WORLDS INC - Quarter Report: 2009 March (Form 10-Q)

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WORLDS.COM INC.

 

(not affiliated with Worldcom, Inc.)

 

(Exact Name of Registrant as Specified in Its Charter)

New Jersey                                         22-1848316  -------------------------------                     ----------------------- (State or Other Jurisdiction of                     (I.R.S. Employer Identification No.)                                                                                                 Incorporation or Organization)

11 Royal Road

Brookline, MA 02445

 (Address of Principal -Eexecutive Offices)

(617) 725-8900

 (Registrant's Telephone Number, Including Area Code)

 

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 [  ]

 

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 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  [ ]                                                                           Smaller reporting company [X]

 

(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 Exchange Act). Yes [  ] No [X]

 

As of May 20, 2009,  52,387,749 shares of the Issuer's Common Stock were outstanding.

 

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PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

		Page
Condensed Balance Sheets as of March 31, 2009		F-3
Condensed Statements of Operations for the three months ended March 31, 2009 and 2008		F-4
Condensed Statements of Cash Flows for the three months ended March 31, 2009 and 2008		F-5
Notes to Condensed Financial Statements		F-6

 

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Worlds.com Inc.
Balance Sheets
March 31, 2009 and December 31, 2008
		Unaudited				(Restated) Audited
		31-Mar-09				31-Dec-08
Current Assets
Cash and cash equivalents		$	25,370			$	84
Certificate of deposit			-				166,451
Total Current Assets			25,370				166,535
Property and equipment, net of
accumulated depreciation			6,479				7,387
TOTAL ASSETS		$	31,849			$	173,922
Current Liabilities
Accounts payable		$	907,784			$	542,415
Accrued expenses			1,423,548				1,423,548
Deferred Revenue			631,950				631,950
Notes Payable			773,279				773,279
Total Current Liabilities			3,736,561				3,371,192
Stockholders (Deficit)
Common stock		$	52,387			$	52,387
Additional Paid in Capital			21,858,603				21,858,603
Accumulated Deficit			(25,615,703	)			(25,108,260	)
Total stockholders deficit			(3,704,713	)			(3,197,270	)
Total Liabilities and stockholders deficit		$	31,849			$	173,922
See Notes to Condensed Financial Statements

 

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Worlds.com Inc.
Statements of Operations
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
							(Restated)
			31-Mar-09				31-Mar-08
Revenues
	Revenue		$	494			$	91,099
Total				494				91,099
Cost and Expenses
	Cost of Revenue			124,795				89,548
	Selling, General & Admin.			118,141				109,505
	Operating loss			(242,441	)			(107,954	)
Net Loss			$	(242,441	)		$	(107,954	)
See Notes to Condensed Financial Statements

 

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Worlds.com Inc.
Statements of Cash Flows
For the Three Months Ended March 31, 2009 and 2008
Unaudited
						(Restated)
		31-Mar-09				31-Mar-08
Cash flows from operating activities
Net (loss)		$	(242,441	)		$	(107,954	)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation			908				781
Deferred costs			-				55,695
Prepaid expenses and other current assets							9,860
Accounts payable and accrued expenses			100,369				(35,826	)
Net cash used in operating activities			(141,165	)			(77,444	)
Cash flows from investing activities
Acquisition of property and equipment			-				(1,516	)
Net cash used in investing activities			-				(1,516	)
Net (decrease) in cash			(141,165	)			(78,960	)
Cash beginning of period			166,535				271,334
Cash end of period		$	25,370			$	192,374
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest		$	-			$	-
Income taxes		$	-			$	-
See Notes to Condensed Financial Statements

 

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Worlds.com Inc.

NOTES TO FINANCIAL STATEMENTS

Three Months Ended March 31, 2009

(Unaudited)

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 not always had significant  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 in an amount sufficient to fully implement its business plan which has had a material adverse effect on the Company, including requiring the Company to severely diminish operations in recent years and at times halting them entirely. These factors raise substantial doubt about the Company's ability to continue as a going concern.  Due to limited funds, the Company has been operating at a significantly reduced capacity in recent years with no more than one full time employee; performing primarily consulting services; and licensing software using consultants to perform any 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.

 

Property and Equipment

Net property and equipment owned by the Company as of March 31, 2009 total $6,479.

 

Income 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.

Deferred revenue represents cash payments received in advance to be recorded as licensing revenue as earned.

 

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.

 

Notes Payable

The Company has $773,279 in short term notes outstanding at March 31, 2009.   

 

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Commitments and Contingencies

During 2000 the Company was involved in a lawsuit relating to unpaid consulting services. On March 20, 2001 a judgment against the Company was rendered for approximately $205,000.  As of March 31, 2009 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheets.

 

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 the financial statements has no long lived assets.

 

NOTE 2 - GOING CONCERN

 

From mid-2001 through most of 2007, the Company has had to significantly curtail and at times cease operations due to lack of resources. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has had periods where it had only minimal revenues from operations. There can be no assurance that the Company will be able to obtain the substantial additional capital resources necessary to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company is pursuing sources of additional financing and there can be no assurance that any such financing will be available to the Company on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material adverse effect on the Company, including possibly requiring the Company to reduce and/or cease operations.

 

These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 3 – DEFERRED REVENUES

 

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.

 

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, three-dimensional ("3D") entertainment portal on the internet.

NOTE 4 – 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 $1,714,179 on December 31, 2007 and by approximately $2,719,942 on December 31, 2008 (which amount is cumulative and includes the amount understated in 2007) with an overstatement of income on such dates of $1,714,179 and $1,005,763, 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.

 

 Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

When used in this form 10-Q and in future filings by the Company with the Commission, the words or phrases such as "anticipate," "believe," "could," "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 unaudited financial statements and related notes which are included under Item 1.

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 full operations and other sources of capital were not available. As a result, we have had to significantly curtail our operations since that time and at times halt them all together.

 

Revenues

We generated  a minimum amount of revenue during the quarter even though  we have  begun ramping up operations which have been in quasi hibernation since mid-2001.  The revenue that was generated in the quarter was generated in the following manner:

 

·	VIP subscriptions to our Worlds Ultimate 3-D Chat service.

 

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Expenses

We classify our expenses into two broad groups:

o        cost of revenues; and

o        selling, general and administration.

During the quarter, our operations became more active so our expenses increased.

 

Liquidity and Capital Resources

We have had to severely diminish our operations from mid-since 2001 until the last half of 2007 due to a lack of liquidity.  We were able to issue equity in the last year and raise capital that will help us to be better positioned to compete for new business.  We continue to pursue additional sources of capital.  We have no current arrangements with respect to, or sources of, additional financing and there can be no assurance that any such financing would become available.  If we cannot start to generate sufficient revenues, we may need to halt operations.

 RESULTS OF OPERATIONS

Our net revenues for each of the three months ended March 31, 2009 and 2008 were $494 and $91,099, respectively.  Management believes that this decrease was due to the software development project in 2008 to provide a demo 3-D world for a client.

Three months ended March 31, 2009 compared to three months ended March 31, 2008

Revenue decreased by $90,605, to $494 for the three months ended March 31, 2009 from $91,099 in the prior year.  The business has been running in a severely diminished mode due to the lack of liquidity.   We need to raise a sufficient amount of capital to provide the resources required that would enable us to generate sales.

Our cost of revenues during the three months ended March 31, 2009 and 2008 are primarily comprised of (1) cost of goods sold: 51% and 45%, respectively, and (2) selling general and administrative expenses: 49% and 55%, respectively.  Cost of sales on a consolidated basis increased $35,247 to $124,795 for the three months ended March 31, 2009, from $89,548 in the three months ended March 31, 2008, reflecting the increased business activities from the new development projects and upgrading the code.

Selling general and administrative expenses increased by approximately $8,636, from $109,505 to approximately $118,141 for the three months ended March 31, 2008 and 2009, respectively.  The balances increased slightly due to our operations and selling activities increasing.

 

As a result of the foregoing we had a net loss of $242,441 for the three months ended March 31, 2009 compared to a loss of $107,955 in the three months ended March 31, 2008.

 

 

Item 1. Legal Proceedings.

               None

 

Item 1A. Risk Factors

 

We are not obligated to disclose our risk factors in this report, however, limited information regarding our risk factors appears in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in “Item 1A. RISK FACTORS” of our 2008 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2008 Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

   None

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Submission of Matters to a Vote of Security Holders.

None.

 

Item 5. Other Information

None.

Item 6. Exhibits

31.1		Certification of Chief Executive Officer
31.2		Certification of Chief Financial Officer
32.1		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereto duly authorized.

 

Date: May 20, 2009

 

WORLDS.COM INC.

By:  /s/ Thomas Kidrin        Thomas Kidrin        President and CEO          By:  /s/ Christopher Ryan        Christopher Ryan        Chief Financial Officer

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