-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E2w5al4sd/JvN1LBsKjLJtEZd8Qp2HzYhUIuxB6aQpwJn+iqo7KmMxqTiAcPgNkn yqycYHVlfC91fmIX1lxjnQ== 0000950135-98-003410.txt : 19980518 0000950135-98-003410.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950135-98-003410 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLDS INC CENTRAL INDEX KEY: 0000001961 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 221848316 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24115 FILM NUMBER: 98626428 BUSINESS ADDRESS: STREET 1: 2 W 45TH ST CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2125323678 MAIL ADDRESS: STREET 1: 2 WEST 45TH STREET CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: ACADEMIC COMPUTER SYSTEMS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER INDUSTRIES LTD DATE OF NAME CHANGE: 19690318 10QSB 1 WORLDS INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] Quarterly report pursuant to Section 13 or 15(d) of THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT Commission file number 2-31876 WORLDS INC. (Exact name of small business issuer as specified in its charter) NEW JERSEY (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 13-3768554 (IRS EMPLOYER IDENTIFICATION NO.) 15 UNION WHARF, BOSTON, MASSACHUSETTS 02109 (Address of principal executive offices)(Zip Code) (617) 725-8900 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Common Stock outstanding was 16,149,996 shares as of May 14, 1998 Transitional Small Business Disclosure Format: Yes [ ] No [X] 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) FINANCIAL STATEMENTS PERIOD FROM APRIL 8, 1997 (INCEPTION) TO MARCH 31, 1998 3 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) =============================================================================== FINANCIAL STATEMENTS PERIOD FROM APRIL 8, 1997 (INCEPTION) TO MARCH 31, 1998 F-1 4 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) CONTENTS WORLDS INC. (THE "COMPANY") FINANCIAL STATEMENTS (UNAUDITED): Balance sheets F-3 Statements of operations F-4 Statement of stockholders' deficit F-5 Statements of cash flows F-6 Summary of accounting policies F-7 - F-10 Notes to financial statements F-11 - F-14 WORLDS INC. ("PREDECESSOR") [Predecessor company - information prior to date of merger with the Company herein disclosed]: FINANCIAL STATEMENTS (UNAUDITED): Statements of operations F-17 Statements of cash flows F-18 Summary of accounting policies F-19 - F-21 Notes to financial statements F-22 - F-23 F-2 5
WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS December 31, 1997 March 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (Unaudited) ASSETS CURRENT: Cash and cash equivalents $3,541,829 $2,821,472 Trade receivables, less allowance for doubtful accounts of $140,318 and $140,318 538 - Prepaid expenses and other current assets 74,175 47,438 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 3,616,542 2,868,910 PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION 209,452 155,411 - ------------------------------------------------------------------------------------------------------------------------------------ $3,825,994 $3,024,321 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT: Accounts payable $ 568,707 $ 203,429 Accrued expenses 592,250 759,350 Advanced customer billings and deferred revenue 436,140 436,140 Current maturities of notes payable 269,333 291,886 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 1,866,430 1,690,805 LONG-TERM PORTION, NOTES PAYABLE 1,968,333 1,937,500 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 3,834,763 3,628,305 - ------------------------------------------------------------------------------------------------------------------------------------ STOCKHOLDERS' DEFICIT (NOTES 2 AND 3): Common stock, $.001 par value - shares authorized 30,000,000; outstanding 16,119,996 and 16,149,996 16,120 16,150 Additional paid-in capital 6,661,582 6,688,052 Deficit accumulated during the development stage (6,686,471) (7,308,186) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' DEFICIT (8,769) (603,984) - ------------------------------------------------------------------------------------------------------------------------------------ $3,825,994 $3,024,321 - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying summary of accounting policies and notes to financial statements.
F-3 6
WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS (UNAUDITED) Cumulative, period Three months ended from inception to March 31, 1998 March 31, 1998 (a) - ------------------------------------------------------------------------------------------------------------------------------------ NET REVENUES $ 4,002 $ 5,422 COSTS AND EXPENSES: Cost of revenues (2,601) (2,601) Selling, general and administrative (548,340) (1,223,370) Research and development (231,912) (231,912) Acquired research and development - (6,135,538) - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING LOSS (778,851) (7,587,999) OTHER INCOME (EXPENSES): Interest income 41,938 55,531 Interest expense (36,456) (53,148) - ------------------------------------------------------------------------------------------------------------------------------------ LOSS BEFORE EXTRAORDINARY ITEM (773,369) (7,585,616) EXTRAORDINARY ITEM - GAIN ON DEBT SETTLEMENT 151,654 277,430 - ------------------------------------------------------------------------------------------------------------------------------------ NET LOSS $(7,308,186) - ------------------------------------------------------------------------------------------------------------------------------------ LOSS PER SHARE (BASIC AND DILUTED): Loss before extraordinary item $ (.05) Extraordinary item .01 - ----------------------------------------------------------------------------------------------------------- NET LOSS PER SHARE (BASIC AND DILUTED) $ (.04) - ----------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted 16,149,996 - ------------------------------------------------------------------------------------------------------------------------------------ - -------------- (a) Includes the results of Predecessor and Academic (from December 4, 1997) which were merged into the Company on December 3, 1997. - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying summary of accounting policies and notes to financial statements.
F-4 7
WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENT OF STOCKHOLDERS' DEFICIT Period from April 8, 1997 (inception) to March 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------- Deficit accumulated Common Stock during the Total ------------------------------- Additional development stockholders' Shares Amount paid-in capital stage deficit - ------------------------------------------------------------------------------------------------------------------------------- Issuance of common stock to founding stockholders 8,400,000 $ 8,400 $ 195,600 $ - $ 204,000 Sale of shares in private offering memorandum and shares issued to placement agent (Note 3) 4,810,000 4,810 3,689,866 - 3,694,676 Issuance of shares to Academic Computer Systems, Inc. (Note 2) 910,000 910 557,116 - 558,026 Issuance of shares pursuant to merger with Predecessor (Note 2) 1,999,996 2,000 1,998,000 - 2,000,000 Capital contribution resulting from forgiveness of debt to shareholders of Predecessor - - 221,000 - 221,000 Net loss for the period April 8 to December 31, 1997 - - - (6,686,471) (6,686,471) - ------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 16,119,996 16,120 6,661,582 (6,686,471) (8,769) Additional sale of shares in private offering memorandum (January 1998) 30,000 30 26,470 - 26,500 Net loss for the three months ended March 31, 1998 (unaudited) - - - (621,715) (621,715) - ------------------------------------------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1998 (UNAUDITED) 16,149,996 $16,150 $6,688,052 $(7,308,186) $(603,984) - ------------------------------------------------------------------------------------------------------------------------------- See accompanying summary of accounting policies and notes to financial statements.
F-5 8
WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (UNAUDITED) Cumulative, period Three months ended from inception to March 31, 1998 March 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (621,715) $(7,308,186) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 54,041 70,364 Gain on debt settlement (151,654) (277,430) Acquired research and development - 6,135,538 Changes in operating assets and liabilities, net of effects from merger with Predecessor and Academic: Trade receivables 538 - Prepaid expenses and other assets 26,737 120,453 Accounts payable and accrued expenses (46,524) 167,837 - ------------------------------------------------------------------------------------------------------------------------------------ NET CASH USED IN OPERATING ACTIVITIES (738,577) (1,091,424) - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock to founding stockholders - 204,000 Proceeds from sale of common stock in private offering memorandum 26,500 3,721,176 Payments on note payable (8,280) (12,280) - ------------------------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 18,220 3,912,896 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (720,357) 2,821,472 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,541,829 - - ------------------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $2,821,472 $ 2,821,472 - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying summary of accounting policies and notes to financial statements.
F-6 9 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- DEFINITIONS The Company is the resulting entity of two contemporaneous mergers (the "Mergers") of Worlds Inc., a Delaware corporation ("Predecessor"), with and into Worlds Acquisition Corp., a Delaware corporation ("WAC"), and WAC with and into Academic Computer Systems, Inc., a New Jersey corporation ("Academic"), which changed its name to Worlds Inc. (see Note 2). While Academic was the legal entity that survived the mergers, WAC was the accounting acquiror in both mergers. The Company's fiscal year-end is December 31. The term the "Company," as used herein, refers to the consolidated entity resulting from the two contemporaneous mergers, as well the pre-merger Predecessor, WAC and Academic; however, Predecessor, WAC and Academic are hereinafter sometimes referred to separately as the context requires. NATURE OF BUSINESS WAC was incorporated on April 8, 1997 to design, develop and market three-dimensional ("3D") music oriented Internet sites on the World Wide Web. These web sites are anticipated to utilize 3D technologies developed by Predecessor. BASIS OF PRESENTATION The accompanying financial statements are unaudited; however, in the opinion of management, all adjustments necessary for a fair statement of financial position and results for the stated periods have been included. These adjustments are of a normal recurring nature. Selected information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and accompanying notes for the Company for the year ended December 31, 1997 and for the Predecessor for the period ended December 3, 1997. The financial statements include the results of Predecessor and Academic from December 4, 1997, the date of the Mergers (the "Merger Date"). F-7 10 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE SUMMARY OF ACCOUNTING POLICIES - ------------------------------------------------------------------------------- The financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting, and Reporting by Development Stage Enterprises," which requires development stage enterprises to employ the same accounting principles as operating companies. FAIR VALUE OF FINANCIAL The carrying amounts of financial INSTRUMENTS instruments, including cash and short-term debt, approximated fair value as of March 31, 1998 because of the relatively short maturity of the instruments. The carrying value of long-term debt, including the current portion, approximates fair value as of March 31, 1998, based upon estimates for similar debt issues. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of highly liquid money market instruments, which have original maturities of three months or less at the time of purchase. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from two to five years. REVENUE RECOGNITION Revenue from technology development and licensing contracts is recognized upon the attainment of contractual milestones (approximating the percentage-of-completion method). Cash received in advance of revenues earned is recorded as deferred revenue. F-8 11 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) SUMMARY OF ACCOUNTING POLICIES - ------------------------------------------------------------------------------- SOFTWARE DEVELOPMENT Software development costs are charged COSTS to expense when incurred until the technological feasibility of the product has been established. After technological feasibility has been established, any additional costs would be capitalizable in accordance with the Financial Accounting Standards Board's ("FASB") SFAS No. 86 ("SFAS No. 86"). No such costs have been capitalized to date. RESEARCH AND DEVELOPMENT Research and development costs are COSTS expensed as incurred. INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income tax assets and liabilities are recognized based on the temporary differences between the financial statement and income tax bases of assets, liabilities and carryforwards using enacted tax rates. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. LOSS PER SHARE In 1997, the FASB's SFAS No. 128, "Earnings per Share," replaced the calculation of primary and fully diluted earnings (loss) per share with basic and diluted earnings (loss) per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. The loss per share amounts have been presented to conform to SFAS No. 128 requirements. The common stock equivalents which would arise from the exercise of stock options and warrants are excluded from calculation of diluted loss per share since their effect is anti-dilutive. Therefore, the amounts reported for basic and diluted loss per share are the same. F-9 12 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) SUMMARY OF ACCOUNTING POLICIES - ------------------------------------------------------------------------------- STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities to adopt the fair value method in place of the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), for all arrangements under which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of its stock. The Company has not adopted the fair value method encouraged by SFAS No. 123 and will continue to account for such transactions in accordance with APB No. 25. COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Adoption of the standard has had no effect on financial statement disclosures. F-10 13 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 1. GOING CONCERN As discussed in Note 3, the Company completed a private placement raising gross proceeds of $4,415,000 and consummated a merger agreement with a development stage enterprise, Predecessor. Predecessor had not generated significant revenues from operations and had an accumulated deficit from inception to the Merger Date of $21,236,139 and a capital deficit of $4,135,538. The acquisition of Predecessor by the Company was accounted for as a purchase. Accordingly, $6,135,538, the portion of the purchase allocable to in- process research and development projects that had not reached technological feasibility and had no probable alternative future uses, was expensed by the Company at the date of merger. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is in the development stage and has had minimal revenues from operations since the series of merger transactions. The Company anticipates that it currently has only a portion of the funds necessary to complete product development and commercialization. There can be no assurance that the Company will be able to obtain the substantial additional capital resources necessary to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will have a material adverse effect on the Company, including possibly requiring the Company to significantly curtail or cease operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-11 14 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 2. THE MERGERS On December 3, 1997, Predecessor was merged with and into WAC in a series of related transactions which included a simultaneous capital transaction between the Company and Academic (the "Mergers") and a private offering of WAC's securities (the "Private Placement"). In both the merger with Predecessor and the capital transaction with Academic, WAC was the acquiror for accounting purposes. The acquisition of Predecessor was accounted for as a purchase whereby all of the common and preferred stock of Predecessor were exchanged for 1,999,996 shares of WAC. The shares issued to Predecessor common and preferred shareholders were valued at $1.00 per share which represented the share value in the private placement that occurred during this time period (see Note 3); a purchase price of approximately $2,000,000. The exchange ratio was determined after extensive negotiation between management of Predecessor and WAC. Predecessor was a development stage company, had not generated significant revenues from operations and had an accumulated deficit from inception to December 3, 1997 of $21,236,139 and a capital deficit of $4,135,538. The assets acquired of Predecessor (cash, prepaid expenses, property and equipment) were recorded at fair market value which approximated book value at December 3, 1997, and, as discussed in Note 1 above, since technological feasibility of the various Predecessor technologies acquired had not been established, the excess purchase price over Predecessor's capital deficit of $6,135,538 was expensed as acquired research and development. Academic was an inactive company with no operations. The value assigned to the 910,000 shares in the capital transaction with Academic on December 3, 1997 represented Academic's net tangible assets (primarily cash) of $558,026. Academic voluntarily reported under the Securities Exchange Act of 1934 (the "Exchange Act"). The Company intends to continue reporting under the Exchange Act. While no trading market existed for the securities of Academic, or currently exists for the securities of the Company, the Company intends to cause its common stock to be traded on the Bulletin Board. F-12 15 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 3. THE PRIVATE PLACEMENT The Private Placement called for WAC to offer for sale a maximum of 50 units (57-1/2 with the over-allotment), each consisting of 120,000 shares of WAC's common stock (the "Units") at a price of $120,000 per Unit. In connection with the Private Placement, the placement agent was to receive one warrant to purchase one share of WAC's common stock at $1 per share for every $40 of gross proceeds from the sale of the Units. On November 21, 1997, WAC sold 31.67 Units with gross proceeds of $3,800,000 (3,800,000 shares) (the "Initial Private Placement Closing") and the placement agent was issued 425,000 shares of common stock. On December 31, 1997, the Company sold 4.88 Units with gross proceeds of $585,000 (585,000 shares). On January 2, 1998 a further 30,000 shares were issued with gross proceeds of $30,000. Cumulative net proceeds, after commissions and expenses of the offering, aggregated $3,721,176. WAC agreed to include the shares of common stock underlying the Units sold in the Private Placement (the "Private Placement Shares") in a registration statement to be filed with the Securities and Exchange Commission (the "SEC"). Such registration statement was declared effective by the SEC on May 1, 1998. 4. SUBSEQUENT EVENT On May 7, 1998, the Company signed a letter of intent ("Letter of Intent") with Unity First Acquisition Corp., a Delaware corporation ("Unity"), whereby Unity would acquire all of the outstanding shares of Worlds Inc. (the "Company") in exchange for shares of its own common stock. The acquisition, if consummated, calls for each share of the Company's stock being converted into .357 shares of Unity's common stock. At that point, the Company would "reverse-merge" into Unity which would then change its name to "Worlds Inc." The Company's current management will continue as management following the transaction. F-13 16 WORLDS INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Unity is a "blank check" company with no operations, formed in May 1996 for the sole and exclusive purpose of acquiring an operating business. Certain of Unity's management and stockholders are stockholders of the Company. In the aggregate, directly and indirectly, they own approximately 1.1 million shares of the Company's common stock. Unity's unaudited financial statements as of January 31, 1998 showed that Unity had approximately $6,400,000 in net worth, almost all of which is in the form of cash or cash equivalents. On May 7, 1998, Unity had outstanding 1,875,000 shares of common stock; 1,350,000 Class A warrants exercisable at $5.50 per share; and 1,350,000 Class B warrants exercisable at $7.50 per share. Unity also has 125,000 underwriter's warrants outstanding, exercisable at a price of $6.60 per warrant to purchase up to a like number of shares of common stock, and Class A and Class B warrants. Unity's common stock is quoted on the Bulletin Board under the symbol "UFAC" and, on May 6, 1997, closed at $4.875. The Letter of Intent contemplates that following the consummation of the transaction, the officers, directors and principal stockholders of the Company and Unity will lock up their shares for twelve months. The Letter of Intent is not binding on either corporation. The consummation of the contemplated transaction is subject to the Company and Unity agreeing to the terms of a definitive agreement and plan of merger to be negotiated between them and then to the approval of the stockholders of each corporation. Accordingly, no assurance can be given that the transaction discussed herein will ever be consummated or, if a transaction is consummated, that its terms will be as contemplated in the Letter of Intent or favorable to the stockholders of the Company. F-14 17 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) FINANCIAL STATEMENTS Three months Ended March 31, 1997 and Period from APRIL 26, 1994 (INCEPTION) TO DECEMBER 3, 1997 18 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) - ------------------------------------------------------------------------------- FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1997 AND PERIOD FROM APRIL 26, 1994 (INCEPTION) TO DECEMBER 3, 1997 F-15 19 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) CONTENTS Worlds Inc. ("Predecessor") is considered a predecessor company and the information disclosed herein is as of and prior to the date of merger with Worlds Inc. (formerly Worlds Acquisition Corp.) ("WAC") on December 3, 1997. FINANCIAL STATEMENTS (UNAUDITED): Statements of operations F-17 Statements of cash flows F-18 Summary of accounting policies F-19 - F-21 Notes to financial statements F-22 - F-23 F-16 20
WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ Three months ended Cumulative, period March 31, 1997 from inception to (unaudited) December 3, 1997 (a) - ------------------------------------------------------------------------------------------------------------------------------------ NET REVENUES $ 39,985 $ 6,026,691 - ------------------------------------------------------------------------------------------------------------------------------------ COSTS AND EXPENSES Cost of revenues 18,603 11,279,348 Selling, general and administrative 1,244,093 10,602,749 Research and development 311,564 5,388,340 Lawsuit settlements - 509,200 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL COSTS AND EXPENSES 1,574,260 27,779,637 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING LOSS (1,534,275) (21,752,946) OTHER INCOME AND (EXPENSES): Interest income 9,913 237,629 Interest expense (36,828) (171,082) Gain (loss) on disposal of property and equipment 6,155 (79,125) Income from sale of technology 260,100 260,100 - ------------------------------------------------------------------------------------------------------------------------------------ LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (1,294,935) (21,505,424) INCOME TAXES 2,500 120,000 - ------------------------------------------------------------------------------------------------------------------------------------ LOSS BEFORE EXTRAORDINARY ITEM (1,297,435) (21,625,424) EXTRAORDINARY ITEM - GAIN ON DEBT SETTLEMENT - 389,285 - ------------------------------------------------------------------------------------------------------------------------------------ NET LOSS $(1,297,435) $(21,236,139) - ------------------------------------------------------------------------------------------------------------------------------------ - -------------- (a) Date of merger with Worlds Inc. (formerly Worlds Acquisition Corp.) - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying summary of accounting policies and notes to financial statements.
F-17 21
WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------ Cumulative, period from April 26, Three months ended 1994 (inception) to March 31, 1997 December 3, 1997 (a) - ------------------------------------------------------------------------------------------------------------------------------------ (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,297,435) $(21,236,139) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 66,370 721,097 (Gain) loss on disposal of property and equipment (6,155) 79,125 Gain on debt settlement - (389,284) Compensation related to stock options 2,710 761,453 Compensation related to common stock issuance - 58,525 Licensed technology expense - 750,000 Changes in operating assets and liabilities: Trade receivables 388,910 - Prepaid expenses and other assets 52,093 (167,891) Accounts payable and accrued liabilities (363,153) 1,856,619 Advanced customer billings and deferred revenue - 436,140 - ------------------------------------------------------------------------------------------------------------------------------------ NET CASH USED IN OPERATING ACTIVITIES (1,156,660) (17,130,355) - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS USED IN INVESTING ACTIVITIES: Acquisition of property and equipment - (999,302) - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - 116,857 Proceeds from issuance of preferred stock, net of issuance costs - 16,163,766 Advance from Worlds Inc. (formerly Worlds Acquisition Corp.) - 561,397 Payments on capital lease - (116,018) Payments on note payable (40,000) (190,000) Proceeds from note payable 500,000 1,650,000 - ------------------------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 460,000 18,186,002 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (696,660) 56,345 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 894,692 - - ------------------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 198,032 $ 56,345 - ------------------------------------------------------------------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ - $ 23,916 Income taxes paid - 5,620 - ------------------------------------------------------------------------------------------------------------------------------------ DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES: In the quarter ended March 1997, as part of the restructuring of operations, the Predecessor disposed of property and equipment with a net book value of $252,180, which included $138,439 of equipment under capital leases. The related capital lease obligations, totaling $123,013, were assumed by the lessor and a party which acquired certain assets used in the Predecessor's prior Seattle operations. The agreement with this party also resulted in a reduction of trade payables totaling $87,226. - ------------------------------------------------------------------------------------------------------------------------------------ - -------------- (a)Date of merger with Worlds Inc. (formerly Worlds Acquisition Corp.) - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying summary of accounting policies and notes to financial statements.
F-18 22 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) SUMMARY OF ACCOUNTING POLICIES - ------------------------------------------------------------------------------- NATURE OF BUSINESS Worlds Inc. (the "Predecessor") was incorporated under the laws of Delaware on April 26, 1994. The Predecessor was formed to develop and commercialize 3D multi-user tools and technologies for the Internet market. The Predecessor is in the development stage and, as such, has not generated significant revenues from operations. BASIS OF PRESENTATION The accompanying financial statements are unaudited; however, in the opinion of management, all adjustments necessary for a fair statement of financial position and results for the stated periods have been included. These adjustments are of a normal recurring nature. Selected information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and accompanying notes for the Predecessor for the period ended December 3, 1997. The accompanying financial statements have been prepared assuming that the Predecessor will continue as a going concern. The Predecessor is in the development stage (see Note 1) and has suffered recurring losses from operations since its inception that raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As more fully described in Note 2, on December 3, 1997, the Predecessor consummated a merger agreement with Worlds Inc. (formerly Worlds Acquisition Corp.) ("WAC"), a company which had completed a private placement offering of securities. The financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises," which requires development stage enterprises to employ the same accounting principles as operating companies. F-19 23 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- RESTRUCTURING OF OPERATIONS Due to recurring losses, insufficient revenue, a working capital deficit and a net stockholders' deficit, the Predecessor's management made significant reductions in operations in February 1997 that are reflected in the Predecessor's financial statements for the period ended December 3, 1997. In March 1997, the Predecessor engaged an outside management firm to assist with the downsizing of operations which has included a major reduction in employees and a consolidation of all operations to one location in San Francisco. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. REVENUE RECOGNITION Revenue from technology development and licensing contracts is recognized upon the attainment of contractual milestones (approximating the percentage-of-completion method). Cash received in advance of revenues earned is recorded as deferred revenue. SOFTWARE DEVELOPMENT COSTS Software development costs are charged to expense when incurred until the technological feasibility of the product has been established. After technological feasibility has been established, any additional costs would be capitalizable in accordance with SFAS No. 86. No such costs have been capitalized to date. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. F-20 24 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- INCOME TAXES The Predecessor uses the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes.". Deferred income tax assets and liabilities are recognized based on the temporary differences between the financial statement and income tax bases of assets, liabilities and carryforwards using enacted tax rates. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. CONCENTRATION OF CREDIT RISK The Predecessor derives revenues from corporate customers in a variety of industries. For the periods ended March 31, 1997 and December 3, 1997, no individual customer accounted for more than 10% of revenues. NEW ACCOUNTING STANDARDS Effective January 1, 1996, the Predecessor adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Under this standard, companies are encouraged, but not required, to adopt the fair value method of accounting for employee stock-based transactions. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Companies are permitted to continue to account for employee stock-based transactions under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," but are required to disclose pro forma net income and earnings per share as if the fair value method has been adopted. The Predecessor has elected to continue to account for stock-based compensation under APB No. 25. F-21 25 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. GOING CONCERN The accompanying financial statements have been prepared on a going- concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Predecessor, as of December 3, 1997, had incurred recurring losses since inception totaling $21,236,139. As discussed in Note 2, on December 3, 1997, the Predecessor consummated a merger agreement with WAC, a company which had completed a private placement offering of securities whereby $4,415,000 of gross proceeds was raised. The Predecessor anticipates, however, that it currently has only a portion of the funds necessary to permit it to complete product development and commercialization. There can be no assurance that the Predecessor will be able to obtain the substantial additional capital resources necessary to permit the Predecessor to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. WAC is pursuing sources of additional financing and there can be no assurance that any such financing will be available to WAC on commercially reasonable terms, or at all. Any inability to obtain additional financing will have a material adverse effect on the Predecessor and WAC, including possibly requiring the Predecessor or WAC to significantly curtail or cease operations. These factors raise substantial doubt about the ability of the Predecessor to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-22 26 WORLDS INC. - PREDECESSOR (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2. MERGER On December 3, 1997, the Predecessor was merged with and into Worlds Inc. (formerly Worlds Acquisition Corp.) ("WAC") in a series of related transactions which included the simultaneous merger with and into Academic Computer Systems, Inc., a New Jersey corporation ("Academic") (the "Mergers") and a private offering of WAC's securities (the "Private Placement"). All of the common and preferred stock of the Predecessor were exchanged for 1,999,996 shares of WAC. WAC was incorporated in Delaware on April 8, 1997 to engage in designing, developing and marketing three-dimensional ("3D") music oriented Internet sites on the World Wide Web. These web sites are anticipated to utilize 3D technologies developed by the Predecessor. Academic was an inactive company with no operations. Academic voluntarily reported under the Securities Exchange Act of 1934 "Exchange Act"). The combined entity that resulted from the Mergers (the "Combined Entity") intends to continue reporting under the Exchange Act. While no trading market existed for the securities of Academic, or currently exists for the securities of the Combined Entity, the Combined Entity intends to cause its common stock to be traded on the Bulletin Board. F-23 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Statements contained herein which are not historical facts are forward-looking statements. Forward-looking statements involve a number of risks and uncertainties including, but not limited to, general economic conditions, the Company's ability to complete development and then market its products, competitive factors and other risks as stated in other of the Company's public filings with the Securities and Exchange Commission. The Company was originally formed on May 20, 1998. Since 1975 the Company has been inactive with no operations and its only income has come from interest and dividends. Following the contemporaneous mergers (the "Mergers") of Worlds Inc, a Delaware corporation formed on April 26, 1994 ("Predecessor"), with and into Worlds Acquisition Corp., a Delaware corporation formed on April 8, 1998 ("WAC") and of WAC with and into the Company, then called Academic Computer Systems, Inc., which changed its name to Worlds Inc., the Company is engaged in the business and operations formerly conducted by Predecessor. Accordingly, a discussion and analysis of the Company's financial condition and results of its operations would be of limited import to any reader as it would only cover activities (or lack thereof) which have no meaning in the context of the Company's current operations. Thus, included herein is a discussion and analysis of, and comparison to, the financial condition and results of the operations of Predecessor's pre-Mergers operations. The following discussion should be read in conjunction with the Financial Statements and related notes thereto included elsewhere herein. BACKGROUND Predecessor was formed in April 1994 to design, develop and commercialize 3D multi-user tools and technologies for the Internet market. From inception through 1997, Predecessor's operations were limited and consisted primarily of start-up activities, including recruiting personnel, raising capital, and research and development. In the third quarter of 1996, Predecessor launched its first commercial user-oriented 3D chat site, Worlds Chat 1.0 and began selling the client interface software through direct sales channels. In October of 1996, Predecessor introduced its first commercial toolset for developing 3D multi-user applications. In the first quarter of 1997, after an unsuccessful effort to raise capital, Predecessor became insolvent and released most of its personnel, and management sought to sell Predecessor and/or its technology. Predecessor has not generated significant revenues, and the Company will not generate significant revenues, if ever, until after it successfully completes development and market testing of Worlds Platinum and its 3D Internet music sites, and attracts and retains a significant number of subscribers and/or advertisers. The Company anticipates that it will continue to incur significant losses until, at the earliest, the Company generates sufficient revenues to offset the substantial up-front expenditures and operating costs associated with developing and commercializing its proposed products. There can be no assurance that the Company will be able to attract and retain a sufficient 2 28 number of subscribers and/or advertisers to generate significant revenues or achieve profitable operations or that its products and services will prove to be commercially viable. Predecessor (and now the Company), classified its expenses into three broad groups: (i) research and development; (ii) cost of revenues; and (iii) selling, general and administrative. Revenues consisted primarily of production service activities and sales of technology licenses. Software development costs (consisting primarily of salaries and related expenses) incurred prior to establishing technological feasibility are expensed in accordance with Financial Accounting Standards Board (FASB) Statement No. 86. In accordance with FASB 86, the Company will capitalize software development costs at such time as the technological feasibility of the product has been established. PLAN OF OPERATION During the next twelve months of operation the Company intends to (i) refine and commercialize the technology of Predecessor by producing interactive, 3D, music related websites and distribute access to these web sites on enhanced compact discs ("CD+") of various recording artists via traditional retail record outlets, working in conjunction with major record labels, (ii) provide the Company's proprietary 3D toolsets to aid programmers in the creation of unique 3D user experiences on the Internet, and (iii) offer the Company's 3D technology for non-music applications such as corporate intranets. The Company is presently completing work on Worlds Platinum, the latest version of the Company's 3D internet software, to adapt it for distribution and use on CD+ media. The Company is also in discussions with several major record labels and companies for them to distribute Worlds Platinum, along with music related web site access and graphics files co-authored by the Company and the particular record label or company. While the Company foresees no particular obstacle to completing work on Worlds Platinum, the development of software is inherently fraught with unforeseen delays resulting from bugs, lack of coordination among development staff, integration with other software and hardware, and general design flaws, among other problems. In addition, the Company's strategy of distributing its products on CD+ is wholly dependent upon obtaining distribution agreements with record labels or companies. To date, the Company has no such agreements and does not expect to have any until it can demonstrate that it has successfully adapted Worlds Platinum for distribution on CD+ media as planned. The Company's present cash resources are insufficient to meet the requirements of its business plan over the next twelve months, however, if substantially all of the shares currently being offered by the Company are sold or if the Company successfully completes its anticipated merger with Unity First Acquisition Corp, the Company will have sufficient cash resources for at least the next twelve months. The Company currently has 7 full-time employees and does not anticipate hiring more than 2-3 additional employees or purchasing additional plant or equipment until product sales increase significantly and additional financing is obtained. RESULTS OF OPERATIONS OF THE COMPANY (Note to Results of Operations. The Predecessor merged into WAC and Academic on December 3, 1997) 3 29 The following data extracted from the attached financial statements compares the results of operations of the Company for the three months ended March 31, 1998 to those of the Predecessor for the three months ended March 31, 1997. Worlds Inc. Worlds Inc.-Predecessor Three months ended 3/31/98 3/31/97 ------- ------- Net Revenue $ 4,002 39,985 Costs & Expenses: Cost of revenues (2,601) (18,603) Selling, general & administrative (548,340) (1,244,093) Research & development (231,912) (311,564) --------- --------- Operating Loss (778,851) (1,534,275) Other Income (Expense): Interest income 41,938 9,913 Interest expense (36,456) (36,828) Loss on disposal of equipment -0- 6,155 Income from sale of technology -0- 260,100 -------- -------- Loss before taxes & extraordinary item (773,369) (1,294,935) Income taxes -0- (2,500) Extraordinary item - gain on debt settlement 151,654 -0- ------- --- Net Loss (621,715) (1,297,435) --------- ----------- In the first quarter of 1998 the company continued the implementation of the new business plan. Significant expenditure was incurred towards completion of the Platinum technology and also with legal and professional fees as the company proceeds with its public share listing. In the first quarter of 1997 Predecessor was insolvent and had failed to raise any additional capital. In January and February the majority of Predecessor's personnel were released and most of its management team resigned. Normal operations of Predecessor ceased and significant wind down costs were incurred. 4 30 The Seattle network operations center and Active Worlds, an earlier generation of Predecessor's technology, were both sold, resulting in gross proceeds of approximately $305,000 Revenues are nominal and are derived from the company's WorldsChat product. Revenue was $4,002 and had associated direct costs of $2,601 for the three months ended March 31, 1998 compared to $39,985 in revenue and $18,603 of direct costs for the same period in 1997. Selling, general and administrative expenses were $548,340 for the three months ended March 31, 1998. This represented a decrease of $695,753 from $1,244,093 compared to the three months ended March 31, 1997. This decrease was directly attributable to the higher costs associated with the Predecessor ceasing normal operations in the first quarter of 1997. Research and development costs decreased by $79,652 to $231,912 for the three months ended March 31, 1998 from $311,564 for the three months ended March 31, 1998. This decrease is directly attributable to the company developing technology on three platforms in the first quarter of 1997 and two platforms in 1998. The Activeworlds technology was sold in 1997. Other income included $41,938 of interest income in the three months to March 31,1998 earned from the proceeds of the recent share offering. Other income in the three months to March 31, 1997 included interest income of $9,913, the sale of the Activeworlds technology in the amount of $260,100 and a property disposal gain of $6,155 Other expenses included interest expense of $36,456 directly attributable to the Predecessor's notes payable in the three months to March 31, 1998. Interest expenses in the three months to March 31, 1997 were $36,828. As a result of the foregoing the Company incurred a net loss of $621,715 for the three months to March 31,1998, compared to a loss $1,297,436 for the three months to March 31,1997 a decrease of 52%. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY Net cash used by the Company's operating activities from January 1,1998 through March 31, 1998 was $738,577. At March 31, 1998 the Company had cash of $2,821,472; its working capital was $1,750,112. On December 3, 1997, Predecessor merged with and into WAC. Contemporaneously, WAC, closed the first round of a private placement of its common stock (the "Private Offering") raising gross proceeds of $3.8 million (of which it netted approximately $3,000,000) and WAC merged with and into the Company, then called Academic Computer Systems, Inc. ("Academic"), an inactive corporation with approximately $600,000 of assets, all in the form of cash or cash equivalents. Thereafter, Academic changed its name to Worlds Inc. The merger of Predecessor into WAC and the subsequent merger of WAC with and into Academic are sometimes hereinafter collectively referred to herein as the "Mergers." Prior to the Mergers, the Company had 910,000 shares outstanding. Effective December 31, 1997, the Company closed on an additional $585,000 of gross proceeds from the Private Offering, of which it netted $529,000, and issued an additional 585,000 shares of Common Stock and on January 2, 1998 received an additional $30,000, of which it netted $26,500, and issued an additional 30,000 shares. The total issued and outstanding shares of the Company as of March 31, 1998 is therefore 16,149,996 shares. The terms of the Mergers called for the issuance, in exchange for all of the outstanding shares of WAC (which also included the former shareholders of Predecessor), of an aggregate of 14,000,000 shares of Academic's common stock distributed, as follows: 8,400,000 to the former shareholders of WAC; 1,999,996 to the former shareholders of Predecessor and; 5 31 3,800,000 to the investors in the private placement offering. As part of the Merger, the Company issued 425,000 shares as a financial advisory fee to International Capital Growth, Ltd. On May 1, 1998 the Securities and Exchange Commission declared effective a registration statement of the Company (as Supplemented on May 7, 1998) covering the Company's sale of 2,000,000 shares of common stock at $1.00 per share and the sale by securityholders of 5,604,375 shares of common stock. The Company's capital requirements relating to the development and commercialization of Worlds Platinum have been and will continue to be significant. The Company is dependent on the proceeds of its current offering and other future financings in order to continue in business and develop and commercialize its proposed products. The Company anticipates, based on currently proposed business plans and assumptions relating to its operations (including the timetable of, and costs associated with, product development and commercialization), that the proceeds of its current offering, will provide only a portion of the funds necessary to permit the Company to complete product development and commercialization. Satisfactory completion of product development and commercialization will require capital resources substantially greater than the proceeds of its current offering or otherwise currently available to the Company. In addition, as a result of the Mergers by operation of law, the Company assumed the Predecessor's liabilities of approximately $4 million. Although the Company is in the process of negotiating the amount and timing of payment of some of its liabilities, there is no assurance that such negotiations will be successful. PART II OTHER INFORMATION ITEM 5. OTHER INFORMATION. On May 7, 1998, the Company signed a Letter of Intent with Unity First Acquisition Corp., a Delaware corporation ("Unity"), whereby Unity would acquire all of the outstanding shares of Worlds Inc. (the "Company") in exchange for shares of its own common stock, par value $.0001 per share. The acquisition, if consummated, calls for each share of the Company's stock being converted into .357 shares of Unity's common stock. At that point the Company would "reverse-merge" into Unity which would then change its name to "Worlds Inc." The Company's current management will continue as management following the transaction. Unity is a "blank check" company with no operations formed in May 1996 for the sole and exclusive purpose of acquiring an operating business. Certain of Unity's management and stockholders are shareholders of the Company. In the aggregate, directly and indirectly, they own approximately 1.1 million shares of the Company's common stock. Unity's unaudited financial statements as of January 31, 1998 showed that Unity had approximately $6,400,000 in net worth, almost all of which is in the form of cash or cash equivalents. As of the date hereof, Unity had outstanding 1, 875,000 shares of common stock; 1,350,000 Class A Warrants exercisable at $5.50 per share; and 1,350,000 Class B Warrants exercisable at $7.50 per share. Unity also has 125,000 underwriter's warrants outstanding exercisable at a price of $6.60 per warrant to purchase up to a like number of shares of common stock, Class A and Class B warrants. Unity's common stock is quoted on the Bulletin Board under the symbol "UFAC" and on May 6, 1997, closed at $4.875. The Letter of Intent contemplates that following the consummation of the transaction the officers, directors and principal shareholders of the Company and Unity will lockup their shares for twelve months. The Letter of Intent is not binding on either corporation. The consummation of the contemplated transaction is subject to the Company and Unity agreeing to the terms of a definitive agreement and 6 32 plan of merger to be negotiated between them and then to the approval of the shareholders of each corporation. Accordingly, no assurance can be given that the transaction discussed herein will ever be consummated, or if a transaction is consummated, that its terms will be as contemplated in the Letter of Intent or favorable to the shareholders of the Company. As disclosed above in Item 2, the Company requires additional financing to reach its goals. The Company believes that if the Unity transaction is successfully consummated on its currently proposed terms, the Company will have additional funds to help complete its current projects, although additional financing in the future may be required. The Company's management and its largest shareholder, which currently control in the aggregate approximately 49.5% of the Company's common stock, intend to vote in favor of the transaction should it develop to that level. The disclosure in this Item 5 is a "forward looking statement" which may never eventuate. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) A financial data schedule is filed herewith as an exhibit. (b) No reports on Form 8-K were filed during the quarter for which this report is being filed. 7 33 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereto duly authorized. Date: May 14, 1997 WORLDS INC. By: /s/ -------------------------- Thomas Kidrin, President, CEO and Treasurer 8 EX-27 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF WORLDS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 2,821,472 0 140,318 (140,318) 0 2,868,910 650,557 (495,146) 3,024,321 1,690,805 0 0 0 16,150 (620,134) 3,024,321 4002 4002 2601 2601 780,252 0 36,456 (773,369) 0 (773,369) 0 151,654 0 (621,715) (.04) (.04)
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