception through 1997, our predecessor's operations were limited and consisted
primarily of start-up activities, including recruiting personnel, raising
capital, custom production work, and research and development We acquired the
enterprise through merger in December 1997.
During the fourth quarter of 1998, we completed the development of our
Gamma development tool kit. This technology is the foundation of our existing
and planned product offerings. In early 1999, we embarked on our strategy to
commercialize our technology. We are following an aggressive growth strategy by
rapidly exploiting our technology to create 3D chat, entertainment, information
and e-commerce sites for our company and for third parties. We seek to establish
Worlds.com as the leading producer of 3D portals, web sites and content.
Revenues
We generate revenues in the following manner:
o sales of music and sports related products through our e-commerce
web sites;
o the production of 3D promotion sites for third parties;
o VIP subscriptions to our Worlds Ultimate 3-D Chat service and
services that we provide to third-party Internet service
providers, such as Freeserve and Roadrunner;
o development and operation of 3D chat and entertainment sites for
third parties;
o on-line advertising revenues; and
o e-commerce commissions and fees.
Expenses
We classify our expenses into two broad groups:
o cost of revenues; and
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o selling, general and administration.
During the third quarter of 2000, we continued the implementation of our
new business plan. Significant expenditures were incurred in connection with:
o the commercialization of our Gamma technology;
o increasing the number of and maintaining our sites; and
o developing the infrastructure required to handle and promote
rapid growth.
Software development costs, consisting primarily of salaries, consultants'
fees, 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, we will capitalize software
development costs at such time as the technological feasibility of the product
has been established. We began capitalizing our software costs in the fourth
quarter of 1998 with the commercial release of three products, AnimalHouse.com,
BowieWorld and Worlds Ultimate 3D Chat. At December 31, 1999, approximately
$1,353,000 of such expenditures had been capitalized. For the nine months ended
September 30, 2000, we capitalized $496,000 in software development
expenditures.
Results of Our Operations
The following data extracted from our unaudited financial statements
compares the results of our operations for the three months ended September 30,
2000 to the three months ended September 30, 1999. The unaudited financial
statements below also compares the results of our operations for the nine months
ended September 30, 2000 to the nine months ended September 30, 1999.
Three Months Ended Nine Months ended
September 30, September 30,
-------------------------- -------------------------
1999 2000 1999 2000
---------- ------------ ---------- -----------
(unaudited) (unaudited)
Net revenues $ 148,682 $ 404,946 $ 241,607 $ 918,710
Costs and expenses:
Cost of revenues (98,428) (127,401) (168,783) (339,713)
Selling, general and (962,228) (2,032,432) (2,852,723) (6,851,421)
administrative
Operating loss (911,974) (1,754,887) (2,779,899) (6,272,424)
Other income (expenses):
Interest income 20,053 14,992 38,019 83,045
Interest expense (33,284) (44,487) (102,206) (130,260)
Net loss $ (925,205) $(1,784,382) $(2,844,086) $(6,319,639)
13
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Three months ended September 30, 2000 compared to three months ended September
30, 1999
In the third quarter of 2000, revenues were $404,946 compared to revenues
of $148,682 during the third quarter of 1999, an increase of 172%. Compared to
the second quarter of 2000, our revenues increased by 21%. This increase in
revenues is primarily due to our expanded efforts to license our technology to
third parties, including through agreements to design and maintain 3D sites for
third-party Internet service providers, and the growth of our e-commerce
business.
Selling, general and administrative expenses were $2,032,432 for the three
months ended September 30, 2000 as compared to $962,228 for the three months
ended September 30, 1999. This represented an increase of $1,070,204. This
increase was attributable to higher costs associated with the salaries of an
expanded management team and larger employee base, which was required to develop
the infrastructure capable of handling and promoting our growth. We also
incurred significant costs in the implementation of our contractual
relationships with our strategic partners, including in connection with the
creation and maintenance of a larger number e-commerce sites and legal and
professional fees in connection with these transactions.
Other income included $14,992 of interest income for the three months ended
September 30, 2000 earned from the remainder of the proceeds of our share
offerings as compared to $20,053 for the three months ended September 30, 1999.
Other expenses included interest expense of $44,487 directly attributable to our
predecessor's notes payable for the three months ended September 30, 2000.
Interest expense for the three months ended September 30, 1999 was $33,284.
As a result of the foregoing we incurred a net loss of $1,784,382 for the
three months ended September 30, 2000, compared to a loss of $925,205 for the
three months ended September 30, 1999, an increase of $859,177.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
For the nine months ended September 30, 1999, revenue was derived primarily
from VIP memberships, e-commerce and third-party licensing arrangements. For the
nine months ended September 30, 2000 we had revenue from VIP memberships,
e-commerce, advertising and royalty related revenues from licensing our
technology. In the nine months ended September 30, 2000 revenues were $918,710
compared to revenues of $241,607 during the nine months ended September 30,
1999, an increase of 280%.
Selling, general and administrative expenses were $6,851,421 for the nine
months ended September 30, 2000 as compared to $2,852,723 for the nine months
ended September 30, 1999. This represented an increase of $3,998,698. This
increase was attributable to higher costs associated with building a new
14
<PAGE>
management team and increasing the number of employees to develop the
infrastructure required to handle and promote rapid growth, implementation of
our contractual relationships with our strategic partners, increasing the number
of and maintaining our new e-commerce sites, implementing an advertising and
marketing campaign and legal and professional fees.
Other income included $83,045 of interest income for the nine months ended
September 30, 2000 earned from the remainder of the proceeds of our share
offerings as compared to $38,019 for the nine months ended September 30, 1999.
Other expenses included interest expense of $130,260 directly attributable to
our predecessor's notes payable for the nine months ended September 30, 2000.
Interest expense for the nine months ended September 30, 1999 was $102,206.
As a result of the foregoing we incurred a net loss of $6,319,639 for the
nine months ended September 30, 2000, compared to a loss of $2,844,086 for the
nine months ended September 30, 1999, an increase of $3,475,553.
Liquidity and Capital Resources
At September 30, 2000, we had a working capital deficit of $3,339,984 and
cash and cash equivalents in the amount of $715,172. At September 30, 2000, our
total liabilities were $4,887,261, including the current term portion of notes
payable including accrued interest of $2,084,993.
In November 2000, our Chairman of the Board, Steven Chrust loaned us
$250,000. This loan is evidenced by a promissory note bearing interest at the
rate of 8% per annum and is payable in April 2001. In connection with this loan,
we issued Mr. Chrust warrants to purchase 375,000 shares of our common stock at
a per-share exercise price of $0.50 per share. The principal of the loan will
automatically convert into the securities we sell in our next financing of at
least $500,000 on the same terms afforded to the investors in such offering.
There are currently outstanding other convertible promissory notes for
$1,685,000 payable to three of our stockholders. These notes mature in December
2000. We have reached an agreement in principal with each of these holders to
extend the maturity dates of all of these notes until January 2002. This
extension, however, is subject to the execution of definitive agreements with
the holders of the notes. These agreements have been in negotiation and, we
believe they will be executed shortly. However, if we are unable to execute
agreements with the holders and the notes mature in December 2000, we may have
to curtail or halt our operations.
Our capital requirements relating to the commercialization of our
technology and the development of our web sites and related content have been
and will continue to be significant. Commercialization will require capital
resources greater than what we have now currently available to us. During the
periods that we experience net losses, we expect to be dependent upon sales of
our capital stock and debt securities to finance our working capital
requirements.
Based upon our current plans and assumptions relating to our business plan,
we anticipate that our existing capital resources (including the loan from Mr.
Chrust), will satisfy our capital requirements through December 2000. We will
need to raise additional capital in the form of equity or debt financing during
the fourth quarter of 2000 and during 2001. Any issuance of equity securities
would dilute the interest of our shareholders. Additionally, if we incur debt,
15
<PAGE>
we will become subject to risks that interest rates may fluctuate and cash flow
may be insufficient to pay the principal and interest on any such debt. While we
hope to raise additional financing, we have 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 us on commercially reasonable terms, or at all.
Any inability to obtain additional financing will have a material adverse effect
on our business, including possibly requiring us to significantly curtail or
cease operations
Private placements
In April 2000, we entered into agreements with four investors to sell an
aggregate of 142,045 shares of common stock at $3.52 per share. We raised
aggregate net proceeds from these sales of $465,000.
In March 2000, we consummated a private placement, selling an aggregate
976,598 shares of common stock. Each share cost $3.52. We raised net proceeds of
$3,243,957.
In June and August 1999, we consummated two tranches of a private
placement, selling an aggregate of 59 units. Each unit cost $60,000 and
consisted of 15,000 shares of common stock and warrants to purchase 7,500 shares
of common stock. We raised gross proceeds of $3,540,000 in this private
placement, netting proceeds of approximately $3,264,000.
Effect of Recent Accounting Pronouncements
In March 2000, the Emerging Issues Task Force (the "EITF") reached a
consensus on Issue No. 00-2, Accounting for Web Site Development Costs ("EITF
Issue No. 00-2"), which applies to all web site development costs incurred for
the quarters beginning after June 30, 2000. The consensus states that the
accounting for specific web site development costs should be based on a model
consistent with AICPA Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use or under Statement of
Financial Accounting Standards 86 Accounting for the Cost of Computer Software
to Be Sold, Leased, or Otherwise Marketed (SFAS 86). Under SOP 98-1, costs are
expensed or capitalized according to the stage and related process of web site
development that they relate to. Amortization of capitalized costs begins at the
point in time that the web site becomes operational. Web Site Software is
accounted for in accordance with SFAS 86, if the Company has a plan at the time
that it is being developed to market the software externally or is developing
such a plan. Accordingly, certain web site development costs that were
previously expensed as incurred may be capitalized and amortized. The
adoption of EITF Issue No. 00-2 did not have a material impact on the financial
statements of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation is intended to
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clarify certain issues that have arisen in practice since the issuance of APB
25. We adopted the Interpretation on July 1, 2000 and such adoption did not
have a significant impact on our results of operations, financial
position or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which requires
entities to recognize all derivative financial instruments as either assets or
liabilities in the balance sheet and measure these instruments at fair value.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal years
beginning after June 15, 2000. We do not presently enter into any transactions
involving derivative financial instruments and, accordingly, we do not
anticipate that the new standard will have any effect on our financial
statements.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material legal proceedings to which we are a party.
Item 2. Changes in Securities
(c) Recent sales of Unregistered Securities
OPTIONS
The following options were granted on November 1, 2000. For all options
other than Artisan Entertainment Inc., one third of the total of each option
vests on November 1, 2001, 2002 and 2003. The exercise price is $0.4062 per
share. All these options expire on November 1, 2005. The grants to Artisan vest
upon satisfaction of various contractual obligations. Under the Artisan options,
the exercise price per share will be determined at the time of vesting and will
be equal to the average daily market price for the five-day period preceding the
date of vesting. The Artisan options will be exercisable for three years from
the date of vesting. We relied on Section 4(2) of the Securities Act of 1933 as
the basis for exemption from registration because the transactions did not
involve any public offering.
Grantee Number of Options
Shane Salisbury 2,000
Rita Locke 10,000
Michael Maniaci 1,000
Natalia Tsarkova (if she agrees 160,000
to become an employee)
Odette Plavinskas (if she agrees 10,000
to become an employee)
Artisan Entertainment Inc. 80,000
Artisan Entertainment Inc. 50,000
Artisan Entertainment Inc. 50,000
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (September 30, 2000)
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned thereto duly
authorized.
Date: November 14, 2000
WORLDS.COM INC.
By:-----------------------------------
Thomas Kidrin
President, CEO and Treasurer
By: ----------------------------------
Christopher Ryan
Chief Financial Officer and
Principal Accounting Officer
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