WORLDS INC - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
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x
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
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o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission
File Number: 0-24115
WORLDS.COM
INC.
(Exact
Name of Registrant as Specified in Its Charter)
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New Jersey
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22-1848316
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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11 Royal Road, Brookline,
MA 02445
(Address
of Principal Executive Offices)
(617)
725-8900
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name
Of Each Exchange
On Which Registered
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None
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Not
Applicable
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Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $.001 par value
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨
No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (check
one):
Large
Accelerated
Filer
Accelerated
Filer
Non-Accelerated Filer x Smaller
reporting company
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.): Yes o No x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked closing price of such common equity, as
of March 31, 2010 (a date within the past 60 days) was approximately $6,065,325.
At March
31, 2010, the issuer had outstanding 53,663,758 shares of par value $.001 Common
Stock, of which 46,459,972
shares were held by non-affiliates.
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
This
report includes forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements involve risks and uncertainties and our actual results
could differ significantly from those discussed herein. These include statements
about our expectations, beliefs, intentions or strategies for the future, which
we indicate by words or phrases such as "anticipate," "expect," "intend,"
"plan," "will," "believe," and similar language, including those set forth in
the discussion under "Description of Business," including the "Risk Factors"
described in that section, and "Management's Discussion and Analysis or Plan of
Operation" as well as those discussed elsewhere in this Form 10-K. We base our
forward-looking statements on information currently available to us, and we
believe that the assumption and expectations reflected in such forward-looking
statements are reasonable, and we assume no obligation to update them.
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.
1
TABLE OF CONTENTS
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PART
I
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Item 1
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Business
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3 | |||
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Item 1A
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Risk Factors
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5 | |||
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Item 1B
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Unresolved Staff Comments
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NA
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Item 2
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Properties
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8 | |||
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Item 3
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Legal Proceedings
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8 | |||
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Item 4
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Reserved
by the SEC
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NA
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PART II
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Item 5
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Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
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8 | |||
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Item 6
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Selected Financial Data
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NA
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Item 7
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Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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9 | |||
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Item 7A
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Quantitative and Qualitative Disclosures About
Market Risk
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NA
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Item 8
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Financial Statements
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11 | |||
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Item 9
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Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
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20 | |||
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Item 9A(T)
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Controls and Procedures
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20 | |||
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Item
9B
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Other Information
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20 | |||
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PART III
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Item 10
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Directors, Executive Officers and Corporate
Governance
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21 | |||
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Item 11
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Executive Compensation
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21 | |||
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Item 12
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Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
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23 | |||
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Item 13
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Certain Relationships and Related Transaction, and
Director Independence
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23 | |||
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Item 14
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Principal Accountant Fees and
Services
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23 | |||
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Item 15
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Exhibits
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PART
I
ITEM
1. BUSINESS.
General
Worlds.com
is a leading 3D entertainment portal which leverages its 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.
Recent
developments
Worlds
terminated all full time employees in June 2001 and ceased SEC reporting as a
result of the internet market meltdown and an aborted financing the company had
planned for September 2001. Although essentially inactive from
mid-2001 through mid-2007, the company continued to maintain its service while
daily operations ceased as well as continued software development on an as
needed basis and under contract licenses.
While the
company has kept the service up there have been thousands of customer created
worlds and Avatars developed using Worlds’ tools and hosted on the members’
PCs.
As a
result of the renewed public interest in 3D sites during the second quarter of
2007, management began to explore the possibility of becoming more active
operationally. As detailed below, beginning during the third quarter
of 2007 and continuing through 2009 we, among other things, expanded our Board,
completed two small financings, began upgrading our technology and more actively
sought business opportunities.
In 2008
we completed a restructuring and restart of the Company’s operations. As a
result, we are now current with our SEC periodic reporting
obligations. We also raised an additional $481,000 in 2008 through a
private placement at a price of $0.30 per share.
Based
upon our knowledge of the industry, we believe we hold the key patents in 3D
online technology. During 2008 we entered into a contingency enforcement
agreement for our patents with General Patent Corporation (GPC) and Lerner David
Littenberg Krumholz & Mentlik LLP.
In
December 2008, we filed a patent infringement suit against NC Soft of Korea, one
of the largest online game companies worldwide. GPC continues to prosecute our
patent portfolio and we were awarded a 3rd U.S.
patent on March 6, 2009.
We
upgraded our 3D platform making it competitive with, and even exceeding, current
industry standards.. We also developed a micro-economy system which
is tied into a Visa debit card platform for online and off line
usage.
During
the last 12 months, we (i) developed two prototype 3D worlds for Pearson
Education Group; and (ii) completed development of a demonstration world for
Pepsi on behalf of theater circuit National Amusements. We also
completed a $175,000 financing in May 2009. We are currently
negotiating with a number of educational content companies for distant learning
applications as well as medical institutions for development of virtual support
groups and medical information virtual worlds, although no assurance can be
given that any of these negotiations or discussions will ever result in signed
contracts.
Our
Technology
There has
been a tremendous amount of activity and press with respect to the 3D space on
the Internet this past year supporting our belief that the timing is right for
our strategy and it is our intention, as the pioneers in 3D, to position Worlds
as a leading participant in this market. For example:
The Gartner Group
reports: 80% of Internet Users in Virtual Worlds by 2011
“The
collaborative and community-related aspects of these environments will dominate
in the future, and significant transaction-based commercial opportunities will
be limited to niche areas, which have yet to be clearly identified,” said Steve
Prentice, vice president and distinguished analyst at Gartner.
Fleishman
Hillard
“While
everyone was buzzing about Second Life, a lot was happening under the radar
regarding avatars and virtual worlds. It's early still, but it is developing
rapidly. If these applications continue to become easier to use and 3D content
is further developed, the opportunity in this area will explode.”
We use
our proprietary technology to produce three-dimensional portals and web sites
for Worlds.com and third parties. We believe that our core technology delivers a
considerably faster frame rate for user experiences and, in some cases, a
meaningful productivity increase in art production and integration over its
previous generation production tools. Our technology permits the development of
virtual worlds which have broad applications. These applications include but are
not limited to:
o a
virtual meeting place (such as a fan club);
o a 3D
e-commerce store (where merchandise can be viewed in 3D and purchased online);
and
o a
virtual classroom (where content can be viewed via video streaming and then
discussed in real time).
Our core
technology has substantial elements written in Sun Microsystem's programming
language, Java, including WorldsBrowser and WorldsShaper, so we expect that it
can be made portable across Windows and UNIX Platforms because of Java's
platform independence.
Our core
technology includes:
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o
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WorldsShaper:
WorldsShaper is the visual authoring component of our platform. It allows
for quick assembly of pieces to create multi-user, shared state, virtual
worlds. The WorldsShaper is an advanced compositing 3D building tool that
integrates pre-existing or custom content, such as 3D models, textures or
images created in Adobe's Photoshop, or midi or wave sound files, with
architectural geometry and interactive behaviors and actions written in
Java. The architectural building blocks for creating 3D worlds, the
flexibility and power of integrating professional modeling and imaging
tools, and the extensibility via Java make the WorldsShaper a tool
well-suited for rapid creation of 3D
environments.
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WorldsBrowser:
WorldsBrowser is used to access the 3D environments. The browser is
optimized for speed, delivering relatively fast frame rates per second in
highly textured virtual 3D worlds.
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WorldsPlayer™: The WorldsPlayer allows
users to view and experience our multi-user, interactive technology. Any
world created with the WorldsShaper will be viewable and navigable with
the WorldsPlayer. The WorldsPlayer has a high frame rate for fast, quality
graphics, an easy-to-use graphic user interface, 2D web browser
integration, automatic upgrade capability over the internet and a complete
communication tool set including text chat, voice-to-voice chat, e-mail
and animation.
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o
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Worlds
Gamma Libraries: The Worlds Gamma Libraries are composed of sample worlds,
textures, models, avatars, actions, sensors, sounds, motion sequences, and
other behaviors.
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3
Worlds
Ultimate 3D Chat
We
operate a proprietary online 3D Internet chat site known as Worlds Ultimate 3D
Chat, an interactive site employing our 3D technology. This site is targeted
toward the music industry and fans. Our 3D technology enhances users' chat
experiences by allowing users to see a representation of each other in the form
of highly textured characters, known as avatars, and to explore a 3D environment
together. Users have the option to create their own avatars or choose from
pre-defined figures in our library. Users communicate with each other through
text chat, as well as voice-to-voice chat and can move through the many virtual
"worlds" of the 3D environment.
The user
moves his or her avatar through these worlds using a mouse or keyboard arrow
keys and can:
o engage
other avatars in one-on-one text-based or real voice-to-voice
discussions;
o enter
theme-based chat rooms featuring group discussions on numerous music styles,
specific recording artists and other topics;
o
experience interactive advertising and promotions;
o access
information on various recording artists, concert schedules and other
music-related and non-music-related information;
o view
new music videos by leading recording artists;
o listen
to selections from newly released CDs by numerous recording
artists;
o design
their own unique avatar as a VIP subscriber.
We
believe that the user base to the Worlds Ultimate 3D Chat site will develop into
a valuable asset. Worlds Ultimate 3D Chat also contains an e-commerce component,
which we believe is the first commercial real 3D virtual store online, selling
music merchandise of various major recording artists.
In order
to increase the number of potential subscribers to our 3D music sites, we offer
a modified demo version of our Worlds Ultimate 3D Chat product as a free
download. By reducing the price barrier, we hope to generate new members to our
Chat service. The proliferation of Worlds Ultimate 3D Chat may also increase
corporate brand identity that could translate into valuable consumer data and
related advertising potential. For a limited time, the free demo can
be accessed by going to www.worlds.com
and following instructions for a temporary log-in account.
We
believe that there is an opportunity to further exploit the Worlds Ultimate 3D
Chat product in modified form. We are now exploring the modification of Worlds
Ultimate 3D Chat as a corporate Intranet chat and information service for
corporate clients. The modified application of Worlds Ultimate 3D Chat, if
successfully modified and then marketed, could provide us with an ongoing
revenue stream based on the licensing fees for our server technology, as well as
annual membership subscription fees.
Our
Strategy
Our goal
is to become a leading provider of interactive 3D Internet sites where
entertainment content, interactive chat and e-commerce opportunities converge to
provide communities for users and advertisers. Keys to achieving our goal
are:
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o
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Producing
interactive multimedia 3D sites. We believe that music and entertainment
brands readily lend themselves to exploitation through web sites utilizing
our technology. We also believe that the highly graphic, interactive
nature of sites using our technology appeals to users drawn to music and
entertainment based sites, differentiates such sites from other non-3D
music and entertainment based sites and thereby encourages repeat
visitation. Because our technology allows for the creation of multiple
worlds accessible from a web site, it allows such sites to segregate users
of different tastes and
demographics.
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o
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Creating
effective offline distribution partnerships with recording artists and
their record companies. We are now actively seeking to enter into
alliances with recording artists and their record
companies.
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o
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Creating
Brand Identity for Worlds.com. Public awareness of our site and products
is critical to our success. We are now actively seeking to build this
awareness by entering into co-branding arrangements with other
high-profile Internet companies and music and entertainment
companies.
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o
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Creating
Other Services Using Our Interactive 3D
Technology.
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Now that
we have (i) successfully completed our initial private placement, (ii) are SEC
compliant, and (iii) and nearing completion of our technology upgrades, we are
negotiating Joint Venture partnerships with brand leaders in seven primary
strategic verticals which we believe have the potential to provide us with
growth opportunities in each vertical for substantial revenue.
We have
identified the following primary verticals which we are pursuing with current
potential strategic partners and in which we are engaged in discussions with for
world development and deployment:
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Music/entertainment
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Publishing
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Web
to Mobile interface
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Hispanic
language markets
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Eastern
Europe
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Education
– Distant learning
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Health
and rehabilitation
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No
assurance can be given that we will be successful in closing any deals or, even
if we successfully close any deals, that we will see any revenues from such
transactions.
Representative
alliances and customers
We have
established strategic relationships and/or provided 3D content related services
to the music group Aerosmith, among others. In January 2001, we
entered into a revenue sharing agreement with Aerosmith to create and operate an
official 3D Aerosmith environment entitled "Aerosmith World" and to redesign
Aerosmith's official website, which currently resides at www.Aerosmith.com. We
plan to begin to offer memberships to "Aerosmith interactive", which gives
subscribers access to advance ticket sales and exclusive merchandise and
discounts. "Aerosmith World" is currently available for download from www.Worlds.com.
We have also established a strategic relationship with Pearson to develop a
series of virtual worlds to potentially be used within the existing Pearson
education programs.
Competition
The
markets in which we currently operate and those we intend to enter are
characterized by intense competition and an increasing number of new market
entrants which have developed or are developing competitive products. We will
face competition from numerous sources, including prospective customers which
may develop and market their own competitive products and services, software
companies, and online and Internet service providers. We believe that
competition will be based primarily on ease of use, price and features,
including communications capabilities and content.
In
addition, certain companies have developed, and others may be expected to
develop, technologies or products in related market segments which could compete
with certain technologies or products we have and/or are developing. We expect
that such companies, as well as other companies including established and newly
formed companies, may attempt to develop products that will be in direct
competition with ours. Many of our competitors have advantages over us,
including:
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o
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longer
operating histories and greater financial, technical, marketing and other
resources;
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o
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a
wider range of services and financial
products;
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o
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greater
name recognition and larger customer
bases;
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o
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more
extensive promotional activities;
and
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o
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cooperative
relationships among themselves and with third parties to enhance services
and products.
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Currently,
there are many companies collaborating to establish standardization of 3D usage
on the Internet, the adoption of which may require changes to our technology. If
we fail to recognize or address the need for new service or product
introductions our business and financial condition could be materially adversely
affected. Competitors may develop superior technology or determine as a group to
adopt standards with which our technology is not compatible.
Many
companies now compete with us in one way or another and new ones may emerge in
the future. The competition may be through entry into the same markets, or
through technology that either obviates our advantages or lowers the barrier to
entry in one of our markets. The markets in which we compete are characterized
by rapid changes in technology and customer requirements, frequent new service
and product introductions and evolving industry standards which could result in
product obsolescence or short product life cycles. Accordingly, our ability to
compete will be dependent upon our ability to develop and successfully introduce
new products into the marketplace in a timely manner and to continually enhance
and improve our technology to meet the increasingly sophisticated and varied
needs of our users and prospective users.
4
Intellectual
Property
U.S.
Patents: Worlds has been granted U.S patent 6,219,045, 7,181,690 and 7,493,558
for multi-server technology for 3D applications, which is Worlds' core
technology. We are now looking into the implications and breadth of
the patent in order to maximize its benefits. The description of the
initial patent is as follows:
"The
present invention provides a highly scalable architecture for a three
dimensional, multi-user, interactive virtual world system. In a
preferred embodiment a plurality of users interact in the three-dimensional,
computer-generated graphical space where each user executes a client process to
view a virtual world from the perspective of that user. The virtual
world shows Avatars representing the other users who are neighbors of the user
viewing the virtual world. In order that the view can be updated to
reflect the motion of the remote user's Avatar, motion information is
transmitted to a central server process that provides position updates to client
processes for neighbors of the user at that client process. The
client process also uses an environment database to determine which background
objects to render as well as to limit the number of displayable Avatars to a
maximum number of Avatars displayable by that client."
Trademark:
Worldsplayer - The WorldsPlayer is especially designed to allow users to view
and experience the multi-user, interactive Worlds Gamma technology. Any world
created with the WorldsShaper will be viewable and navigable with
WorldsPlayer. Utilizing the WorldsPlayer, a user assumes a persona
(via a digital actor, or Avatars), and can then move, view, chat, play, express
one's self via gestures and animations, voice chat, send email, join discussion
groups, listen to music, shop at Worlds 3D stores, and watch videos, all in the
company of users from around the world, within the 3D
environment. The WorldsPlayer boasts high frame rate for fast, high
quality graphics, an easy to use graphic user interface, seamless 2D Web browser
integration, auto-upgrade capability over the Internet, and a complete
communication tool set including chat, voice-to-voice chat, email and animation.
The WorldsPlayer offers users the unique and creative experience of customizing
their Avatars, while maintaining the ability to animate and activate their
Avatars.
In
addition to our patents and trademark, we intend to enter into confidentiality
agreements with key employees and consultants to protect our IP and general
know-how.
Employees
Corporate
History
We were
formed as a result of the contemporaneous mergers on December 3, 1997 of Worlds
Inc., a Delaware corporation formed on April 26, 1994 with and into Worlds
Acquisition Corp., a Delaware corporation formed on April 8, 1997 and of Worlds
Acquisition Corp. with and into Academic Computer Systems, Inc., a New Jersey
corporation formed on May 20, 1968 (the "Mergers"). Academic Computer Systems
changed its name to Worlds Inc. after the Mergers. In December 1999, we changed
our name from Worlds Inc. to Worlds.com Inc. in order to better reflect our
business as a consumer Internet web site that offers virtual "worlds" in which
consumers interact, conduct e-commerce and receive entertainment.
ITEM 1A. RISK
FACTORS
Our
business is subject to numerous risks, including but not limited to those set
forth below. Our operations and performance could also be subject to risks that
do not exist as of the date of this report but emerge thereafter as well as
risks that we do not currently deem material.
Risks
related to our operations
Our
auditors have expressed doubt about our ability to continue as a going concern.
If we do not generate substantial revenue from our new relationships and are
also unable to obtain capital from other resources, we will significantly
curtail our operations or halt them entirely.
Our
capital requirements for the development and commercialization of our
technology, creation of our 3D sites and our general operations have been and
will continue to be significant. Historically, we have been dependent on
financings to fund our development and working capital needs. As of December 31,
2009, we had no cash or cash equivalents. Accordingly, if we do not develop any
new projects, we would have to severely diminish our operations or halt them
entirely. The opinion of our auditors contains an explanatory paragraph
regarding our ability to continue as a going concern.
We
have experienced relatively large losses during our development and, without
significant increases in the market penetration of our services and improvements
to our operating margins, we will not achieve profitability.
Since
inception, we have incurred significant net losses as set forth in the financial
information included elsewhere in this report. We anticipate that we will
continue to incur significant losses for at least the short-term. We will not
achieve profitable operations until we successfully attract and retain a
significant number of advertisers to and users of our 3D sites and customers for
our other services and generate revenues from these sources that are sufficient
to offset the substantial up-front expenditures and operating costs associated
with developing and commercializing our services. We may never be able to
accomplish these objectives.
It
will be difficult for you to evaluate us based on our past performance because
we are a relatively new company with a limited operating history.
We have
been actively engaged in the commercial sale of our 3D Internet-based services
for a relatively short period of time and, accordingly, have only limited
financial results on which you can evaluate our company and operations. We are
subject to, and have not been successful in addressing, the risks typically
encountered by new enterprises and companies operating in the rapidly evolving
Internet marketplace, including those risks relating to:
o the
failure to develop brand name recognition and reputation;
o the
failure to achieve market acceptance of our services;
o a slow
down in general consumer acceptance of the Internet as a vehicle for commerce;
and
o an
inability to grow and adapt our business and technology to evolving consumer
demand.
We
may not be able to successfully compete in our markets, which are characterized
by intense competition and the presence of large competitors and rapidly
changing technology.
Given our
relatively limited resources, we have not been able to effectively compete in
our target markets. These markets are characterized by intense competition,
rapidly changing technology and increasing numbers of new market entrants who
have developed or are developing potentially competitive products and services,
often resulting in product obsolescence or short product life cycles. Our
competitors include other enterprises utilizing 3D-based technology for online
entertainment and marketing purposes, online and Internet service providers,
online shopping malls, online direct music retailers, online music and book
sites and traditional music retailers. Most of our competitors have
significantly greater financial and operating resources compared to
us. Our ability to compete will be dependent on our ability to
enhance and upgrade our technology platform in a timely manner and to
effectively offer our target customers attractive and exciting 3D content and
services, all of which require the expenditure of funds that we currently do not
have. In addition, the very companies with which we do business, such as the
larger Internet service providers and record labels, may determine to create and
distribute their own 3D Internet sites.
We
may not be able to develop and maintain marketing relationships with other
Internet companies.
Our
strategy for expanding brand recognition through online advertising depends to
some extent on our relationship with other Internet companies. We are now
seeking to enter into marketing agreements with those companies that will permit
us to advertise our products and services on their web pages. There can be no
assurance that we will be able to negotiate these agreements on favorable terms
or at all. Additionally, other e-commerce and music-related sites which
advertise on popular web sites may have
exclusive advertising relationships with such sites or may otherwise object to
our attempts to enter into marketing agreements or relationships with such
sites. If we cannot secure or maintain these marketing agreements on favorable
terms, our business prospects could be substantially harmed.
Our
limited resources may restrict our ability to manage any growth we may
experience.
Growth of
our business may place a significant strain on our management systems and
resources and may require us to implement new operating and financial systems,
procedures and controls. Our failure to manage our growth and expansion could
adversely affect our business, results of operations and financial condition.
Moreover, our present technology backbone may not be adequate to accommodate
rapid growth in user demand. Our inability to add additional hardware and
software to upgrade our existing technology or network infrastructure to
accommodate increased traffic may cause decreased levels of customer service and
satisfaction. Failure to implement new systems effectively or within a
reasonable period of time could adversely affect our business, results of
operations and financial condition.
In
addition to our own technology, we use the technology of others in the creation
of our products and we are dependent upon our continued ability to access these
other technologies.
Although
our proprietary technology is the foundation of our products, we also use the
technology of other companies in the creation and delivery of our products.
Accordingly, any delay or termination by any of these third-party providers in
the provision of their technologies to us because of our failure, or perceived
inability, to pay such vendors or otherwise could cause a disruption in the
commercial distribution of our own products. Further, any material increases in
the prices these providers charge us for use of their technologies could force
us to increase the prices we charge for our own products or possibly make the
creation and distribution of our products no longer economically feasible or
desirable. We cannot assure you that any of these companies will continue to
provide their technology to us in an efficient, timely and cost-effective
manner. An interruption in, or termination of, our access to any necessary third
party technologies, and our subsequent inability to make alternative
arrangements in a timely manner, if at all, would likely have a material adverse
effect on our business and financial condition.
5
We
are dependent, in part, on the sale of our services to foreign customers, and
accordingly, are subject to the risks of doing business
internationally.
We market
and provide our services both in the United States and internationally.
Servicing our foreign clients and marketing our services abroad requires the
dedication of significant management and financial resources, which we currently
do not have. Our international operations are, and will be, subject to a variety
of risks associated with conducting business internationally, many of which are
beyond our control. Operating internationally subjects us to risks relating to
the following areas:
o
expenses associated with customizing products for foreign
countries;
o
political and economic instabilities;
o
potentially adverse tax consequences and regulatory requirements;
o
uncertainty of product acceptance by different cultures;
o
dependence on local partners who may not be able to meet the needs of a growing
international market;
o greater
difficulty in accounts receivable collection and longer collection
periods;
o
difficulties and costs of staffing and managing foreign operations;
o
unexpected changes in regulatory requirements related to the Internet;
and
o limited
or unfavorable intellectual property protection.
The
market may not readily accept our products.
Demand
and market acceptance for relatively new products, such as our 3D chat, are
subject to a high level of uncertainty. The successful introduction of any new
product requires a focused, efficient strategy to create awareness of and desire
for the products. For example, in order to achieve market acceptance for our
Worlds 3D chat sites, we will need to educate the members of the music industry,
such as record companies, record labels and recording artists, about the
marketing benefits this product could provide them. Similarly, we will have to
make music buyers and Internet consumers aware of this product's existence, draw
users to the site and compel them to return to the site for repeat
visitations.
Our
marketing strategy may be unsuccessful and is subject to change as a result of a
number of factors, including changes in market conditions (including the
emergence of market segments other than music which in our judgment can be
readily exploited through the use of our technology), the nature of possible
license and distribution arrangements and strategic alliances which may become
available to us in the future and general economic, regulatory and competitive
factors. There can be no assurance that our strategy will result in successful
product commercialization or that our efforts will result in initial or
continued market acceptance for our proposed products.
If
we are unable to protect our intellectual property rights, competitors may be
able to use our technology or trademarks, which could weaken our competitive
position.
In
addition to our patents, we rely on a combination of copyright, trademark and
trade secret laws and restrictions on disclosure to protect our intellectual
property rights. We also intend to enter into confidentiality or license
agreements with our employees, consultants and customers, and control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. Although we have never been
involved as a defendant in any intellectual property litigation, we could become
a party to litigation as a result of alleged infringement of others'
intellectual property. These claims and any resulting lawsuits could subject us
to significant liability for damages and invalidation of our proprietary
rights.
If
we lose any of our key personnel or fail to hire and retain other talented
employees, our operations could be harmed.
Our
success is currently dependent, in large part, on the personal efforts of Thomas
Kidrin, our president and chief executive officer. The loss of Mr.
Kidrin's services could have a material adverse effect on our business and
prospects. Our success is also dependent upon our ability to hire and retain
additional qualified management, marketing, technical, financial, and other
personnel. Competition for qualified personnel is intense and we may not be able
to hire or retain additional qualified personnel. Any inability to attract and
retain qualified management
and other
personnel would have a material adverse effect on our ability to grow our
business and operations.
In
order to be successful, we must be able to enhance our existing technology and
products and develop and introduce new products and services to respond to
changing market demand.
The
markets in which we operate are characterized by frequently changing customer
demand and the introduction of new technologies. In order to be successful, we
must be able to enhance our existing technology and products and develop and
introduce new products and services to respond to changing market demand. The
development and enhancement of services and products entails significant risks,
including:
o the
inability to effectively adapt new technologies to our business;
o the
failure to conform our services and products to evolving industry
standards;
o the
inability to develop, introduce and market enhancements to our existing services
and products or new services and products on a timely basis; and
o the non
acceptance by the market of such new service and products.
We
currently have only limited resources to enhance our technology or to develop
new products.
Our
future results depend on continued evolution of the Internet.
Our
future results depend on continued growth in the use of the Internet for
information, publication, distribution and commerce. Our growth is also
dependent on increasing availability to residential consumers of broadband
Internet access which will allow such persons to access higher-capacity content
through the Internet. Our business could suffer if Internet usage and broadband
availability does not continue to grow and evolve.
In
addition, changes in network infrastructure, transmission and content delivery
methods and underlying software platforms, and the emergence of new Internet
access, such as television set-top boxes, could dramatically change the
structure and competitive dynamic of the market for Internet realtime 3D
products. We may not be able to adopt our technology and services for use in
connection with other emerging technologies.
6
We
may not be able to economically comply with any new government regulation that
may be adopted with respect to the Internet.
New
Internet legislation or regulation, or the application of existing laws and
regulations to the Internet and e-commerce could add additional costs and risks
to doing business on the Internet. We are subject to regulations applicable to
businesses generally and laws or regulations directly applicable to
communications over the Internet and access to e-commerce. Although there are
currently few laws and regulations directly applicable to e-commerce, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing, content,
copyrights, distribution, antitrust, taxation and characteristics and quality of
products and services.
Legislation
regarding privacy of personal information about users may affect our
communities.
We are
subject to and must comply with data protection legislation which restricts our
ability to collect and exploit users' personal data. Our business is
particularly dependent on the existing and future data protection laws in
Europe, the United States and in each specific country where we operate or have
members. European data protections legislation is drafted in very broad terms,
and there are few sources of guidance as to its interpretation. It is difficult
to foresee the extent to which its enforcement by relevant authorities will
restrict our operations. We believe that a rigid interpretation of data
protection legislation could hinder our ability to conduct our business as
planned. Our failure to comply with applicable law could subject us to severe
legal sanctions which could have a material adverse effect on our business and
results of operations. We maintain a privacy policy which is to not disclose
individually identifiable information about any user of our products or services
to a third party without the user's consent. Despite this policy, however, if
third persons were able to penetrate our network security or otherwise
misappropriate users' personal information, we could be subject to liability
claims.
We
face potential liability for the content delivered over our sites.
While we
intend to acquire all licenses and other rights necessary to conduct our
business without violating any copyrights, there can be no assurance that we
will be able to do so. Due to the nature of our business, we could become
involved in litigation regarding the music, video and other content transmitted
over our sites which could force us to incur significant legal defense costs,
could result in substantial damage awards against us and could otherwise damage
our brand name and reputation.
In
addition, because music materials may be downloaded from our sites and may be
subsequently distributed to others, claims could be made against us for
"pirating" and copyright or trademark infringement. Claims could also be made
against us if material deemed inappropriate for viewing by children is accessed
or accessible through our sites. While we intend to carry insurance policies,
our insurance may not cover these types of claims or may not be otherwise
adequate
to cover liability that may
be imposed. Any partially or completely uninsured claim against us, if
successful and of sufficient magnitude, would have a material adverse effect on
us.
Risks
related to our common stock
Possible
issuances of our capital stock would cause dilution to our existing
shareholders.
While we
currently have approximately 53,663,758 shares of common stock outstanding, we
are authorized to issue up to 65,000,000 shares of common stock. Therefore, we
will be able to issue a substantial number of additional shares without
obtaining shareholder approval. In the event we elect to issue additional shares
of common stock in connection with any financing, acquisition or otherwise,
current shareholders could find their holdings substantially diluted, which
means they will own a smaller percentage of our company.
Certain
shareholders control a substantial portion of our outstanding common
stock.
Our chief
executive officer owns a significant portion of the outstanding shares of our
common stock and Mr. Kidrin may be issued an additional 15 million shares of our
common stock upon the exercise of outstanding stock options. Accordingly, he
will be able to influence the election of our directors and thereby influence or
direct our policies.
No
dividends have been paid on our common stock.
To date,
we have not paid any cash dividends on our common stock and we do not expect to
declare or pay dividends on the common stock in the foreseeable future. In
addition, the payment of cash dividends may be limited or prohibited by the
terms of any future loan agreements.
We
are subject to "penny stock" regulations which may adversely impact the
liquidity and price of our common stock.
Our
common stock is currently deemed a "penny stock." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document that
provides information on penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market, and monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally, those persons with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse), the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction.
These
requirements could reduce the level of trading activity, if any, in the
secondary market for our common stock. As a result of the foregoing, our
shareholders may find it more difficult to sell their shares.
The
exercise or conversion of outstanding options into common stock will dilute the
percentage ownership of our other shareholders. The sale of such common stock or
other common stock in the open market could adversely affect the market price of
our common stock.
As of
April 15, 2010, there are outstanding options and warrants to purchase an
aggregate of approximately 18,362,838 shares of our common stock and more
options and warrants will likely be granted in the future to our officers,
directors, employees and consultants. The exercise of outstanding stock options
will dilute the percentage ownership of our other shareholders. Sales, or the
expectation of sales, of a substantial number of shares of our common stock in
the public market, including shares of our common stock issuable upon exercise
of our stock options, could adversely affect the prevailing market price of our
common stock.
7
ITEM
2. DESCRIPTION OF PROPERTIES.
We do not
own any property nor do we have any contracts or options to acquire any property
in the future. Presently, we are operating out of offices in our president's
residence at 11 Royal Road, Brookline, Massachusetts 02445, where we occupy
approximately 800 square feet. This space is adequate for our present
and our planned future operations. We currently pay no rent to our president for
use of this space, although when funds are available we may do so in the future.
In addition we have no written agreement or formal arrangement with our
president pertaining to the use of this space. No other businesses operate from
this office. We have no current plans to occupy other or additional office
space.
ITEM
3. LEGAL PROCEEDINGS.
In Cosmo
Communications v. Worlds Inc. (our former name) 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 in April 2001, is approximately $205,000, of which the full amount 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.
On
December 24, 2008 we filed a patent infringement suit against NCSoft Corp in the
United States District Court, Eastern District of Texas in order to enforce our
intellectual property rights under our patents. The case is currently
in the discovery phase and is moving forward based upon a schedule established
by the court. No assurance can be given that we will be successful in
the litigation or that we will receive any funds as a result of the
litigation.
ITEM
4. RESERVED
BY THE SEC.
None.
ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Our
common stock began trading on the OTC Bulletin Board on October 20, 1998 under
the symbol "WLDI." On February 11, 2000, in connection with the change in our
name from Worlds Inc. to Worlds.com Inc., our symbol was changed to "WDDD."
During 2001, our stock was no longer quoted on the OTC Bulletin Board and was
quoted on the Pink Sheets, but returned to the Bulletin Board in the third
quarter of 2008. The following table sets forth, for the periods indicated, the
high and low bids for our common stock as reported on the OTC Bulletin Board or
the Pink Sheets (representing interdealer quotations, without retail mark-ups,
mark-downs or commissions, and may not necessarily represent actual
transactions):
|
Year
Ended December 31, 2009:
|
High
|
Low
|
||||||
|
3/31/2009
|
$ | 0.22 | $ | 0.12 | ||||
|
6/30/2009
|
$ | 0.21 | $ | 0.08 | ||||
|
9/30/2009
|
$ | 0.15 | $ | 0.08 | ||||
|
12/31/2009
|
$ | 0.10 | $ | 0.05 | ||||
|
Year
Ended December 31, 2008:
|
High
|
Low
|
||||||
|
3/31/2008
|
$ | 0.45 | $ | 0.15 | ||||
|
6/30/2008
|
$ | 0.45 | $ | 0.20 | ||||
|
9/30/2008
|
$ | 0.40 | $ | 0.16 | ||||
|
12/31/2008
|
$ | 0.27 | $ | 0.11 | ||||
Holders
As of
December 31, 2009, we had 609 shareholders of record of our common
stock.
Dividends
We have
never paid a dividend on our common stock and do not anticipate paying any
dividends in the near future.
Recent
Sales of Unregistered Securities
During
2009 we issued promissory notes with penny warrants raising an aggregate of
$175,000 from eight investors, all of whom were “accredited” and were existing
shareholders. The notes can be converted into 1,750,000 shares of
common stock. The warrants represent another 975,338 shares of common
stock if converted. In February 2010 all the notes were converted
into common stock.
During
2009 we also issued an aggregate of 100,000 stock options exercisable at $0.11
per share to various persons for consulting services.
During 2009 we also issued an
aggregate of 751,009 shares of common stock as payment for services rendered and
another 500,000 shares as part of a settlement agreement to pay an
outstanding balance to a former vendor.
During 2008, we sold
1,609,415 shares of our common stock at a price of $0.30 per share for
approximately $481,000. For each 20 shares purchased, each investor also
acquired one warrant to purchase an additional share of our common stock for 18
months at a price of $0.50 per share for an aggregate of 80,166
warrants. No underwriters were utilized in the placement but a broker
fee of $20,000 was paid. The offer, sale and issuance of the shares
were exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended inasmuch as: all of the investors were “accredited” as defined in
Rule 501 of Regulation D promulgated under such Section 4(2); the investors took
their shares for investment purposes without a view to distribution; the
investors had access to information concerning the Company and its business
prospects; there was no advertising or general solicitation involved in the sale
of the shares; no commissions were paid; and the securities that were issued
contain standard restrictive legends.
During
2008 we also issued stock options to various persons, who are not directors, as
follows:
350,000
exercisable at $0.30
212,500
exercisable at $0.35
Company
Equity Compensation Plans
The
following table sets forth information as of December 31, 2009, with respect to
compensation plans (including individual compensation arrangements) under which
equity securities of the Company are authorized for issuance.
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
|||||||||
|
Equity
compensation plans not approved by stockholders
|
18,362,838
|
$
|
0.061
|
6,637,162
|
||||||||
|
Stock
option grants approved by stockholders
|
0
|
$
|
N/A
|
-
|
||||||||
|
Total
|
18,362,838
|
$
|
0.063
|
6,637,162
|
||||||||
8
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Forward
Looking Statements
When used
in this form 10-K and in future filings by the Company with the Commission, The
words or phrases such as "anticipate," "believe," "could," "would," “should,”
"estimate," "expect," "intend," "may," "plan," "predict," "project," "will" or
similar expressions are intended to identify “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of
1995. Readers are cautioned not to place undue reliance on any such
forward looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company has no
obligation to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
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.
The
following discussion should be read in conjunction with the financial statements
and related notes which are included in this report under Item 8.
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 its 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.
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.
Starting
in mid-2001 we were not able to generate enough revenue to sustain operations at
previous levels and inasmuch as other sources of capital were not available we
have had to limit our operations since that time.
Revenues
We
generated only modest revenue during the year as we have reduced operations due
to a lack of funds. The revenue that was generated
resulted from VIP subscriptions to our Worlds Ultimate 3-D Chat service and
software development to provide a site for a 3-D world under our deferred
revenue agreement.
Expenses
We
classify our expenses into two broad groups:
|
o
|
cost
of revenues; and
|
|
o
|
selling,
general and administration.
|
Since
mid-2007, as more funds became available from our financings, we were able to
increase operations and become more active operationally.
Liquidity
and Capital Resources
We have
had to limit our operations since mid 2001 due to a lack of
liquidity. However, we were able to issue equity and convertible debt
in the last few years and raise small amounts of capital that enabled us to
begin upgrading our technology, develop new products and actively solicit
additional business. We continue to pursue additional sources of
capital though we have no current arrangements with respect to, or sources of,
additional financing at this time and there can be no assurance that any such
financing will become available. If we cannot raise additional capital, form an
alliance of some nature with another entity, or start to generate sufficient
revenues, we may need to once again scale back operations.
RESULTS
OF OPERATIONS
Our net
revenues for each of the years ended December 31, 2009 and 2008 were $101,115
and $92,549, respectively. We had revenue in 2009 from developing a
3-D world under our deferred revenue agreement and for 2008 we had a software
development project to provide a demo 3-D world for a client. While this amount
of business from operations is still relatively inconsequential, we believe it
is indicative of our recent awakening and return to active
operations.
Year
ended December 31, 2009 compared to year ended December 31, 2008
Revenue
increased by $8,566 to $101,115 for the year ended December 31, 2009 from
$92,549 in the prior year. This represents only a small increase and
reflects the fact that the business is running in a limited mode due to the lack
of available funds.
Cost of
revenues decreased by $36,137 to $164,995 in 2009 from $201,132 in 2008
reflecting the efficiencies obtained from the prior year’s development
activities resulting in our ability to create new worlds with less
expense.
Selling
general and administrative (S, G & A) expenses increased by $6,771 from
$590,690 to $597,461 for the years ended December 31, 2008 and 2009,
respectively. The relatively flat increase indicates a
similar level of activity from year to year.
Other S,
G & A expenses include warrants expense of $35,833, options expense of
$25,031 and interest expense of $4,815 in the year ended December 31,
2009. Other expenses for the year ended December 31, 2008 included
financing fees of $20,000 and interest expense of $75,988 attributable to the
then outstanding notes payable.
As a
result of the foregoing, we realized a net loss of $727,019 for the year ended
December 31, 2009 compared to a loss of $793,810 in the year ended December 31,
2008, a decreased loss of $66,791.
9
Liquidity
and Capital Resources
At
December 31, 2009, we had no cash, cash equivalents, short-term marketable
securities or marketable equity securities. We raised an aggregate of
$175,000 through the issuance of convertible notes in May of 2009. At
December 31, 2008, cash, cash equivalents, short-term marketable securities and
equity securities was $166,535. We sold 1,609,415 shares of our
common stock to raise approximately $481,000 during 2008. This
decrease of $166,535 was the result of selling, general and administrative costs
as well as costs relating to developing the 3-D world under the deferred revenue
agreement whereby the cash was received in prior years. No capital
expenditures were made in 2009 or 2008.
Historically,
our primary cash requirements have been used to fund the cost of operations,
development of our products and patent protection, with additional funds having
been used in promotion and advertising and in connection with the exploration of
new business lines.
The funds
raised in our 2008 and 2009 financings were used to upgrade our
existing technology, develop new products and services, pay salaries to
management and pay professional fees to our attorneys and auditors to prepare
and file reports with the Securities and Exchange Commission to bring us
“current” in our filings so we couldqualify to have our stock quoted on the OTC
Bulletin Board or listed on NASDAQ, if and when we otherwise
qualify. We hope to raise additional funds to be used for advertising
our existing products and services and to fund the development of additional
products and services. No assurances can be given that we will be
able to raise any additional funds.
As
described above, we have commenced litigation to enforce our intellectual
property rights under our patents. If we are successful in the
litigation, we expect to collect compensation for past infringement and license
fees. No assurance can be given that we will be successful in the
litigation or that we will receive any funds as a result of the
litigation.
Also as
described above, we are currently negotiating with various musical artists and
other entities to develop worlds for them. While no assurance can be
given that any of these deals will be concluded, if successful they would likely
generate additional cash flows.
Subsequent
Events
In
February 2010, the Company completed a private placement of 1,454,590 shares of
its common stock for aggregate proceeds of $145,459. The investors
also received an aggregate of 975,338_ warrants as part of the equity investment
exercisable at $0.15per share. The Company also converted the
$175,000 in notes payable from the 2009 financing into 1,750,000 shares of its
common stock.
As
described above we have commenced litigation to enforce our intellectual
property rights under our patents. The litigation is working its way
through the courts. No assurance can be given that we will be
successful in the litigation or that we will receive any funds as a result of
the litigation
Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations.
FASB Accounting Standards
Codification
(Accounting Standards Update (“ASU”)
2009-01)
In
June 2009, FASB approved the FASB Accounting Standards Codification (“the
Codification”) as the single source of authoritative nongovernmental GAAP. All
existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission
(“SEC”), have been superseded by the Codification. All other non-grandfathered,
non-SEC accounting literature not included in the Codification has become
nonauthoritative. The Codification did not change GAAP, but instead introduced a
new structure that combines all authoritative standards into a comprehensive,
topically organized online database. The Codification is effective for interim
or annual periods ending after September 15, 2009, and impacts the
Company’s consolidated financial statements as all future references to
authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of the Company’s
financial statements or disclosures as a result of implementing the Codification
during the fiscal year ended December 31, 2009.
As a
result of the Company’s implementation of the Codification during the fiscal
year ended December 31, 2009, previous references to new accounting standards
and literature are no longer applicable. In the current annual consolidated
financial statements, the Company will provide reference to both new and old
guidance to assist in understanding the impacts of recently adopted accounting
literature, particularly for guidance adopted since the beginning of the current
fiscal year but prior to the Codification.
Subsequent Events
(Included in Accounting Standards
Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165
“Subsequent Events”)
SFAS
No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the consolidated
financial statements are issued or available to be issued (“subsequent events”).
An entity is required to disclose the date through which subsequent events have
been evaluated and the basis for that date. For public entities, this is the
date the consolidated financial statements are issued. SFAS No. 165 does
not apply to subsequent events or transactions that are within the scope of
other GAAP and did not result in significant changes in the subsequent events
reported by the Company. SFAS No. 165 became effective for interim or
annual periods ending after June 15, 2009 and did not impact the Company’s
consolidated financial statements. The Company evaluated for subsequent events
through the issuance date of the Company’s consolidated financial statements. No
recognized or non-recognized subsequent events were noted.
Determination of the Useful Life of
Intangible Assets
(Included in ASC 350 “Intangibles —
Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the
Useful Lives of Intangible Assets”)
FSP SFAS
No. 142-3 amended the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under previously issued goodwill and intangible
assets topics. This change was intended to improve the consistency between the
useful life of a recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset under topics related to
business combinations and other GAAP. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FSP SFAS No. 142-3 became effective for consolidated financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The adoption of FSP SFAS No. 142-3 did not
impact the Company’s consolidated financial statements.
Noncontrolling
Interests
(Included in ASC 810
“Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB
No. 51”)
SFAS
No. 160 changed the accounting and reporting for minority interests such
that they will be recharacterized as noncontrolling interests and classified as
a component of equity. SFAS No. 160 became effective for fiscal years
beginning after December 15, 2008 with early application prohibited. The
Company implemented SFAS No. 160 at the start of fiscal 2009 and no longer
records an intangible asset when the purchase price of a noncontrolling interest
exceeds the book value at the time of buyout. The adoption of SFAS No. 160
did not have any other material impact on the Company’s financial
statements.
Consolidation of Variable Interest
Entities — Amended
(To be included in ASC 810
“Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No.
46(R)”)
SFAS
No. 167 amends FASB Interpretation No. 46(R) “Consolidation of
Variable Interest Entities regarding certain guidance for determining whether an
entity is a variable interest entity and modifies the methods allowed for
determining the primary beneficiary of a variable interest entity. The
amendments include: (1) the elimination of the exemption for qualifying
special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. SFAS
No. 167 is effective for the first annual reporting period beginning after
November 15, 2009, with earlier adoption prohibited. The Company will adopt
SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on
the Company’s financial statements.
10
ITEM
8. FINANCIAL STATEMENTS.
--------
AUDITED
FINANCIAL
STATEMENTS
Worlds.com
Inc.
December
31, 2009
--------
Bongiovanni &
Associates, PA
Certified Public
Accountants
11
|
CONTENTS
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-13
|
|
BALANCE
SHEETS
|
F-14
|
|
STATEMENTS
OF OPERATIONS
|
F-15
|
|
STATEMENTS
OF CASH FLOWS
|
F-16
|
|
STATEMENT
OF STOCKHOLDERS’ DEFICIT
|
F-17
|
|
NOTES
TO FINANCIAL STATEMENTS
|
F-18
|
12
BONGIOVANNI
& ASSOCIATES, CPA'S
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Worlds.com Inc.
We have
audited the accompanying balance sheet of Worlds.com Inc. (the “Company”) as of
December 31, 2009 and 2008 and related statements of operations, stockholders’
deficit, and cash flows for the two years then ending. These financial
statements are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Worlds.com Inc. (a New Jersey
corporation) as of December 31, 2009 and 2008 and the results of its operations
and its cash flows for two years then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered recurring operating
losses, has an accumulated stockholders’ deficit, has negative working capital,
has had minimal revenues from operations, and has yet to generate an internal
cash flow that raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Bongiovanni & Associates,
CPA'S
Bongiovanni
& Associates, CPA'S
Cornelius,
North Carolina
April 7,
2010
13
|
Worlds.com
Inc
|
|||||||||||
|
Balance
Sheets
|
|||||||||||
|
December
31, 2009 and December 31, 2008
|
|||||||||||
|
Audited
|
(Restated)
|
||||||||||
|
Audited
|
|||||||||||
|
31-Dec-09
|
31-Dec-08
|
||||||||||
|
Current
Assets
|
|||||||||||
|
Cash
and cash equivalents
|
$ | 84 | |||||||||
|
Certificate
of deposit
|
$ | - | 166,451 | ||||||||
|
Total
Current Assets
|
- | 166,535 | |||||||||
|
Property
and equipment, net of
|
|||||||||||
|
accumulated
depreciation
|
3,883 | 7,387 | |||||||||
|
TOTAL
ASSETS
|
$ | 3,883 | $ | 173,922 | |||||||
|
Current
Liabilities
|
|||||||||||
|
Bank Overdraft
|
$ | 1,175 | $ | - | |||||||
|
Accounts
payable
|
782,784 | 907,784 | |||||||||
|
Accrued
expenses
|
1,589,587 | 1,399,167 | |||||||||
|
Officer
loan payable
|
4,000 | ||||||||||
|
Deferred
revenue
|
541,950 | 631,950 | |||||||||
|
Notes
payable
|
948,279 | 773,279 | |||||||||
|
Total
Current Liabilities
|
3,867,776 | 3,712,180 | |||||||||
|
Stockholders
(Deficit)
|
|||||||||||
|
Common
stock (Par value $0.001 authorized 65,000,000 shares, issued and
outstanding 53,663,758 and 52,387,749 at December 31, 2009 and December
31, 2008 respectively)
|
$ | 53,663 | $ | 52,387 | |||||||
|
Additional
Paid in Capital
|
22,258,713 | 21,858,603 | |||||||||
|
Accumulated
Deficit
|
(26,176,269 | ) | (25,449,248 | ) | |||||||
|
Total
stockholders deficit
|
(3,863,893 | ) | (3,538,258 | ) | |||||||
|
Total
Liabilities and stockholders deficit
|
$ | 3,883 | $ | 173,922 | |||||||
|
See
Notes to Condensed Financial Statements
|
|||||||||||
14
|
Worlds
.com
|
|||||||||
| Statements of Operations | |||||||||
|
For
Years Ended December 31, 2009 and December 31, 2008
|
|||||||||
|
Year
ended December 31,
|
|||||||||
|
(Restated)
|
|||||||||
|
2009
|
2008
|
||||||||
|
Revenues
|
|||||||||
|
Revenue
|
$ | 101,115 | $ | 92,549 | |||||
|
Total
|
101,115 | 92,549 | |||||||
|
Cost
and Expenses
|
|||||||||
|
Cost
of Revenue
|
164,995 | 201,132 | |||||||
|
Gross
Profit (Loss)
|
(63,880 | ) | (108,583 | ) | |||||
|
Warrants
expense
|
35,833 | - | |||||||
|
Options
Expense
|
25,031 | - | |||||||
|
Common
stock issued for services renderred
|
225,303 | - | |||||||
|
Selling,
General & Admin.
|
372,158 | 590,690 | |||||||
|
Operating
loss
|
(722,204 | ) | (699,273 | ) | |||||
|
Other
Income Expense
|
|||||||||
|
Interest
Income
|
- | 1,451 | |||||||
|
Interest
Expense
|
4,815 | 75,988 | |||||||
|
Financing
Expense
|
- | 20,000 | |||||||
|
Loss
from operations before income taxes
|
$ | (727,019 | ) | $ | (793,810 | ) | |||
| Income Taxes | - | - | |||||||
| Net Loss | $ | (727,019) | $ | (793,810) | |||||
|
Weighted
Average Loss per share
|
$ | (0.01 | ) | (0.02 | ) | ||||
|
See
Notes to Condensed Financial Statements
|
|||||||||
15
|
Worlds
.com
|
||||||||
| Statement of Cash Flows | ||||||||
| December 31, 2009 and December 31, 2008 | ||||||||
|
(Restated)
|
||||||||
|
31-Dec-09
|
31-Dec-08
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
(loss)
|
$ | (727,019 | ) | $ | (793,810 | ) | ||
|
Adjustments
to reconcile net loss to net cash used
|
||||||||
|
in
operating activities
|
||||||||
|
Warrants
Expense
|
35,833 | - | ||||||
|
Depreciation
|
3,504 | 3,504 | ||||||
|
Fair
value of stock options issued
|
25,031 | 85,292 | ||||||
|
Common
stock issued for services rendered
|
225,303 | 31,098 | ||||||
|
Forgiveness
of note payable
|
- | 122,598 | ||||||
|
Deferred
costs
|
- | 55,695 | ||||||
|
Deferred
revenue
|
(90,000 | ) | - | |||||
|
Prepaid
expenses and other current assets
|
9,860 | |||||||
|
Bank
overdraft
|
1,175 | - | ||||||
|
Accounts
payable and accrued expenses
|
13,938 | (98,527 | ) | |||||
|
Net
cash used in operating activities
|
(512,236 | ) | (584,290 | ) | ||||
|
Cash
flows from investing activities
|
||||||||
|
Acquisition
of property and equipment
|
- | (1,516 | ) | |||||
|
Maturity
of certificate of deposit
|
166,451 | - | ||||||
|
Net
cash used in investing activities
|
166,451 | (1,516 | ) | |||||
|
Cash
flows from financing activities
|
||||||||
|
Proceeds
from issuance of notes payable
|
175,000 | |||||||
|
Proceeds
from sale of common stock
|
- | 481,007 | ||||||
|
Proceeds
from exercise of warrants
|
250 | - | ||||||
| Preceeds from officer loan payable | 4,000 | - | ||||||
|
Net
cash provided by financing activities
|
179,250 | 481,007 | ||||||
|
Net
(decrease) in cash
|
(166,535 | ) | (104,799 | ) | ||||
|
Cash
beginning of Year
|
166,535 | 271,334 | ||||||
|
Cash
end of Year
|
$ | 0 | $ | 166,535 | ||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the Year for
|
||||||||
| Interest | $ | - | $ | - | ||||
|
Income
taxes
|
$ | - | $ | - | ||||
|
See
Notes to Condensed Financial
Statements
|
||||||||
16
|
Worlds
.com
|
||||||||||||||||||||||||||||
|
Statement
of Stockholders Equity
|
||||||||||||||||||||||||||||
|
For
the Year Ended December 31, 2009 and 2008
|
||||||||||||||||||||||||||||
|
Common
|
Common
|
|||||||||||||||||||||||||||
|
Shares
|
Stock
|
Total
|
||||||||||||||||||||||||||
|
Additional
|
Subscriber
|
Subscriber
|
Accumulated
|
stockholders'
|
||||||||||||||||||||||||
|
Common
stock
|
Paid-in
|
but
not
|
but
not
|
Deficit
|
equity
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
capital
|
Issued
|
Issued
|
(deficit)
|
|||||||||||||||||||||||
|
Balance,
January 1, 2008
|
44,824,314 | $ | 44,824 | $ | 21,140,760 | $ | 5,411,764 | $ | 5,411 | $ | (24,655,439 | ) | $ | (3,464,444 | ) | |||||||||||||
|
Issuance
of common stock previously subscribed in prior year
|
411,764 | 411 | (411,764 | ) | (411 | ) | - | |||||||||||||||||||||
|
Issuance
of common stock previously subscribed in prior year
|
5,000,000 | 5,000 | (5,000,000 | ) | (5,000 | ) | - | |||||||||||||||||||||
|
Conversion
of debt to Equity
|
400,000 | 400 | 122,198 | 122,598 | ||||||||||||||||||||||||
|
Common
stock issued for services rendered
|
142,256 | 142 | 30,956 | 31,098 | ||||||||||||||||||||||||
|
Equity
investment
|
1,609,415 | 1,610 | 479,397 | 481,007 | ||||||||||||||||||||||||
|
Issuance
of Options at fair value
|
85,292 | 85,292 | ||||||||||||||||||||||||||
|
Net
loss for the year ended December 31, 2008
|
(793,810 | ) | (793,810 | ) | ||||||||||||||||||||||||
|
Balances,
December 31, 2008
|
52,387,749 | $ | 52,387 | $ | 21,858,603 | - | - | (25,449,249 | ) | $ | (3,538,259 | ) | ||||||||||||||||
|
Issuance
of warrants
|
25,000 | 25 | 36,058 | 36,083 | ||||||||||||||||||||||||
|
Common
stock issued for payment of vendor balance
|
500,000 | 500 | 139,500 | 140,000 | ||||||||||||||||||||||||
|
Common
stock issued for services rendered
|
751,009 | 751 | 224,552 | 225,303 | ||||||||||||||||||||||||
|
Net
Loss for the year ended December 31, 2009
|
(727,019 | ) | (727,019 | ) | ||||||||||||||||||||||||
|
Balances,
December 31, 2009
|
53,663,758 | $ | 53,663 | $ | 22,258,713 | $ | (26,176,269 | ) | $ | (3,863,893 | ) | |||||||||||||||||
|
See
Notes to Condensed Financial
Statements
|
||||||||||||||||||||||||||||
17
Worlds.com
Inc.
NOTES
TO FINANCIAL STATEMENTS
Years
Ended December 31, 2009 and 2008
NOTE 1 –
DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Description
of Business
Worlds.com
Inc. (the "Company") designs and develops software content and related
technologies for the creation of interactive, three-dimensional ("3D") Internet
sites on the World Wide Web. Using in-house technology the Company creates its
own Internet sites, as well as sites available through third party on-line
service providers.
Basis of
Presentation
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America ("US
GAAP"), which contemplates continuation of the Company as a going concern. The
Company has always been considered a developmental stage business, has incurred
significant losses since its inception and has had minimal revenues from
operations. The Company will require substantial additional funds for
development and marketing of its products. There can be no assurance that the
Company will be able to obtain the substantial additional capital resources
necessary to pursue its business plan or that any assumptions relating to its
business plan will prove to be accurate. The Company has not been able to
generate sufficient revenue or obtain additional financing which has had a
material adverse effect on the Company, including requiring the Company to
reduce operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. For most of the past year the
Company has been operating at a significantly reduced capacity, with only one
full time employee, performing primarily consulting services and licensing
software and using consultants to perform any additional work that may be
required.
Use of
Estimates
The
preparation of financial statements in conformity with US GAAP 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.
Revenue
Recognition
The
Company has the following sources of revenue: (1) consulting/licensing revenue
from the performance of development work performed on behalf of the Company or
from the sale of certain software to third parties; and (2) VIP subscriptions to
our Worlds Ultimate 3-D Chat service. The Company recognizes
revenue when all of the following criteria are met: evidence of an arrangement
exists such as a signed contract, delivery has occurred, the price is fixed or
determinable, and collectibility is reasonable assured. This will be
in the form of a receipt of a customers acceptance indicating the product has
been completed to their satisfaction except for development work and service
revenue which is recognized when the services have been
performed. Deferred revenue represents cash payments received in
advance to be recorded as revenue when earned. The corresponding cost
associated with those contracts is also deferred as deferred costs until the
revenue is ultimately recognized.
Research
and Development Costs
Research
and development costs are charged to operations as incurred.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is provided on a
straight line basis over the estimated useful lives of the assets ranging from
three to five years. When assets are retired or disposed of, the cost
and accumulated depreciation are removed from the accounts, and any resulting
gains or losses are included in income. Maintenance and repairs are
charged to expense in the period incurred.
Impairment
of Long Lived Assets
The
Company reviews the carrying value of long-lived assets to determine if
circumstances exist indicating whether there has been any impairment of the
carrying value of property and equipment or whether the depreciation periods
should be modified. Long-lived assets are reviewed for impairment
whenever events or changes in business circumstances indicate that the carrying
value of the assets may not be fully recoverable. The Company, as of
the date of these financial statements, has no long lived
assets.
Stock-Based Compensation
The
Company accounts for stock-based compensation using the fair value method of
Financial Accounting Standard No. 123. Shares issued for services rendered by a
third party are recorded at the fair value of the shares issued or services
rendered, whichever is more readily determinable. The Company accounts for
options and warrants under the same authoritative guidance using the
Black-Scholes Option Pricing Model.
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 net
operating loss carry forwards using enacted tax rates. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Comprehensive
Income (Loss)
The
Company adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 130, “Reporting Comprehensive
Income”, which establishes standards for the reporting and display of
comprehensive income and its components in the consolidated financial
statements. There were no items of comprehensive income (loss) applicable to the
Company during the period covered in the financial statements.
Loss Per
Share
The
Company reports loss per share in accordance with Statement of Financial
Accounting Standard (SFAS) No.128. This statement requires dual presentation of
basic and diluted earnings (loss) with a reconciliation of the numerator and
denominator of the loss per share computations. Basic earnings per share amounts
are based on the weighted average shares of common outstanding. If applicable,
diluted earnings per share would assume the conversion, exercise or issuance of
all potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. There were no adjustments required to net loss for the period presented
in the computation of diluted earnings per share. There were no common stock
equivalents necessary for the computation of diluted loss per share, other than
warrants and options which were anti-dilutive.
Stockholders Equity
751,009
shares of stock were issued for services rendered and another 500,000 shares
were issued for the payment of a vendor balance.
Commitments
and Contingencies
During
2000 the Company was involved in a lawsuit relating to unpaid consulting
services. In April, 2001 a judgment against the Company was rendered for
approximately $205,000. As of December 31, 2008 and 2009 the Company recorded a
reserve of $205,000 for this lawsuit, which is included in accrued expenses in
the accompanying balance sheets.
During
2003, a law firm obtained a judgment against the Company for unpaid legal fees
and other debt in the aggregate amount of $182,075. During 2008, the debt was
converted into 400,000 shares of common stock.
Risk and
Uncertainties
The
Company is subject to risks common to companies in the service industry,
including, but not limited to, litigation, development of new technological
innovations and dependence on key personnel.
Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations.
FASB Accounting Standards
Codification
(Accounting Standards Update (“ASU”)
2009-01)
In
June 2009, FASB approved the FASB Accounting Standards Codification (“the
Codification”) as the single source of authoritative nongovernmental GAAP. All
existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission
(“SEC”), have been superseded by the Codification. All other non-grandfathered,
non-SEC accounting literature not included in the Codification has become
nonauthoritative. The Codification did not change GAAP, but instead introduced a
new structure that combines all authoritative standards into a comprehensive,
topically organized online database. The Codification is effective for interim
or annual periods ending after September 15, 2009, and impacts the
Company’s consolidated financial statements as all future references to
authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of the Company’s
financial statements or disclosures as a result of implementing the Codification
during the fiscal year ended December 31, 2009.
As a
result of the Company’s implementation of the Codification during the fiscal
year ended December 31, 2009, previous references to new accounting standards
and literature are no longer applicable. In the current annual consolidated
financial statements, the Company will provide reference to both new and old
guidance to assist in understanding the impacts of recently adopted accounting
literature, particularly for guidance adopted since the beginning of the current
fiscal year but prior to the Codification.
Subsequent Events
(Included in Accounting Standards
Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165
“Subsequent Events”)
SFAS
No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the consolidated
financial statements are issued or available to be issued (“subsequent events”).
An entity is required to disclose the date through which subsequent events have
been evaluated and the basis for that date. For public entities, this is the
date the consolidated financial statements are issued. SFAS No. 165 does
not apply to subsequent events or transactions that are within the scope of
other GAAP and did not result in significant changes in the subsequent events
reported by the Company. SFAS No. 165 became effective for interim or
annual periods ending after June 15, 2009 and did not impact the Company’s
consolidated financial statements. The Company evaluated for subsequent events
through the issuance date of the Company’s consolidated financial statements. No
recognized or non-recognized subsequent events were noted.
Determination of the Useful Life of
Intangible Assets
(Included in ASC 350 “Intangibles —
Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the
Useful Lives of Intangible Assets”)
FSP SFAS
No. 142-3 amended the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under previously issued goodwill and intangible
assets topics. This change was intended to improve the consistency between the
useful life of a recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset under topics related to
business combinations and other GAAP. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FSP SFAS No. 142-3 became effective for consolidated financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The adoption of FSP SFAS No. 142-3 did not
impact the Company’s consolidated financial statements.
Noncontrolling
Interests
(Included in ASC 810
“Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB
No. 51”)
SFAS
No. 160 changed the accounting and reporting for minority interests such
that they will be recharacterized as noncontrolling interests and classified as
a component of equity. SFAS No. 160 became effective for fiscal years
beginning after December 15, 2008 with early application prohibited. The
Company implemented SFAS No. 160 at the start of fiscal 2009 and no longer
records an intangible asset when the purchase price of a noncontrolling interest
exceeds the book value at the time of buyout. The adoption of SFAS No. 160
did not have any other material impact on the Company’s financial
statements.
Consolidation of Variable Interest
Entities — Amended
(To be included in ASC 810
“Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No.
46(R)”)
SFAS
No. 167 amends FASB Interpretation No. 46(R) “Consolidation of
Variable Interest Entities regarding certain guidance for determining whether an
entity is a variable interest entity and modifies the methods allowed for
determining the primary beneficiary of a variable interest entity. The
amendments include: (1) the elimination of the exemption for qualifying
special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. SFAS
No. 167 is effective for the first annual reporting period beginning after
November 15, 2009, with earlier adoption prohibited. The Company will adopt
SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on
the Company’s financial statements.
NOTE 2 -
GOING CONCERN
Since
2001, the Company has had to reduce operations due to lack of resources. The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has had only minimal revenues from
operations over the last few years, has negative cash flows from operations, has
a stockholders’ deficit, has a retained deficit, and negative working capital.
There can be no assurance that the Company will be able to obtain the
substantial additional capital resources necessary to implement 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 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 –
RESTATEMENT OF FINANCIAL STATEMENTS
On May
11, 2009, our management concluded that our audited financial statements for the
years ended December 31, 2007 and 2008 and our unaudited quarterly financial
statements for the quarterly periods in such years should no longer be relied
upon. Specifically, our liabilities were understated by approximately
$1,699,179 on December 31, 2007 and by approximately $2,780,930 on December 31,
2008 (which amount is cumulative and includes the amount understated in 2007)
with an overstatement of income on such dates of $1,699,179 and $1,081,750,
respectively. The facts underlying our original conclusion is that
all of such liabilities have exceeded the applicable statutes of limitations and
based upon an opinion of counsel which stated that the likelihood of our having
to pay these liabilities was highly improbable, our independent auditor
concurred with our decision to write off all of such liabilities. The
staff (“Staff”) of the Securities and Exchange Commission, without disagreeing
with our position that payment of such liabilities was highly improbable,
advised us that under the facts of our situation, it was their conclusion that
GAAP accounting required that the liabilities not be written off at this
time. Following a series of calls with various Staff members, our
management, in consultation with our counsel and independent auditor, agreed to
accept the Staff’s position. We have received guidance from the Staff
as to the necessary steps we need to take to properly write off these
liabilities and we expect to begin that process with certain of the largest
creditors. Regardless of whether we are ultimately successful in
writing off all or some of these liabilities, we do not believe that these
restatements will have any impact on our results of operations or cash flows as
the fact remains that the statute of limitations has indeed passed with respect
to these liabilities and the likelihood of our having to pay them remains highly
improbable.
18
Worlds.com
Inc.
NOTES
TO FINANCIAL STATEMENTS
Years
Ended December 31, 2009 and 2008
NOTE 4 -
PRIVATE PLACEMENTS OF EQUITY
During
2009 the Company issued notes with penny warrants raising $175,000 in
cash. The notes can be converted into 1,750,000 shares of common
stock. The warrants represent another 975,338 shares of common stock
if converted. The effects on dilutive earnings per share are not applicable due
to its anti-dilutive effect. In February 2010, all the notes were
converted into common stock.
During
the year ended December 31, 2008, the Company completed a private placement of
1,609,415 shares of its common stock for aggregate proceeds of $481,007. Stock
options were issued to these investors in conjunction with the 2008 equity
issuances. See Note 8 below for discussion regarding options.
One
officer of the Company and a consultant received common shares totaling 142,256
for services rendered to the Company during 2008. $31,098 was expensed during
2008 which equates to the fair value of services rendered during 2008. This also
approximated the closing stock prices at the dates of the common stock
issuances.
NOTE 5 –
DEFERRED REVENUE
Deferred
revenue represents advance payments for the license, the design and development
of the software, content and related technology for the creation of an
interactive, 3D entertainment portal on the internet. As part of a
debt refinancing in 2000, $631,950 of debt was renegotiated to deferred revenue
representing future services to be provided by the Company. During
2009, $90,000 worth of services was provided leaving a balance of $541,950 at
December 31, 2009.
NOTE 6 -
NOTES PAYABLE
Notes
Payable
Short
term notes payable at December 31, 2009 consist of the following:
Unsecured
note payable to a shareholder bearing 8%
interest.
Entire
balance of principal and unpaid interest due on
demand.
$124,230
Unsecured
note payable to a shareholder bearing 10% interest.
Entire
balance of principal and unpaid interest due on
demand.
$649,049
Secured
notes payable to investors bearing 7% interest.
Balance
of principal and unpaid interest due February 1,
2010
$175,000
Total
current
$948,279
2010
$948,279
2011
$ -0-
2012
$ -0-
2013
$ -0-
2014
$ -0-
NOTE 7-
PROPERTY AND EQUIPMENT
The
detail composition of property and equipment at December 31, 2009 and
2008 is as follows:
2009 2008
Computer
equipment $10,891
$10,891
Less: accumulated
depreciation 7,008 3,504
$3,883
$ 7,387
===== =====
Depreciation
expense recorded for 2009 and 2008 was $3,504 and $3,504,
respectively.
NOTE 8 –
STOCK OPTIONS
Stock
Options
During
2009 the Company issued stock options to various parties. The stock
options allow the parties to purchase shares of the Company’s common stock at
various prices per share per each individual option agreement. The
options allow the various parties to purchase one share of its stock for each
option. The options expire at various times through September 25,
2012 per each individual option agreement. The Company did not grant any
registration rights with respect to any shares of common stock issuable upon
exercise of the options. There were no forfeited options during 2009. During the
year ended December 31, 2009, the Company recorded an expense of $25,031, equal
to the estimated fair value of the options at the date of grants. The
fair market value was calculated using the Black-Scholes options pricing model,
assuming approximately 3.0% risk-free interest, 0% dividend yield, 60%
volatility, and expected lives ranging from one to five years.
During
2008, the Company issued stock options to various parties in conjunction with
the equity raise. The stock options allow the parties to purchase shares of the
Company’s common stock at various prices per share per each individual option
agreement. The options allow the various parties to purchase one common share of
its stock for each option. The options expire at various times through September
2012 per each individual option agreement. The Company did not grant any
registration rights with respect to any shares of common stock issuable upon
exercise of the options. There were no forfeited options during 2008. During the
year ended December 31, 2008, the Company recorded an expense of $85,292, equal
to the estimated fair value of the options at the date of grants. Some if the
options did not vest during the year ended December 31, 2008 but accounting
recognition was applied ratable between the dates of issuances and the dates of
vesting. The fair market value was calculated using the Black-Scholes options
pricing model, assuming approximately 3.0% risk-free interest, 0% dividend
yield, 60% volatility, and expected lives ranging from one to five
years.
|
Stock
Warrants and Options
|
||||||||||
|
Stock
warrants and options outstanding and exercisable on December 31, 2009 are
as follows:
|
||||||||||
|
Exercise Price per Share
|
Shares Under Option
|
Remaining Life in Years
|
||||||||
|
Outstanding
|
||||||||||
| $ | 0.35 | 212,500 | 4.00 | |||||||
| $ | 0.30 | 50,000 | 0.90 | |||||||
| $ | 0.30 | 200,000 | 1.33 | |||||||
| $ | 0.30 | 150,000 | 1.75 | |||||||
| $ | 0.22 | 350,000 | 0.92 | |||||||
| $ | 0.20 | 300,000 | 3.00 | |||||||
| $ | 0.20 | 300,000 | 4.00 | |||||||
| 0.11 | 75,000 | 0.95 | ||||||||
| 0.11 | 100,000 | 2.75 | ||||||||
| 0.05 | 15,450,000 | 2.75 | ||||||||
| 0.01 | 437,500 | 2.33 | ||||||||
|
Exercisable
|
||||||||||
| $ | 0.35 | 212,500 | 4.00 | |||||||
| $ | 0.30 | 50,000 | 0.90 | |||||||
| $ | 0.30 | 200000 | 1.33 | |||||||
| $ | 0.30 | 150000 | 1.75 | |||||||
| $ | 0.22 | 350,000 | 0.92 | |||||||
| $ | 0.20 | 300,000 | 3.00 | |||||||
| $ | 0.20 | 300,000 | 4.00 | |||||||
| $ | 0.11 | 75,000 | 0.95 | |||||||
| $ | 0.05 | 15,450,000 | 2.75 | |||||||
| $ | 0.01 | 437,500 | 2.33 | |||||||
NOTE 9 -
INCOME TAXES
At
December 31, 2009, the Company had federal and state net operating loss carry
forwards of approximately $40,000,000 that expire in various years through the
year 2023.
Due to
operating losses, there is no provision for current federal or state income
taxes for the years ended December 31, 2009 and 2008.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.
The
Company’s deferred tax asset at December 31, 2009 consists of net operating loss
carry forwards calculated using federal and state effective tax rates equating
to approximately $16,000,000 less a valuation allowance in the amount of
approximately $16,000,000. Because of the Company’s lack of earnings history,
the deferred tax asset has been fully offset by a valuation allowance. The
valuation allowance increased by approximately $290,000 and $317,000 for the
years ended December 31, 2009 and 2008, respectively.
The
Company’s total deferred tax asset as of December 31, 2009 is as
follows:
Net operating loss carry
forwards $16,000,000
Valuation
allowance
(16,000,000)
Net
deferred tax
asset
$ --
========
The
reconciliation of income taxes computed at the federal and state statutory
income tax rate to total income taxes for the years ended December 31, 2009 and
2008 is as follows:
Income tax computed at the federal
statutory
rate
34%
Income
tax computed at the state statutory
rate
5%
Valuation
allowance (39%)
Total
deferred tax
asset
0%
NOTE 10
- SUBSEQUENT EVENTS
In
February 2010, the Company completed a private placement of 1,454,590 shares of
its common stock for aggregate
proceeds of $145,459. The investors also received an aggregate of 975,338
warrants as part of the equity
investment exercisable at $0.15per share. The Company also converted the
$175,000 in notes payable from
the 2009
financing into 1,750,000 shares of its common stock.
As
described above the Company commenced litigation to enforce our intellectual
property rights under their patents.
The litigation is working its way through the courts. No assurance can be given
that the Company will be successful in the
litigation or that the Company will receive any funds as a result of
the litigation
19
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A(T). CONTROLS
AND PROCEDURES.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of our principal executive officer and
principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Act is accumulated
and communicated to the issuer’s management, including its principal executive
and principal financial officers, or persons performing similar functions as
appropriate to allow timely decisions regarding required
disclosure. We concluded that our disclosure controls and procedures
as defined in Rule 13a-15(e) under the Exchange Act were effective as of
December 31, 2009 to ensure that information required to be disclosed in
reports we file or submit under the Exchange Act is recorded, processed, and
summarized and reported within the time periods specified in SEC rules and
forms.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and 15d-(f) under
the Exchange Act. Our internal control over financial reporting are designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes
in accordance with U.S. generally accepted accounting principles. Our internal
control over financial reporting includes those policies and procedures
that:
(i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
(ii) provide
reasonable assurance that transactions are recorded as necessary to permit the
preparation of our consolidated financial statements in accordance with U.S.
generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors; and
(iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the consolidated financial statements.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management
used the criteria set forth in Internal Control Over Financial Reporting —
Guidance for Smaller Public Companies issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Subject
to the inherent limitations described in the following paragraph, our management
has concluded that our internal control over financial reporting was effective
as December 31, 2009 at the reasonable assurance level.
Inherent
Limitations Over Internal Controls
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations, including
the possibility of human error and circumvention by collusion or overriding of
controls. Accordingly, even an effective internal control system may not prevent
or detect material misstatements on a timely basis. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the policies or procedures may
deteriorate. Accordingly, our internal controls and procedures are
designed to provide reasonable assurance of achieving their
objectives.
Changes
in Internal Control over Financial Reporting
We have
made no change in our internal control over financial reporting during the last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Attestation
Report of the Registered Public Accounting Firm
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual report on Form
10-K.
ITEM
9B. OTHER INFORMATION.
None.
20
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The
following table sets forth the name, age and position of our directors and
executive officers. Our directors are elected annually and serve until the next
annual meeting of stockholders. Except for Mr. Kidrin, all of our
directors are independent
|
Name
|
Age
|
Position
|
|
Thomas
Kidrin
|
57
|
President,
Chief Executive Officer, Secretary, Treasurer, Director
|
|
Christopher
J. Ryan
|
49
|
Vice
President- Finance, Principal Accounting and Chief Financial
Officer
|
|
Bernard
Stolar
|
63
|
Director
|
|
Jay
Coleman
|
59
|
Director
|
|
Robert
Fireman
|
61
|
Director
|
Thomas
Kidrin has been president, secretary and treasurer from December 1997 through
July 2007_then added the title chief executive officer since August 2007. Mr.
Kidrin was also president and a director of Worlds Acquisition Corp. from April
1997 to December 1997. He has been the chairman and president of Datastream
Corporation, a designer and developer of interactive products and services,
since 1993. From December 1991 to June 1996, Mr. Kidrin was a founder, director,
and President of UC Television Network Corp., a company engaged in the design
and manufacture of interactive entertainment/advertising networks in the college
market under the brand name College Television Network, the largest private
network on college campuses in the United States sold to MTV in 1996 now
operating under MTVU. Mr. Kidrin has attended Drake University and the New
School of Social Research.
Christopher
J. Ryan has been Vice President- Finance since May 2000 and principal accounting
and finance officer since August 2000. From August 1991 through April 2000, Mr.
Ryan held a variety of financial management positions at Reuters America, an
information services company. From 2001 through 2003, Mr. Ryan was
the founder and President of CJR Advisory Services, a personal corporation
through which he provided financial consulting services to various
entities. Since 2004, Mr. Ryan has been the VP Finance of Peminic,
Inc. Mr. Ryan is an inactive certified public accountant. He is a
graduate of Montclair State University in New Jersey and received an M.B.A.
degree from Fordham University in New York.
Bernard
Stolar, noted for his expertise in both identifying and developing
market-driving content and forging successful business partnerships, brings to
the board over twenty years of senior-level experience within the interactive
entertainment industry in all phases of company operations, including sales and
marketing, product development, licensing, distribution, strategic planning and
management. Mr. Stolar has served in high profile leadership roles at publicly
and privately held interactive entertainment companies. Currently, Mr. Stolar is
Dean of Games and Game Evangelist for Google, Inc. From February 2006 until its
purchase by Google, Inc. in February 2007, Mr. Stolar was the Chairman of the
Board of Adscape Media. Prior to this, he was president and chief operating
office of BAM! Entertainment, where he transformed the company from a hand-held
content company to a developer and marketer of interactive entertainment for
next generation video game consoles. In 2000, Mr. Stolar joined Mattel, Inc. as
president of Mattel Interactive, where he was responsible for directing and
reorganizing the $1 billion Mattel Interactive division. From 1996 to 1999, Mr.
Stolar served as president and chief operating officer of Sega of America, Inc.
where he helped increase sales from $200 million to over $1 billion in three
years, and orchestrated the launch of the Sega Dreamcast(TM), the fastest
selling video game console in US history at that time. Mr. Stolar also served as
executive vice president of Sony Computer Entertainment of America, where he was
a key leader of the Sony Playstation® launch team, directing all third-party
publishing in the U.S. Prior to that, Mr. Stolar served as president of Atari
America's game division.
Jay
Coleman is the founder and CEO, since 1976, of Entertainment Marketing &
Communications International, a leading independent company linking worldwide
consumer marketing with the broad spectrum of contemporary music, entertainment
and technology. Major deals include the Rolling Stones with American
Express; Michael Jackson with Pepsi; and Sponsorship for Live Aid and Live
Earth, among other major media events. Mr. Coleman is best known for pioneering
music sponsorship and marketing, creating landmark deals, and expanding the
company's marketing capabilities beyond pop music, creating breakthrough
concepts in all areas of entertainment.
Robert
Fireman joins the Worlds team as a seasoned executive in the building of
technology and consumer driven companies. He brings to Worlds vast experience in
the development of real time, loyalty based, stored value products and
services. Mr. Fireman was a founder and former Director and General
Manager of SmartSource Direct, Inc., a subsidiary of News America Marketing
(News Corp). Mr. Fireman was responsible for the development, marketing
and distribution of card-based loyalty, financial, and database products &
services in retail, grocery and drug store chains encompassing over 50,000
stores throughout the U.S. Mr. Fireman has been a practicing attorney
for over 25 years and is the managing attorney of Fireman & Associates
LLP.
The board
of directors did not meet during 2009 but acted by written consent four
times. The board does not have any standing committees and when
necessary, the entire board acts to perform such functions.
Family
Relationships
None.
Legal
Proceedings
None.
Audit
Committee
We do not
have a separately designated standing audit committee. Pursuant to Section
3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit
committee for the purpose of overseeing the accounting and financial reporting
processes, and audits of our financial statements. The Commission recently
adopted new regulations relating to audit committee composition and functions,
including disclosure requirements relating to the presence of an "audit
committee financial expert" serving on its audit committee. We have
only recently begun increasing our operations, and we are not in a position at
this time to attract, retain and compensate additional directors in order to
acquire a director who qualifies as an "audit committee financial expert" or to
so designate one of our current directors, but we intend to either retain an
additional director who will qualify as such an expert or designate one of our
current directors as such an expert, as soon as reasonably practicable. Our
current directors, by virtue of their past employment experience, have
considerable knowledge of financial statements, finance, and accounting, and
have significant employment experience involving financial oversight
responsibilities. Accordingly, we believe that our current directors capably
fulfill the duties and responsibilities of an audit committee in the absence of
such a designated expert at this time.
Code
of Ethics
We have
adopted a code of ethic (the "Code of Ethics") that applies to our principal
chief executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. A
copy of the Code of Ethics was filed as Exhibit 14.1 to a previous
annual report. The Code of Ethics is being designed with the intent to deter
wrongdoing, and to promote the following:
|
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships
|
|
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that we file with, or submit to, the Commission and in other
public communications we make
|
|
|
Compliance
with applicable governmental laws, rules and
regulations
|
|
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the
code
|
|
|
Accountability
for adherence to the code
|
Section
16(a) Beneficial Ownership Reporting Compliance
Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of a
company that files reports pursuant to Section 12 of the Exchange Act, are
required to report the ownership of such common stock, options, and stock
appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have
been established, and we are required to report, in this Form 10-K, any failure
to comply therewith during the fiscal year ended December 31,
2009. Except as disclosed below, we believe that all of these filing
requirements were satisfied by its executive officers, directors and by the
beneficial owners of more than 10% of our common stock. In making this
statement, we have relied solely on copies of any reporting forms received by
us, and upon any written representations received from reporting persons that no
Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be
filed under applicable rules of the Commission. Each of our directors
did not timely file one Form 4.
ITEM
11. EXECUTIVE COMPENSATION.
The
following table sets forth the compensation paid by us during the fiscal periods
ending December 31, 2009 and 2008, to our chief executive officer and to our
other most highly compensated executive officers whose compensation exceeded
$100,000 for those fiscal periods.
21
|
SUMMARY
COMPENSATION TABLE (1)(2)
|
||||||||
|
Name
and principal position
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
Awards ($)
(e)
|
Option
Awards ($)
(f)
|
Securities
underlying options
(g)
|
All
Other Compensation ($)
(i)
|
Total
($)
(j)
|
|
Thomas
Kidrin
President
and CEO
|
2009
|
$123,077(3)
|
0
|
0
|
0
|
0
|
$123,077(3)
|
|
|
2008
|
$200,000
|
0
|
0
|
0
|
0
|
$200,000
|
||
(1) The
above compensation does not include other personal benefits, the total value of
which do not exceed $10,000.
(2)
Pursuant to the regulations promulgated by the SEC, the table omits columns
reserved for types of compensation not applicable to us.
(3) Mr.
Kidrin has an employment agreement with a 2009 salary of
$242,000. The balance of his compensation has been deferred due to
lack of funds.
Stock
Option Grants
The
following table sets forth information as of December 31, 2009 concerning
unexercised options, unvested stock and equity incentive plan awards for the
executive officers named in the Summary Compensation Table.
OUTSTANDING
EQUITY AWARDS AT YEAR-ENDED DECEMBER 31, 2009
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|||||||||||||||
|
Thom
Kidrin
|
|
15,000,000
|
0
|
0
|
|
$
|
0.05
|
|
08-31-12
|
|||||||||||||||
Compensation
of Directors
On
September 5, 2007, the Board of Directors adopted a compensation program for the
directors whereby each director will receive compensation in the form of stock
options for serving on the board. Five-year non-qualified stock options to
purchase 100,000 shares of the Corporation’s common stock are to be granted
annually on January 1 to each director then in office at an exercise price equal
to the last reported trading price of our common stock on that day, with such
option to vest in 12 months, provided the director serves for at least six
months, following the date of grant. In addition, every director upon
first joining our board receives 150,000 stock options that vest immediately and
are exercisable for five years at a price equal to the last reported trading
price of our common stock on that day.
The
following table sets forth information concerning the compensation paid to each
of our non-employee directors during 2009 for their services rendered as
directors.
DIRECTOR
COMPENSATION
|
Name
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
(1)
|
|
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Jay
Coleman
|
|
0
|
|
0
|
|
6,382
|
|
|
Value
|
89
|
6,382
|
|
|
Robert
Fireman
|
|
0
|
|
0
|
|
6,382
|
|
|
|
|
6,382
|
|
|
Bernard
Stolar
|
|
0
|
|
0
|
|
6,382
|
|
|
|
|
6,382
|
|
(1)
This column represents the dollar amount recognized for financial statement
reporting purposes with respect to the 2009 fiscal year for the fair value of
stock options granted to the named director in fiscal year 2009, in accordance
with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of
estimated forfeitures related to service-based vesting conditions. These amounts
reflect our accounting expense for these awards, and do not correspond to the
actual value that will be recognized from these awards by the named
director.
Employment
Agreements
On
September 4, 2007, our board approved entry into an employment agreement with
our president, Thom Kidrin. The agreement, dated as of September 1,
2007, is for five years with a one-year renewal option held by Mr.
Kidrin. The agreement provides for a base salary of $200,000, which
increases 10% on January 1 of each year; a monthly car allowance of $1,000; an
annual bonus equal to 2.5% of Pre-Tax Income (as defined in the agreement); an
additional bonus as follows: $75,000, if Pre-Tax Income for the year is between
150% and 200% of the prior fiscal year’s Pre-Tax Income or (B) $100,000, if
Pre-Tax Income for the year is between 201% and 250% of the prior fiscal year’s
Pre-Tax Income or (C) $200,000, if Pre-Tax Income for the year is 251% or
greater than the prior fiscal year’s Pre-Tax Income, but in no event shall this
additional bonus exceed five (5%) percent of Pre-Tax Income for such year;
payment of up to $10,000 in life insurance premiums; options to purchase 15
million shares of our common stock at an exercise price of $0.05 per
share, of which one-third vested on September 4, 2007, one-third vest on August
31, 2008 and the balance vested on August 31, 2009; a death benefit equal to one
year of the then base salary and a disability benefit equal to two years of the
then base salary; and a payment equal to 2.99 times his base amount (as defined
in the agreement) in the event of a Change of Control (as defined in the
agreement). The agreement also provides that Mr. Kidrin can be
terminated for cause (as defined in the agreement) and that he is subject to
restrictive covenants for 12 months after
termination.
Stock
Option Plan
On
September 4, 2007, our board of directors adopted the 2007 Stock Option Plan
which we intend to present to our shareholders for their approval at our next
annual meeting. The plan provides for the issuance of up to 25
million options of which not more than 22 million can be incentive stock
options. To date, 17,387,500 options have been issued under the
plan.
22
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The
following table sets forth as of April 1, 2010, certain information with respect
to the beneficial ownership of Common Stock by (i) each Director, nominee and
executive officer of us; (i) each person who owns beneficially more than 5% of
the common stock; and (iii) all Directors, nominees and executive officers as a
group. The percentage of shares beneficially owned is based on there having been
53,663,758 shares of common stock outstanding as of April 1, 2010.
OFFICERS,
DIRECTORS AND BENEFICIAL OWNERS, AS OF APRIL 1, 2010
|
Name
& Address of Beneficial Owner(1)
|
Amount
& Nature of Beneficial Owner
|
%
of Class(2)
|
|
Thomas
Kidrin
|
16,290,000(3)
|
31.08%
|
|
Jay
Coleman
|
475,000(4)
|
0.91%
|
|
Robert
Fireman
|
350,000(4)
|
0.67%
|
|
Bernard
Stolar
|
350,000(4)
|
0.67%
|
|
Steven
Chrust
|
6,538,786(5)
|
12.18%
|
|
All
directors and executive officers as a group (one person)
|
24,003,786(6)
|
44.73%
|
(1)
Unless stated otherwise, the business address for each person named is
Worlds.com, Inc., 11 Royal Road, Brookline, MA 02445.
(2)
Calculated pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934.
Under Rule 13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned by a
person, but not deemed outstanding for the purpose of calculating the percentage
owned by each other person listed. We believe that each individual or entity
named has sole investment and voting power with respect to the shares of common
stock indicated as beneficially owned by them (subject to community property
laws where applicable) and except where otherwise noted.
(3)
Includes 15 million currently exercisable stock options.
(4)
Consists of currently exercisable stock options.
(5)
Includes common shares and warrants directly and indirectly owned.
(6)
Includes 16,175,000 currently exercisable stock options.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Jay
Coleman, one of our directors, received 125,000 stock options exercisable for 3
years at a price of $0.30 per share, which was the closing price of our common
stock on the date of grant, as compensation for his efforts in generating new
business for the Company. The issuance was approved by the board of directors,
including all of the independent directors
ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES.
Fees
Billed For Audit and Non-Audit Services
The
following table represents the aggregate fees billed for professional audit
services rendered to the independent auditor, Bongiovanni & Associates, P.A.
(“Bongiovanni”), for our audit of the annual financial statements for the years
ended December 31, 2009 and 2008. Bongiovanni was retained as our auditor in
2007. Audit fees and other fees of auditors are listed as follows:
|
Year Ended December 31
|
2009
|
2008
|
|||||||||||
|
Bongiovanni
|
Bongiovanni
|
||||||||||||
|
Audit
Fees (1)
|
$
|
23,000
|
(2)
|
$
|
17,000
|
||||||||
|
Audit-Related
Fees (3)
|
9,000 |
9,000
|
|||||||||||
|
Tax
Fees (4)
|
$
|
0
|
5,000
|
||||||||||
|
All
Other Fees (5)
|
--
|
||||||||||||
|
Total
Accounting Fees and Services
|
$
|
32,000
|
$
|
31,000
|
|||||||||
|
(1)
|
Audit Fees. These are
fees for professional services for the audit of our annual financial
statements, and for the review of the financial statements included in our
filings on Form 10-QSB, and for services that are normally provided in
connection with statutory and regulatory filings or
engagements.
|
|
(2)
|
The
amounts shown for Bongiovanni in 2009 and 2008 relate to (i) the audit of
our annual financial statements for the years ended December 31, 2009 and
2008, and (ii) the review of the financial statements included in our
filings on Form 10-Q for the first, second and third quarters of 2009 and
2008.
|
|
(3)
|
Audit-Related Fees.
These are fees for the assurance and related services reasonably related
to the performance of the audit or the review of our financial
statements.
|
|
(4)
|
Tax Fees. These are
fees for professional services with respect to tax compliance, tax advice,
and tax planning.
|
|
(5)
|
All Other Fees. These
are fees for permissible work that does not fall within any of the other
fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
Fees.
|
Pre-Approval
Policy For Audit and Non-Audit Services
We do not
have a standing audit committee, and the full Board performs all functions of an
audit committee, including the pre-approval of all audit and non-audit services
before we engage an accountant. All of the services rendered to us by
Bongiovanni & Associates, P.A. were pre-approved by our Board of
Directors.
We are
presently working with our legal counsel to establish formal pre-approval
policies and procedures for future engagements of our accountants. The new
policies and procedures will be detailed as to the particular service, will
require that the Board or an audit committee thereof be informed of each
service, and will prohibit the delegation of pre-approval responsibilities to
management. It is currently anticipated that our new policy will provide (i) for
an annual pre-approval, by the Board or audit committee, of all audit,
audit-related and non-audit services proposed to be rendered by the independent
auditor for the fiscal year, as specifically described in the auditor's
engagement letter, and (ii) that additional engagements of the auditor, which
were not approved in the annual pre-approval process, and engagements that are
anticipated to exceed previously approved thresholds, will be presented on a
case-by-case basis, by the President or Controller, for pre-approval by the
Board or audit committee, before management engages the auditors for any such
purposes. The new policy and procedures may authorize the Board or audit
committee to delegate, to one or more of its members, the authority to
pre-approve certain permitted services, provided that the estimated
fee for any such service does not exceed a specified dollar amount (to be
determined). All pre-approvals shall be contingent on a finding, by the Board,
audit committee, or delegate, as the case may be, that the provision of the
proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.
ITEM
15. EXHIBITS.
3.1 Certificate
of Incorporation (a)
3.1.1 Certificate
of Amendment of the Certificate of Incorporation (b)
3.2 By-Laws
- Restated as Amended (c)
4.1 2007
Stock Option Plan (d)
10.1 Consulting
Agreement between the Registrant and SGC Advisory, Inc. (b)
14.1. Code of Ethics (e)
31.1. Rule 13a-14(a)/15d-14(a) Certifications
of Chief Executive
Officer **
31.2. Rule 13a-14(a)/15d-14(a) Certifications
of Chief Financial
Officer **
32.1. Section 1350 Certifications of Chief
Executive Officer **
32.2. Section 1350 Certifications of Chief
Financial Officer **
|
(a)
|
Filed
previously as an exhibit to Registrant's Registration Statement No.
2-31876, and incorporated herein by
reference.
|
|
(b)
|
Filed
previously as an exhibit to Registrant's Annual Report on Form 10-KSB
filed on March 30, 2000, and incorporated herein by
reference.
|
|
(c)
|
Filed
previously as an exhibit to Registrant's Post-Effective Amendment No. 3 to
Registration Statement on Form SB-2 (File No. 333-10838), and incorporated
herein by reference.
|
|
(d)
|
Filed
previously as an exhibit to Registrant's Current Report on Form 8-K filed
on September 7, 2007, and incorporated herein by
reference.
|
|
(e)
|
Filed
previously as an exhibit to Registrant's Annual Report on Form 10-KSB
filed on April 3, 2008, and incorporated herein by
reference.
|
** Filed
herewith
23
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated:
April 14,
2010 WORLDS.COM
INC.
(Registrant)
|
By: /s/ Thomas Kidrin
Name:
Thomas Kidrin
Title: President
and Chief Executive Officer
|
In
accordance with the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
|
Signatures Title Date
/s/ Thomas
Kidrin President,
Chief Executive
Officer April
14, 2010
Thomas
Kidrin and
Director
/s/ Christopher J.
Ryan Vice
President - Finance
and April
14, 2010
Christopher
J.
Ryan Principal
Accounting and
Financial
Officer
/s/ Bernard
Stolar Director April
14, 2010
Bernard
Stolar
/s/ Jay
Coleman Director April
14, 2010
Jay
Coleman
/s/ Robert
Fireman Director April
14, 2010
Robert
Fireman
|
24
EXHIBIT
INDEX
3.1 Certificate
of Incorporation (a)
3.1.1 Certificate
of Amendment of the Certificate of Incorporation (b)
3.2 By-Laws
- Restated as Amended (c)
4.1 2007
Stock Option Plan (d)
10.1 Consulting
Agreement between the Registrant and SGC Advisory, Inc. (b)
14.1. Code of
Ethics (e)
|
(a)
|
Filed
previously as an exhibit to Registrant's Registration Statement No.
2-31876, and incorporated herein by
reference.
|
|
(b)
|
Filed
previously as an exhibit to Registrant's Annual Report on Form 10-KSB
filed on March 30, 2000, and incorporated herein by
reference.
|
|
(c)
|
Filed
previously as an exhibit to Registrant's Post-Effective Amendment No. 3 to
Registration Statement on Form SB-2 (File No. 333-10838), and incorporated
herein by reference.
|
|
(d)
|
Filed
previously as an exhibit to Registrant's Current Report on Form 8-K filed
on September 7, 2007, and incorporated herein by
reference.
|
|
(e)
|
Filed
previously as an exhibit to Registrant's Annual Report on Form 10-KSB
filed on April 3, 2008, and incorporated herein by
reference.
|
** Filed
herewith