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 June 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.)
(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
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As of August 15, 2000, 19,110,229 shares of the Issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format (check one):
YES NO X
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX
Page
------
PART I. FINANCIAL INFORMATION
Balance Sheet at June 30, 2000 F-2
Statements of Operations for the Three
Months and Six Months June 30, 1999 and 2000 F-3
Statement of Stockholders' Equity (Deficit) for the
Period from December 31, 1998 to June 30, 2000 F-4
Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 2000 F-5
Notes to Financial Statements F-6 - F-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations
F-1
<PAGE>
Worlds.com Inc.
BALANCE SHEET
June 30, 2000
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,862,128
Accounts receivable 294,711
Prepaid expenses and other current assets 48,045
Inventories 318,887
-------------
Total current assets 2,523,771
PROPERTY, EQUIPMENT AND SOFTWARE
DEVELOPMENT, NET 1,058,107
INTANGIBLE ASSET, NET 754,487
-------------
$ 4,336,365
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 658,235
Accrued expenses 677,547
Deferred revenue 585,675
Current maturities of notes payable 2,074,994
-------------
Total current liabilities 3,996,451
LONG-TERM PORTION, NOTES PAYABLE 46,672
-------------
Total liabilities 4,043,123
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value - authorized,
65,000,000 shares; issued, 19,104,177 shares 19,103
Additional paid-in capital 17,484,048
Accumulated deficit (17,209,909)
-------------
293,242
-------------
$ 4,336,365
=============
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
Worlds.com Inc.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Six Months
ended June 30, ended June 30,
1999 2000 1999 2000
------------ ------------ ----------- -----------
Net revenues $ 57,748 $ 333,741 $ 92,925 $ 513,764
Costs and expenses
Cost of revenues 48,891 142,361 70,355 212,312
Selling, general and
administrative 809,680 2,727,300 1,425,495 4,818,989
------------ ------------ ----------- -----------
Operating loss (800,823) (2,535,920) (1,402,925) (4,517,537)
------------ ------------ ----------- -----------
Other income (expense)
Interest income 5,180 52,302 17,966 68,053
Interest expense (30,000) (43,144) (68,922) (85,773)
------------ ------------ ----------- -----------
NET LOSS $ (825,643) $ (2,526,762) $(1,453,881) $(4,535,257)
============ ============ =========== ===========
Loss per share (basic and
diluted) $ (.05) $ (.13) $ (.08) $ (.25)
============ ============ =========== ===========
Weighted average common
shares outstanding
Basic and diluted 16,723,298 19,085,668 17,304,288 18,431,257
============ ============ =========== ===========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Worlds.com Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from December 31, 1998 to June 30, 2000
(unaudited)
Deficit
accumulated Total
Common stock Additional during the stockholders'
------------------------ paid-in development Treasury equity
Shares Amount capital stage stock (deficit)
---------- ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 18,031,996 $ 18,032 $ 8,401,970 $ (9,335,152) $ (64,743) $ (979,893)
Issuance of warrants for
consulting services (April 1999) - - 465,000 - - 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 - - 75,000
Issuance of shares for content supply
agreement (June 1999) 93,750 93 374,907 - - 375,000
Issuance of shares to agent for content
supply agreement (July 1999) 50,000 50 199,950 - - 200,000
Sale of shares in private offering
memorandum, net (June through
September 1999) 892,500 893 3,263,081 - - 3,263,974
Issuance of options for consulting
services and software development
costs (August and September 1999) - - 368,230 - - 368,230
Issuance of shares for legal and
consulting services (September 1999) 20,000 20 79,980 ` - - 80,000
Cancellation of treasury shares
(September 1999) (113,465) (113) (64,630) - 64,743
Exercise of warrants (November 1999) 95,000 95 94,905 - - 95,000
Issuance of shares for content supply
agreement (December 1999) 93,750 93 374,907 - - 375,000
Net loss for the year ended
December 31, 1999 - - - (3,339,500) - (3,339,500)
------------ ----------- ----------- ----------- ---------- -----------
Balance, December 31, 1999 17,738,531 17,738 13,634,725 (12,674,652) - 977,811
------------ ----------- ----------- ----------- ---------- -----------
Exercise of stock options (March 2000) 215,000 215 135,285 - - 135,500
Sale of shares in private offering
memorandum, net (March 2000) 976,597 976 3,242,981 - - 3,243,957
Issuance of stock options for consulting
and advertising services (March
through June 2000) - - 138,231 - - 138,231
Sale of shares in private offering
memorandum, net (April 2000) 142,049 142 464,858 - - 465,000
Adjustment to capitalized software for
options not issued (June 2000) - - (200,000) - - (200,000)
Issuance of shares for Inventory
(April 2000) 32,000 32 67,968 - - 68,000
Net loss for the six months ended
June 30, 2000 - - - (4,535,257) - (4,535,257)
------------ ----------- ----------- ----------- ---------- -----------
Balance, June 30, 2000 19,104,177 $ 19,103 $ 17,484,048 $(17,209,909) $ - $ 293,242
============ =========== ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
Worlds.com Inc.
STATEMENTS OF CASH FLOWS
Six months ended June 30,
(unaudited)
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,453,881) $ (4,535,257)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 105,114 672,389
Consulting and advertising expense
related to the issuance of stock options - 138,231
Changes in operating assets and liabilities
Accounts receivable (19,918) (117,496)
Inventories (28,536) (29,376)
Prepaid expenses and other current assets (117,121) 26,625
Accounts payable and accrued expenses 472,081 154,302
Deferred revenue 85,675
------------ -----------
Net cash used in operating activities (1,042,261) (3,604,907)
------------ -----------
Cash flows from investing activities
Acquisition of property and equipment (14,000) (65,238)
Additions to software development costs (439,000) (133,364)
------------ ------------
Net cash used in investing activities (453,000) (198,602)
------------- -----------
Cash flows from financing activities
Proceeds from sale of common stock in
private offering memorandum 2,376,114 3,708,957
Proceeds from exercise of options 75,000 135,500
------------ -----------
Net cash provided by financing activities 2,451,114 3,844,457
------------- -----------
Net increase (decrease) in cash and cash
equivalents 955,853 40,948
Cash and cash equivalents, beginning of period 1,581,764 1,821,180
------------ -----------
Cash and cash equivalents, end of period $ 2,537,617 $ 1,862,128
============ ==========
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 $138,231
in the period ended June 30, 2000.
Issuance of stock valued at $68,000 for Inventory in April 2000.
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Worlds.com Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 and 1999
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of Business
The Company is a 3D entertainment and e-commerce portal which uses
proprietary technology to offer visitors a network of virtual multi-user
environments. The Company develops software, content and related technology
for the creation of interactive, three-dimensional Internet websites. It
creates its own sites as well as sites available through third-party online
service providers.
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 to 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.
$439,000 was capitalized and included in property, equipment and software
development during the period ended June 30, 1999 and approximately
$133,000 was capitalized in the period ending June 30, 2000. During the
period ended June 30, 2000 an adjustment was made to reduce capitalized
software by $200,000 for options that were not issued. 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. All software
development costs are being amortized over a period of three years.
Amortization expense charged to operations for the periods ended June 30,
1999 and 2000 was $46,000 and $119,000, respectively.
F-6
<PAGE>
Worlds.com Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 1 (continued)
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 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 $138,000 for the fair market value of the options using the
Black-Scholes calculation.
In April 2000, the Company issued 32,000 shares of common stock to an
employee in connection with an inventory purchase agreement.
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 142,049 shares of common stock.
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 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-7
<PAGE>
Worlds.com Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 3 - PRIVATE PLACEMENT
On March 31, 2000, the Company sold 976,597 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 142,049 shares of common stock through a
private placement. Cumulative net proceeds, after commissions and expenses
of the offering, aggregated $465,000.
F-8
<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, the following: changes
in general economic and business conditions; changes in current pricing levels;
changes in political, social and economic conditions and local regulations;
changes in technology and the development of new technology; foreign currency
fluctuations; reductions in sales to any significant customers; changes in sales
mix; industry capacity; competition; disruptions of established supply channels;
manufacturing capacity constraints; and the availability, terms and deployment
of capital. 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 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.
Corporate Background
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. In the third
quarter of 1996, our predecessor launched its first commercial user-oriented 3D
chat site, Worlds Chat 1.0, and began selling the client interface software
through direct sales channels. These sales were nominal. In October 1996, our
predecessor introduced its first commercial toolset for developing 3D multi-user
applications. In the first quarter of 1997, our predecessor became insolvent and
terminated most of its personnel. We thereafter acquired the enterprise through
the contemporaneous mergers in December 1997 of our predecessor with and into
Worlds Acquisition Corp., a Delaware corporation formed in April 1997 and of
Worlds Acquisition Corp. with and into Academic Computer Systems, Inc., a New
Jersey corporation. Academic Computer Systems changed its name to Worlds Inc.
after their mergers. In December 1999, we changed our name from Worlds Inc. to
Worlds.com Inc. in order to better reflect our business as a consumer Internet
web site that offers virtual "worlds" in which consumers interact, conduct
e-commerce and receive entertainment.
2
<PAGE>
Overview
Worlds.com is a leading 3D entertainment and e-commerce portal which
leverages our proprietary technology to offer visitors a network of virtual,
multi-user environment which we call "worlds". Worlds are visually engaging
online communities where people can come together and, by navigating through the
website, shop, interact with others, attend events and be entertained.
In support of our portal and our overall business strategy, we design and
develop software, content and related technology for the creation of
interactive, three-dimensional Internet web sites. Using our technology, we
create our own Internet sites, as well as sites available through third-party
online service providers, such as British Telecommunications, Freeserve, the
largest Internet service provider in the United Kingdom, and Time Warner's Road
Runner service, one of the two largest cable-modem based Internet service
providers in the United States.
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
Historical revenues prior to 1998 were generated by our predecessor
primarily through production service activities and sales of technology
licenses. Following our strategy, we generate revenues in the following manner:
o sales of music and sports related products through our 41 e-commerce
web sites which essentially are artist-specific online stores and include sites
such as DavidBowieStore.com, RickyMartinStore.com, U2Store.com,
EltonJohnStore.com and BruceSpringsteenStore.com, among
others;
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 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.
To date, we have used our technology to develop numerous 3D chat sites and
promotional sites and related products for our company and third parties. We
3
<PAGE>
have also been actively pursuing strategic alliances with a number of companies
that can provide exposure and distribution of our products and technology. We
recently entered into agreements with six major companies in the Internet arena,
including Excite@Home, Road Runner and Freeserve, among others, under which we
produce 3D sites and related products. We are also in negotiations with other
entities for numerous additional projects. No assurance can be given that any
negotiations will lead to the consummation of any additional agreements.
During 1999, we put an experienced management team in place to manage the
expected growth in our businesses in 2000. We expect our e-commerce sales to
grow as we add music and sports related as well as other online stores at an
anticipated rate of four a quarter.
During the first quarter of 2000, we began to generate increased
advertising revenue through our relationship with Freeserve. We expect our
advertising and related revenue to grow as we add advertising to our 3D chat
sites and continue to receive advertising revenue from our 2D sites.
We also expect to see our revenue grow as we rollout 3D entertainment sites
we are developing with e-New Media and British Telecom.
Our VIP subscriptions are continuing to grow in 2000.
Expenses
We classify our expenses into two broad groups:
o cost of revenues; and
o selling, general and administration.
During the second 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 the advertising and marketing campaign;
o maintaining our new e-commerce sites; and
o developing the infrastructure required to handle and promote
rapid growth.
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, 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. For the six months ended June 30, 2000, we capitalized
$133,000 in software development expenditures. During the six months ended June
30, 2000 an adjustment was made to reduce capitalized software by $200,000 for
options that were not issued.
4
<PAGE>
Results of Our Operations
The following data extracted from our unaudited financial statements
compares the results of our operations for the three months ended June 30, 2000
to the three months ended June 30, 1999. The unaudited financial statements
below also compares the results of our operations for the six months ended June
30, 2000 to the six months ended June 30, 1999.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months ended June 30,
--------------------------- -------------------------
(unaudited) (unaudited)
1999 2000 1999 2000
------------------ ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Net revenues $ 57,748 $ 333,741 $ 92,925 $ 513,764
Costs and expenses:
Cost of revenues (48,891) (142,361) (70,355) (212,312)
Selling, general and (809,680) (2,727,300) (1,425,495) (4,818,989)
administrative
Operating loss (800,823) (2,535,920) (1,402,925) (4,517,537)
Other income (expenses):
Interest income 5,180 52,302 17,966 68,053
Interest expense (30,000) (43,144) (68,922) (85,773)
Net loss $(825,643) $(2,526,762) $(1,453,881) $(4,535,257)
</TABLE>
Three months ended June 30, 2000 compared to three months ended June 30, 1999
We saw an increase in all revenue categories. We continued to realize other
royalty revenues by licensing our technology to third parties. In the second
quarter of 2000 revenues were $333,741 compared to revenues of $57,748 during
the second quarter of 1999, an increase of 478%. Compared to the first quarter
of 2000 our revenues increased by 85% primarily due to royalty and related
revenues from licensing our technology and our e-commerce business.
Selling, general and administrative expenses were $2,727,300 for the three
months ended June 30, 2000 as compared to the three months ended June 30, 1999
of $809,680. This represented an increase of $1,917,620. This increase was
attributable to higher costs associated with building a new management team 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 $52,302 of interest income for the three months ended
June 30, 2000 earned from the remainder of the proceeds of our share
5
<PAGE>
offerings as compared to $5,180 for the three months ended June 30, 1999. Other
expenses included interest expense of $43,144 directly attributable to our
predecessor's notes payable for the three months ended June 30, 2000. Interest
expense for the three months ended June 30, 1999 was $30,000.
As a result of the foregoing we incurred a net loss of $2,526,762 for the
three months ended June 30, 2000, compared to a loss of $825,643 for the three
months ended June 30, 1999, an increase of $1,701,119.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
For the six months ended June 30, 1999, revenue was derived only from VIP
memberships and e- commerce. For the six months ended June 30, 2000 we had
revenue from VIP memberships, e-commerce, advertising and royalty and related
revenues from licensing our technology. In the six months ended June 30, 2000
revenues were $513,764 compared to revenues of $92,925 during the six months
ended June 30, 1999, an increase of 453%.
Selling, general and administrative expenses were $4,818,989 for the six
months ended June 30, 2000 as compared to $1,425,495 for the six months ended
June 30, 1999. This represented an increase of $3,393,494. This increase was
attributable to higher costs associated with building a new management team 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 $68,053 of interest income for the six months ended
June 30, 2000 earned from the remainder of the proceeds of our share offerings
as compared to $17,966 for the six months ended June 30, 1999. Other expenses
included interest expense of $85,773 directly attributable to our predecessor's
notes payable for the six months ended June 30, 2000. Interest expense for the
six months ended June 30, 1999 was $68,922.
As a result of the foregoing we incurred a net loss of $4,535,257 for the
six months ended June 30, 2000, compared to a loss of $1,453,881 for the six
months ended June 30, 1999, an increase of $3,081,376.
Liquidity and Capital Resources
At June 30, 2000, we had working capital deficit of $1,472,680 and cash and
cash equivalents in the amount of $1,862,128. There are currently outstanding
convertible promissory notes payable to three of our stockholders (maturing
December 2000) for an aggregate of $1,685,000, and a note payable to one other
stockholder (maturing December 2000) for $250,000.
At June 30, 2000, our total liabilities were $4,043,123 including the
current term portion of notes payable of $2,074,994.
In April 2000, we entered into agreements with four investors to sell an
aggregate of 142,049 shares of common stock at $3.52 per share. We raised
aggregate net proceeds from these sales of $465,000.
6
<PAGE>
In March 2000, we consummated a private placement, selling an aggregate
976,597 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.
Net cash provided from financing activities, net of operating and investing
activities from January 1, 1999 through December 31, 1999 was $239,416. At
December 31, 1999, we had a working capital deficit of $1,441,900 and cash and
cash equivalents in the amount of $1,821,180. The negative working capital is
primarily the result of a convertible promissory note payable to one of our
stockholders (maturing December 3, 2000) for $1,685,000, and a note payable to
such stockholder (maturing December 2000) for $250,000.
As a result of the Mergers, in 1997 we assumed our predecessor's
liabilities of approximately $4.6 million, the majority of which have since been
paid or renegotiated. At December 31, 1999, our total liabilities were
$3,803,146, including the current term portion of notes payable of $2,054,996.
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 will satisfy
our capital requirements through at least November 2000. However, if our plans
change or our assumptions prove to be inaccurate, we may need to seek additional
financing sooner than currently anticipated or curtail our operations. We will
need to raise additional capital during 2001, which may be in the form of equity
or debt financing. Any issuance of equity securities would dilute the interest
of our shareholders. Additionally, if we incur debt, 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.
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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 are currently
expensed as incurred may be capitalized and amortized. We have not yet
determined the impact the adoption of EITF Issue No. 00-2 is expected to
have 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
clarify certain issues that have arisen in practice since the issuance of APB
25. We will adopt the Interpretation on July 1, 2000 and do not expect such
adoption to 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.
8
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PART II OTHER INFORMATION
Item 2. Changes in Securities
(c) Recent sales of Unregistered Securities
OPTIONS
The following options were granted on July 17, 2000. One third of the total
of each option vests on July 17, 2001, 2002 and 2003. The exercise price is
$2.00 per share. All options expire on July 17, 2005. 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
------- -----------------
Thom Kidrin 80,000
Thom Kidrin 15,000
Tom Saleh 75,000
Debra Sito 10,000
Hal Trencher 50,000
Marty Scott 20,000
Chris Ryan 50,000
Frank Kane 45,000
Matt Goheen 10,000
Mike Sivak 30,000
Julie Renfro 15,000
Mike Marakovitz 15,000
Anne Johnson 35,000
Steve Palechek 15,000
Tulley Straub 15,000
9
<PAGE>
Grantee Number of Options
------- -----------------
Paul Embry 20,000
Sean Waldron 20,000
Gary Tobin 20,000
Gail Mason (if she agrees 65,000
to become an employee)
Jeremy Leader (if he 65,000
agrees to become an employee)
Steven Chrust 75,000
Ken Locker 15,000
Bill Harvey 15,000
Steven Chrust 15,000
New outside Director (to 50,000
be named)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (June 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: August 15, 2000
WORLDS.COM INC.
/s/ Thomas Kidrin
By: __________________________
Thomas Kidrin
President, CEO and Treasurer
/s/ Christopher Ryan
By:____________________________
Christopher Ryan
Chief Financial Officer and
Principal Accounting Officer
11
