-----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, BCmsMhSn+M0e9zuRhuO1O3TKAfaoqHmReKix7nMndNOcBP4fD7XtSEPPcVCd6PC2 dw4HmnLQ2njjYYRl6ZHGyA== 0001094891-01-500141.txt : 20010516 0001094891-01-500141.hdr.sgml : 20010516 ACCESSION NUMBER: 0001094891-01-500141 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLDS COM INC CENTRAL INDEX KEY: 0000001961 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] 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: 1640382 BUSINESS ADDRESS: STREET 1: 15 UNION WHARF CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6177258900 MAIL ADDRESS: STREET 1: 15 UNION WHARF CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: WORLDS INC DATE OF NAME CHANGE: 19980213 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_33101-10q.txt FORM 10QSB FOR 3/31/01 QUARTER 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 March 31, 2001 ( ) 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. (not affiliated with Worldcom, Inc.) (Exact name of registrant as specified in its charter) New Jersey 22-1848316 ------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer ID No.) incorporation or organization) 1786 Bedford Street Stamford, Connecticut 06905 ------------------------------------- (Address of principal executive offices) (203) 316-0794 ------------------------- (Issuer's telephone number) Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of May 14, 2001, 33,824,341 shares of the Issuer's Common Stock were outstanding. Transitional Small Business Disclosure Format (check one): YES NO X Worlds.com Inc. INDEX Page ---- PART I. FINANCIAL INFORMATION Balance Sheet at March 31, 2001 F-2 Statements of Operations for the Three Months ended March 31, 2000 and 2001 F-3 Statement of Stockholders' Equity (Deficit) for the Period from December 31, 1999 to March 31, 2001 F-4 Statements of Cash Flows for the Three Months Ended March 31, 2000 and 2001 F-5 - F-6 Notes to Financial Statements F-7 - F-10 F-1
Worlds.com Inc. BALANCE SHEET March 31, 2001 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 115,140 Accounts receivable 62,471 Prepaid expenses and other current assets 45,273 Inventories 49,125 ------------ Total current assets 272,009 DEPOSITS 72,527 PROPERTY, EQUIPMENT AND SOFTWARE DEVELOPMENT, NET of ACCUMULATED DEPRECIATION AND AMORTIZATION 1,025,991 INTANGIBLE ASSET - NET 134,767 ------------- $ 1,505,294 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 1,066,656 Accrued expenses 611,066 Deferred revenue 673,887 Current maturities of notes payable 1,811,813 ------------ Total current liabilities 4,163,422 LONG-TERM PORTION, NOTES PAYABLE 16,675 6% CONVERTIBLE PROMISSORY NOTE (NET Of DISCOUNT OF $32,800) 317,200 ------------- Total liabilities 4,497,297 COMMITMENTS STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.001 par value - authorized, 65,000,000 shares; issued, 33,824,341 shares 33,824 Additional paid-in capital 20,146,723 Accumulated deficit (23,172,550) ----------- (2,992,003) $ 1,505,294
The accompanying notes are an integral part of this statement. F-2
Worlds.com Inc. STATEMENTS OF OPERATIONS (unaudited) Three months ended March 31, 2000 2001 ---------- -------- Revenues $ 180,023 $ 177,756 Revenue from terminated contract - 834,722 --------- --------- 180,023 1,012,478 Costs and expenses Cost of revenues 69,951 194,280 Selling, general and administrative 2,091,689 1,408,103 --------- --------- Operating loss (1,981,617) (589,905) ----------- --------- Other income (expense) Interest income 15,751 6,020 Interest expense (42,629) (785,224) Offering expenses - (208,880) ----------- ------------ NET LOSS $(2,008,495) $ (1,577,989) ============ ============= Loss per share (basic and diluted) $(.11) $(.05) ============ ============= Weighted average common shares outstanding Basic and diluted 17,776,845 30,708,663 ============ =============
The accompanying notes are an integral part of these statements. F-3
Worlds.com Inc. STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) Period from December 31, 1999 to March 31, 2001 (unaudited) Total Common stock Additional stockholders' ----------------------- Paid-in Deficit equity Shares Amount capital Accumulated (deficit) ---------- ------------ ------------ -------------- ----------- 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 138,231 138,231 (March 2000) Sale of shares in private offering memorandum, net (April 2000) 142,049 142 464,858 465,000 Issuance of shares for Inventory (April 2000) 32,000 32 67,968 68,000 Adjustment to capitalize software for options (200,000) (200,000) Issuance of shares to agent for content supply agreement (July 2000) 100,000 100 143,650 143,750 Issuance of Stock options for consulting services July through September 34,464 34,464 Issuance of stock options for consulting services (October through 25,000 25,000 December 2000) Net loss for the year ended December 31, 2000 (8,919,909) (8,919,909) ---------- ------------- ------------ ------------- ------------- Balance, December 31, 2000 19,204,177 19,204 17,687,162 (21,594,561) (3,888,195) Issuance of warrants in private placement (January 2001) 206,800 206,800 Beneficial conversion feature relating to Issuance of convertible debt and warrants in Private placement (January 2001) 572,381 572,381 Issuance of shares for Convertible Notes (January and February 2001) 14,620,164 14,620 1,515,380 1,530,000 Issuance of options for consulting services (February 2001) 165,000 165,000 Net Loss for the three months ended March 31, 2001 (1,577,989) (1,577,989) ------------ ------------ ------------ ------------ ------------ Balance March 31, 2001 33,824,341 $ 33,824 $ 20,146,723 $(23,172,550) $ (2,992,003) ============ ============ ============ ============ ============
The accompanying notes are an integral part of this statement. F-4
Worlds.com Inc. STATEMENTS OF CASH FLOWS Three months ended March 31, (unaudited) 2000 2001 ------------ -------- Cash flows from operating activities Net loss $ (2,008,495) $(1,577,989) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 337,100 185,988 Accretion of deferred revenue - (855,186) Consulting expense related to the issuance of stock options 120,417 165,000 Interest expense on beneficial conversion feature in private placement - 746,381 Placement fee and bonus expense paid with convertible notes 95,000 Changes in operating assets and liabilities Private Placement proceeds receivable (1,255,373) - Accounts receivable 40,509 142,875 Prepaid expenses and other current assets 9,729 199,826 Inventories (37,635) 87,580 Accounts payable and accrued expenses 318,893 (377,659) Deferred revenue 19,936 55,547 ------------- ----------- Net cash used in operating activities (2,454,919) (1,092,637) ------------- ----------- Cash flows from investing activities Acquisition of property and equipment (38,555) - Additions to software development costs 0 (80,324) ---- ------------ Net cash used in investing activities (38,555) (80,324) ----------- ------------ Cash flows from financing activities Proceeds from sale of common stock in private offering memorandum 3,243,957 Proceeds from exercise of options 135,500 Proceeds from sale of Convertible Notes - 1,250,000 ------------- ----------- Net cash provided by financing activities 3,379,457 1,250,000 ------------- ----------- Net increase in cash and cash equivalents 885,983 77,039 Cash and cash equivalents, beginning of period 1,821,180 38,101 ------------- ----------- Cash and cash equivalents, end of period $ 2,707,163 $ 115,140 ============= =========== Supplemental disclosures of cash flow information: Cash paid during the year for Interest $ - $ - Income taxes - -
The accompanying notes are an integral part of these statements. F-5 Noncash investing and financing activities: Issuance of a convertible note payable valued at $20,000 to the placement agent in connection with the convertible notes in January 2001. Issuance of convertible notes for outstanding debt valued at $535,000 including a promissory note valued at $250,000 and other current debt to insiders valued at $95,000 in January 2001. Bonuses and expenses of $75,000 paid with convertible notes. Issuance of stock options for consulting services of $165,000 in the period ended March 31, 2001. Conversion of $1,530,000 of 6% convertible promissory notes to 14,620,164 shares of Common Stock in 2001. The accompanying notes are an integral part of these statements. F-6 Worlds.com Inc. NOTES TO FINANCIAL STATEMENTS March 31, 2000 and 2001 (unaudited) NOTE 1 - SUMMARY OF ACCOUNTING POLICIES Nature of Business The Company designs, develops and markets three-dimensional ("3D") Internet sites on the World Wide Web. These web sites utilize 3D technologies. 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 accounting principles generally accepted in the United States of America applicable to the interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes for the Company for the year ended December 31, 2000. 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. F-7 Worlds.com Inc. NOTES TO FINANCIAL STATEMENTS (continued) March 31, 2000 and 2001 (unaudited) NOTE 1 (continued) As of July 1, 2000, the Company began recording software development costs in accordance with the Emerging Issues Task Force (the "EITF") consensus on Issue No. 00-2, "Accounting for Web Site Development Costs" ("EITF Issue No. 00-2"). 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" ("SOP 98-1") or under Statement of Financial Accounting Standards No. 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 No costs were capitalized for the period ending March 31, 2000. Approximately $80,000 was capitalized and included in property, equipment and software development during the period ended March 31, 2001. Amortization of the costs capitalized commenced in the first quarter of 1999, based on current and anticipated future revenues for each product or enhancement with an annual minimum equal to straight-line amortization over the remaining estimated economic life of the product or enhancement. Software development costs are being amortized over a periods of between two and three years. Amortization expense charged to operations for the three months ended March 31, 2000 and 2001 was approximately $113,000 and $129,000, respectively. 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 2001, the Company granted options to purchase an aggregate of 1,498,000 shares of common stock to directors, officers, employees, consultants and to one vendor of the Company at an exercise price of $0.31, which was the fair value at the grant date, and 100,000 shares of common stock to an unrelated company at an exercise price of $2.00. In connection with options issued to non-employees, the Company recorded consulting expense of approximately $165,000 for the fair market value of the options using the Black-Scholes calculation. F-8 Worlds.com Inc. NOTES TO FINANCIAL STATEMENTS (continued) March 31, 2000 and 2001 (unaudited) NOTE 2 - GOING CONCERN As discussed in Note 3, the Company completed a private placement of convertible notes during the first quarter of 2001, raising net proceeds of $1,250,000, converting current insider debt of $95,000 and other outstanding debt of $535,000. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had minimal revenues from operations. There can be no assurance that the Company will be able to obtain the substantial additional capital resources necessary to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will have a material adverse effect on the Company, including possibly requiring the Company to significantly curtail or cease operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 3 - PRIVATE PLACEMENT In January 2001, the Company completed a private placement of units, each unit consists of a $50,000 convertible promissory note at 6% per annum and a warrant to purchase 50,000 shares of our common stock. The Company sold 37.6 units for aggregate proceeds of $1,880,000 of which $1,250,000 was received in cash, $95,000 was converting current insider debt and $535,000 was converting from outstanding debt into units. The convertible promissory notes are unsecured obligations of the Company and are due on July 2, 2002, subject to certain mandatory prepayments. The conversion price of the notes and the exercise price of the warrants is $0.10465, which represents 115% of the average last sale price of a share of common stock as reported by the OTC Bulletin Board for the five consecutive trading days immediately prior to January 2, 2001, the date of the initial closing of the private placement. $206,800 of the proceeds were allocated to the warrants, based upon the relative fair value of the warrants and the convertible promissory notes. This amount is to be accreted over the eighteen month term of the notes. The conversion feature of the notes was beneficial and $572,381 was recorded as a beneficial conversion feature; this amount was expensed to interest expense as the notes were immediately convertible. F-9 Worlds.com Inc. NOTES TO FINANCIAL STATEMENTS (continued) March 31, 2000 and 2001 (unaudited) In January and February of 2001, $1,530,000 of the convertible promissory notes were converted into equity. Upon conversion $167,500 was recorded as interest expense relating to the accretion of the debt discount. NOTE 4 - REVENUE FROM TERMINATED CONTRACT The Company entered into a content supply agreement to provide customized websites using the Company's 3D technology. Under the terms of the agreement the Company received $500,000 upon signing the agreement in 1999, $633,342 during 2000 and $55,547 in 2001. The payments were being amortized over the life of the website or as earned based on the agreement. In March 2001 the Company learned that the websites under the agreement were being terminated. As a result of this termination, these non-refundable payments have been recognized as revenue in the amount of $834,723 in the period ending March 31, 2001. F-10 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 the use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes in technology that render our technology relatively inferior, obsolete or more expensive compared to others; foreign currency fluctuations; changes in the business prospects of our business partners and customers; increased competition, including from our business partners; delays in the delivery of broadband capacity to the homes and offices of persons who use our services; general disruptions to Internet service; and the loss of customer faith in the Internet as a means of commerce. You should also see the Risk Factors set forth in our 10-KSB for the year ended December 31, 2000. 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. Overview General Worlds.com is a leading 3D entertainment portal which leverages our proprietary technology to offer visitors a network of virtual, multi-user environments which we call "worlds". These worlds are visually engaging online environments featuring animation, motion and content where people can come together and, by navigating through the website, shop, interact with others, attend events and be entertained. In support of this portal and our overall business strategy, we design and develop software, content and related technology for the creation of interactive, three-dimensional ("3D") Internet web sites. Using our technology, we create our own Internet sites, as well as sites available through third-party online service providers. Sites using our technology allow numerous simultaneous visitors to enter, navigate and share interactive "worlds". Our 3D Internet sites are designed to promote frequent, repeat and prolonged visitation by users by providing them with unique online communities featuring dynamic graphics, highly useful and entertaining information content, and interactive capabilities. We believe that our sites are highly attractive to advertisers because they offer access to demographic-specific user bases comprised of people that visit the site frequently and stay for relatively long periods of time. Revenues We generate revenues in the following manner: o sales of music and sports related products through our e-commerce web sites; o the production of 3D promotion sites for third parties; o VIP subscriptions to our Worlds Ultimate 3-D Chat service and services that we provide to third-party Internet service providers such as Roadrunner; o development, licensing and operation of 3D chat and entertainment sites for third parties; o on-line advertising revenues; and o e-commerce commissions and fees. Expenses We classify our expenses into two broad groups: o cost of revenues; and o selling, general and administration. During the first quarter of 2001, we continued the implementation of our new business plan. During this period, significant expenditures were incurred in connection with: o the commercialization of our technology; o increasing the number of and maintaining our sites; and o developing the infrastructure required to handle and promote rapid growth. Results of Our Operations The following data extracted from our unaudited financial statements compares the results of our operations for the three months ended March 31, 2001 to the three months ended March 31, 2000. Three Months ended March 31, ------------------------------ 2000 2001 ------------ --------------- (unaudited) Revenues $ 180,023 $ 177,756 Revenue from terminated contract - 834,722 ----------- ----------- 180,023 1,012,478 Costs and expenses: Cost of revenues (69,951) (194,280) Selling, general and (2,091,689) (1,408,103) administrative Operating loss (1,981,617) (589,905) Other income (expenses): Interest income 15,751 6,020 Interest expense (42,629) (785,224) Offering expenses - (208,880) Net loss $(2,008,495) $(1,577,989) Three months ended March 31, 2001 compared to three months ended March 31, 2000 In the first quarter of 2001, revenues were $1,012,478 compared to revenues of $180,023 during the first quarter of 2000, an increase of 462%. This increase in revenues is primarily due to the termination of an agreement where we received non-refundable payments that were to be amortized over the life of the agreement. Upon termination of the agreement in March 2001, all of these advance payments were recognized as revenue. The termination of the agreement added approximately $722,000 to our revenue in the quarter. Selling, general and administrative expenses were $1,408,103 for the three months ended March 31, 2001, as compared to $2,091,689 for the three months ended March 31, 2000. This represented a decrease of $683,586. This decrease was attributable to lower costs associated primarily with marketing, advertising and consultants. Other income included $6,020 of interest income for the three months ended March 31, 2001 earned from the remainder of the proceeds of our private placement as compared to $15,751 for the three months ended March 31, 2000. Interest expense was $785,224 for the three months ended March 31, 2001 as compared to $42,629 for the three months ended March 31, 2000. Approximately $746,000 of the increase is directly attributable to the accounting treatment for the beneficial conversion feature relating to the issuance of the convertible debt. As a result of the foregoing, we incurred a net loss of $1,577,989 for the three months ended March 31, 2001, compared to a net loss of $2,008,495 for the three months ended March 31, 2000, a decrease of $430,506. Liquidity and Capital Resources At March 31, 2001, we had a working capital deficit of $3,891,413 and cash and cash equivalents in the amount of $115,140. At March 31, 2001, our total liabilities were $4,497,297, including the current maturities of notes payable of $1,811,813. An agreement between us and E-New Media was terminated in March 2001 due to a dispute between the two parties. We anticipate settling this dispute prior to May 31, 2001, with the parties ending their relationship as previously constituted and with E-New Media making an immediate, one-time cash payment to Worlds in the amount of $200,000. As a result of the settlement with E-New Media, we will no longer generate revenues from that relationship, other than the one-time, $200,000 settlement payment. This relationship had previously provided us with material revenues. We believe, however, that our revenue sharing agreements with the World Wrestling Federation, Aerosmith, British Telecom, Time Warner Cable and certain private label agreements we have entered into will generate revenue that is sufficient to support our operations during 2001 as the services contemplated by these agreements are commercially deployed. If our new projects, such as those described above, do not generate the level of revenue we expect during the next 30 days, we will have to seek additional sources of capital through one or more activities, including the sale of debt or equity securities and/or the sale of assets. 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. We have no current arrangements with respect to, or sources of, additional financing and there can be no assurance that any such financing would be available when and as required. If we are unable to access sources of capital when and as required, we would have to severely diminish our operations or halt them entirely. The opinion of our independent certified public accountants contained in our Annual Report on Form 10-KSB for the year ended December 31, 2000 and Note 2 to the Financial Statements contained herein contain an explanatory paragraph regarding our ability to continue as a going concern. Private Placements In January 2001, we consummated a private placement of units, each unit consisting of a $50,000 principal amount 6% convertible promissory note ("Convertible Notes") and a warrant to purchase 50,000 shares of our common stock. We sold 37.6 units at a per-unit price of $50,000 for aggregate proceeds of $1,880,000, of which $1,250,000 was paid in cash, $95,000 was paid by converting current insider debt and $535,000 was paid by converting certain of our outstanding debt and other obligations. Steven G. Chrust, our chairman of the board of directors, purchased 13.1 units in the private placement, of which $255,000 was invested in cash and $400,000 was invested through the conversion of existing outstanding obligations of Worlds.com owed to Mr. Chrust, including $250,000 pursuant to the terms of a convertible negotiable promissory note evidencing Mr. Chrust's prior loan to us on November 8, 2000 ("Chrust Note"). Pursuant to the Chrust Note, we and Mr. Chrust were required to convert all of the unpaid principal amount then due into securities being sold in our next offering grossing net proceeds of at least $500,000. In addition, Mr. Chrust agreed to forfeit warrants to purchase 375,000 shares of the our common stock which were issued to him in connection with the Chrust Note. Other officers, directors and employees of Worlds.com ("Insiders") purchased an additional 4.1 units, of which $110,000 was invested in cash and $95,000 was invested through the conversion of existing oblitgations to the Company. In January 2001, Mr. Chrust converted the Convertible Notes he purchased in the private placement into an aggregate of 6,913,958 shares. In addition, certain other persons, including certain officers of Worlds, converted their Convertible Notes into an aggregate of 7,806,206 shares. Accordingly, the recent conversion of the Convertible Notes has resulted in our issuance of an aggregate of 14,720,164 additional shares. If the remaining Convertible Notes and warrants sold by us in the private placement are converted and exercised pursuant to their respective terms, we would be required to issue an additional 5,124,480 shares of our common stock. Effect of Recent Accounting Pronouncements In June, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments." The statement as amended is effective for financial years beginning after June 15, 2000. SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133, as amended by SFAS 137 and SFAS 138, requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair market value. Under certain circumstances, a portion of the derivative's gain or loss is initially reported as a component of income when the transaction affects earnings. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. The adoption of SFAS 133 has not had a material impact on our financial position or results of operations. PART II OTHER INFORMATION Item 1. Legal Proceedings. In Cosmo Communications v. Worlds, Inc. (our predecessor) in the Superior Court Of New Jersey Law Division, Bergen County, the court rendered a decision in favor of the plaintiff, Cosmo Communications on February 13, 2001. The judgment amount entered on March 20, 2001, is approximately $205,000 of which $200,000 is accrued. The judgment related to a consulting agreement for raising capital. The court ruled that the terms of the contract are binding on successors of the company and that Worlds.com is a successor company. We have appealed the decision. Item 2. Changes in Securities (c) Recent sales of Unregistered Securities Unless otherwise noted, we relied upon Section 4(2) of the Securities Act of 1933 as the basis for exemption from registration for all the transactions referred to in this Item 2(c). In January 2001, we consummated the private placement of units described above under the section in Part I entitled "Management and Analysis of Financial Condition and Results of Operations - Private Placements." Options The following options were granted on February 1, 2001. For all options other than JEM Entertainment Media and Ron Roy, one third of the total of each option vests on February 1, 2002, 2003 and 2004. The exercise price is $0.31 per share which approximates fair value on the date of grant. All of these options expire on February 1, 2006. Options granted to JEM Entertainment Media, LLC and Ron Roy vest over 2 years. 50% of the total options vest on February 1, 2002. The remaining 50% vest on February 1, 2003. Thom Kidrin 190,000 Paul Embry 10,000 Rita Locke 1,000 Sean Waldron 10,000 Odette Plavinskas 10,000 Rick McMorrow 5,000 Hal Trencher 150,000 Christine Oltmer 18,000 Marty Scott 30,000 Shane Salisbury 1,000 Chris Ryan 200,000 Todd Greene 500 Frank Kane 50,000 Gail Mason 60,000 Matt Goheen 25,000 Steven Chrust 287,500 Mike Sivak 35,000 Ken Locker 25,000 Julie Renfro 20,000 Bill Harvey 25,000 Clay Ellis 5,000 Steven Chrust 15,000 Anne Johnson 10,000 Tom Saleh 200,000 Steve Palechek 5,000 Ron Roy 50,000 William T Straub 10,000 JEM Entertainment 50,000 Media We also issued an option to purchase 100,000 shares of our common stock to Svengali Merchandising Inc. pursuant to a revenue sharing agreement. The option is exercisable until November 30, 2002 and has a per share exercise price of $2.00. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None 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 15, 2001 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 -----END PRIVACY-ENHANCED MESSAGE-----