10KSB 1 form10ksb.htm WDDD 10-KSB 12/31/07 form10ksb.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-KSB
 
 
(Mark One)
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2007
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
 
Commission File Number: 0-24115
 
 
WORLDS.COM, INC.
(Name of Small Business Issuer in its Charter)
 
 
     
New Jersey
22-1848316
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

11 Royal Road, Brookline, MA  02445
(Address of Principal Executive Offices)

(617) 725-8900
(Issuer’s Telephone Number)
 
 
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class
  
Name Of Each Exchange
On Which Registered
     
None
Not Applicable
 
Securities registered under Section 12(g) of the Exchange Act:
 
Common Stock, $.001 par value
(Title of Class)

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  o
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (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
 
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  o   No  x
 
The issuer’s revenues for its fiscal year ended December 31, 2007 were $5,269.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer computed by reference to the price at which the common equity was sold, or the closing price of such common equity, as of March 4, 2008 (a date within the past 60 days) was approximately $9,578,886.

At March 4, 2008, the issuer had outstanding 44,824,341 shares of par value $.001 Common Stock, of which 43,540,393 shares were held by non-affiliates.
 
Transitional Small Business Disclosure Format (check one):    o  Yes   x  No
 
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-KSB. 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-KSB 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.
 
 

PART I
  
  
     
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PART II
  
  
     
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PART III
  
  
     
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 PART I
 
 
General
 
Worlds.com is a leading 3D entertainment portal which leverages our proprietary technology to offer visitors a network of virtual, multi-user environments which we call "worlds". These worlds are visually engaging online environments featuring animation, motion and content where people can come together and, by navigating through the website, shop, interact with others, attend events and be entertained. In support of this portal and our overall business strategy, we design and develop software, content and related technology for the creation of interactive, three-dimensional ("3D") Internet web sites. Using our technology, we create our own Internet sites, as well as sites available through third-party online service providers.
 
Sites using our technology allow numerous simultaneous visitors to enter, navigate and share interactive "worlds". Our 3D Internet sites are designed to promote frequent, repeat and prolonged visitation by users by providing them with unique online communities featuring dynamic graphics, highly useful and entertaining information content, and interactive capabilities. We believe that our sites are highly attractive to advertisers because they offer access to demographic-specific user bases comprised of people that visit the site frequently and stay for relatively long periods of time.

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. The company has continued to maintain its service since operations were reduced as well as continued software development on an as needed basis and under contract licenses.

While the company has kept the service continuously up since 2001 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 of the Company began to explore the possibility of becoming more active operationally.  As detailed below, during the third quarter of 2007 we, among other things, expanded our Board, commenced a small financing, and began upgrading our technology and more actively seeking business opportunities.
 
Our Technology
 
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:
 
o  
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.
 
o  
WorldsServer: WorldsServer is the scalable software that we use to control and operate our on-line virtual communities. WorldsServer manages the registration and authentication of users, the locations of users within the 3D environment, the physical structure of the 3D environment, all information regarding objects that are "shared" by the participants and any of the interactions between the users such as text chat. This platform also integrates an HTTP server for the delivery of other content such as audio and video streaming and secure e-commerce applications.
 
o  
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.
 
o  
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.
 
o  
Worlds Gamma Libraries: The Worlds Gamma Libraries are composed of sample worlds, textures, models, avatars, actions, sensors, sounds, motion sequences, and other behaviors.
 
 
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 its 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 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 nonmusic-related information;
 
o view new music videos by leading recording artists;
 
o listen to selections from newly released CDs by numerous recording artists;
 
o purchase music and recording artist-related merchandise online; and
 
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 as 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:
 
o  
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.
 
o  
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
 
o  
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.
 
o  
Creating Other Services Using Our Interactive 3D Technology.
 
o  
Pursuing Alliances and Cross Promotional Opportunities. Our strategy for expanding brand recognition through online advertising depends to some extent on our relationships with our distribution and content partners. We have entered into strategic alliances with several leading enterprises and regularly seek additional opportunities to provide our 3D Internet technology and content to other companies for their use in connection with the marketing and delivery of their own products and services.
 
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.
 
 
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:
 
o  
longer operating histories and greater financial, technical, marketing and other resources;
o  
a wider range of services and financial products;
o  
greater name recognition and larger customer bases;
o  
more extensive promotional activities; and
o  
cooperative relationships among themselves and with third parties to enhance services and products.
 
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.
 
Intellectual Property

U.S. Patents: Worlds has been granted U.S patent 6,219,045 and 7,181,690 B1 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 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
 
As of December 31, 2007, we had 1 full time employee, our president, Thomas Kidrin.
 
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.
 
 
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, 2007, we had only $271,334 in cash and cash equivalents. Accordingly, if we do not develop any new projects, we would have to continue 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 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 in 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.
 
 
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 and services.
 
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.
 
 
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 in any intellectual property litigation, we could become a party to litigation in the future to protect our intellectual property or 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.
 
 
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 nonacceptance 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.
 
 
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 49,830,393 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 March 4, 2008, there are outstanding options to purchase an aggregate of approximately 15,775,000 shares of our common stock and more options 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.
 
 

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 in 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 pay no rent to our president for use of this space. 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.
 
 
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 on March 20, 2001, is approximately $205,000 of which $200,000 is accrued. The judgment related to a consulting agreement for raising capital. The court ruled that the terms of the contract are binding on successors of the company and that Worlds.com is a successor company.

In Graubard Miller f/k/a Graubard Mollen Miller v. Worlds Inc. (our former name) in the United States District Court, Southern District of New York, the court granted summary judgment against us in the aggregate amount of $182,075.24 for unpaid legal fees and expenses and an unpaid note. $122,598 is reserved on our balance sheet for this judgement.
 
 
None.
 

PART II
 
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
 

             
Year Ended December 31, 2007:
High
  
Low
  
3/31/2007
   $ 0.01     $ 0.01  
6/30/2007
   $ 0.04     $ 0.04  
9/30/2007
   $ 0.08     $ 0.08  
12/31/2007
   $ 0.20     $ 0.15  
         
Year Ended December 31, 2006:
High
  
Low
  
3/31/2006
   $ 0.005     $ 0.005  
6/30/2006
   $ 0.005     $ 0.005  
9/30/2006
   $ 0.004     $ 0.004  
12/31/2006
   $ 0.009     $ 0.009  
 
Holders
 
As of March 4, 2008, we had 610 shareholders of record of our common stock.
 
Dividends
 
 
Recent Sales of Unregistered Securities
 
In addition to the 7,500,000 shares we sold for $375,000 that was previously disclosed in our quarterly report on Form 10-QSB for the quarter ended September 30, 2007, we sold an additional 3,500,000 shares of our common stock at a price of $0.05 per share (a premium to the $0.03 market price at the commencement of the offering) for $175,000 for an aggregate offering of 11 million shares for $550,000.  No underwriters were utilized in the placement and no commissions were 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 2007 we also issued stock options to various persons directors and consultants as follows:

450,000 exercisable at $0.05
  75,000 exercisable at $0.11
100,000 exercisable at $0.22
100,000 exercisable at $0.25
  50,000 exercisable at $0.30

 
Company Equity Compensation Plans
 
The following table sets forth information as of December 31, 2007, 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
 
Weighted-average exercise price of outstanding options
 
Number of securities remaining available for future issuance under equity compensation plans
2007 Stock Option Plan, not yet approved by stockholders
 
 
15,775,000
 
 
$
0.052
 
 
 
8,925,000
 
Stock option grants approved by stockholders
 
 
0
 
 
$
N/A
 
 
 
-
 
Total
 
 
15,675,000
 
 
$
0.052
 
 
 
9,025,000
 
 

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

When used in this Form 10-KSB and in future filings by the Company with the Commission, The words or phrases such as "anticipate," "believe," "could," "would," "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 under Item 7.

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 leveraged 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 since mid 2001 when we ran out of funds.  The revenue that was generated resulted from VIP subscriptions to our Worlds Ultimate 3-D Chat service.

Expenses

We classify our expenses into two broad groups:

o  
cost of revenues; and

o  
selling, general and administration.

During the year, as more funds became available from our financing, 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.  We were able to issue equity in the last two quarters of this year and raise 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 start to generate sufficient revenues, we may need to scale back operations.

 
RESULTS OF OPERATIONS

Our net revenues for each of the years ended December 31, 2007 and 2006 were $5,269 and $2,144, respectively.  Management believes that this increase was due to increased sales of VIP memberships but that the amount of business from reduced operations is inconsequential.

Year ended December 31, 2007 compared to year ended December 31, 2006

Revenue increased by $3,125, to $5,269 for the year ended December 31, 2007 from $2,144 in the prior year.  The business has been running in a limited mode due to the lack of liquidity.  We expect increased revenues in 2008 resulting from our 2007 financing.

Cost of revenues increased by $56,256 to $57,312 in 2007 from $1,056 in 2006 reflecting the increased business activities following the financing in 2007 as compared to 2006 in which there was no financing.

Selling general and administrative expenses increased by $460,038, from $50,920 to $510,958 for the years ended December 31, 2006 and 2007, respectively.  The balances increased due to our operations increasing thereby resulting in increased payroll, increased contract labor and increased legal and accounting services.  The Company also issued options to certain individuals as an incentive in lieu of cash compensation and the option expense is reflected in these numbers.

Other expenses include interest expense of $115,383 directly attributable to the notes payable in the year ended December 31, 2007.  Interest expense in the year ended December 31, 2006 was $153,844 as we carried more debt was in 2006.

Extraordinary gains of $2,740,751 and $77,531 were recorded in 2007 and 2006, respectively. These pertained to debt that was legally extinguished due to expiration of the statute of limitations for such debts under state laws.

As a result of the foregoing, we realized net income of $2,062,367 for the year ended December 31, 2007 compared to a loss of $126,145 in the year ended December 31, 2006, although as disclosed above the gain resulted from non-operational bookkeeping entries from the extinguishment of debt.

We expect that the majority of the remaining debt on our books will become extinguished in 2008 due to expiration of the statute of limitations for such remaining debts under state laws.


Our financial and liquidity position improved as exhibited by our cash, cash equivalents, short-term marketable securities and marketable equity securities of $271,334 at December 31, 2007. We sold 11,000,000 shares of our common stock to raise $550,000 during the year.  At December 31, 2006, cash, cash equivalents, short-term marketable securities and equity securities was $2,041.  This increase of $269,293 was the result of equity financing in 2007.  There were no capital expenditures in 2006.

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 2007 financing are being used to upgrade our existing technology, purchase hardware (capital expenditures), 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 can attempt to qualify to have our stock quoted on the OTC Bulletin Board or listed on NASDAQ.  Once we are current in our public filings 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 become current in or public filings or that, even if we are able to do so, that it will allow us to raise any additional funds.

Recent Accounting Pronouncements
 
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. This Statement amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, and establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. It also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not expect that the adoption of this statement will have a material impact on its financial statements.
 
In 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”. This Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in indicated situations; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; permits an entity to choose relevant subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities; at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. The Company is required to adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006, i.e. fiscal 2007. The Company does not expect that the adoption of this statement will have a material impact on its financial statements.
 
In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). The accounting provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. The adoption of this Interpretation is not expected to have any impact on our financial position or results of operations in 2008.
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”), to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles and expand disclosures about fair value measurements. SFAS 157 requires quantitative disclosures using a tabular format in all periods (interim and annual) and qualitative disclosures about the valuation techniques used to measure fair value in all annual periods. The provisions of this Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company will be required to adopt the provisions of this statement as of January 1, 2008. The Company does not expect that the adoption of this Statement will have a material impact on its financial statements.
 
In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – An amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This Statement enhances disclosure regarding the funded status of an employers’ defined benefit postretirement plan by (a) requiring companies to include the funding status in comprehensive income and (b) recognize transactions and events that affect the funded status in the financial statements in the year in which they occur (c) at a measurement date of the employer’s fiscal year-end. The Company does not expect that the adoption of this statement will have a material impact on its financial statements.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS 159 are effective as of January 1, 2008. We are currently reviewing SFAS 159 to determine its impact, if any, on our financial position or results of operations.

On December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling interest in Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. The statement establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and expands disclosures in the consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We have not yet determined the impact of the adoption of SFAS No. 160 on our consolidated financial statements and footnote disclosures.
 
On December 4, 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS No. 141R). SFAS No. 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to expand disclosures about the nature and financial effect of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have not yet determined the impact of the adoption of SFAS No. 141R on our consolidated financial statements and footnote disclosures.
 

 
CONTENTS
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
14
BALANCE SHEET
15
STATEMENTS OF OPERATIONS
16
STATEMENTS OF CASH FLOWS
17
STATEMENT OF STOCKHOLDERS’ DEFICIT
18
NOTES TO FINANCIAL STATEMENTS
19

 
BONGIOVANNI & ASSOCIATES, PA

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, 2007 and related statements of operations, stockholders’ deficit, and cash flows for the years ending December 31, 2007 and 2006. 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 audit 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 audit provides 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, 2007 and the results of its operations and its cash flows for years ended December 31, 2007 and 2006 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 deficit, 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, PA
Bongiovanni & Associates, PA
Cornelius, North Carolina
February 26, 2008
 
 
Worlds.com, Inc.
Balance Sheets
As of December 31, 2007
  
   
Current Assets
      
Cash and cash equivalents
    $ 271,334  
Deferred costs
     55,695  
Prepaid expenses
     9,860  
Total Current Assets
     336,888  
         
Property and equipment  net of
        
accumulated depreciation
     9,375  
         
         
TOTAL ASSETS
    $ 346,263  
         
         
         
Current Liabilities
        
Accounts payable
    $ 180,813  
Accrued expenses
     525,484  
Deferred revenue
     631,950  
Current maturities of notes payable
     773,279  
         
Total Current Liabilities
     2,111,527  
         
         
Stockholders Equity (Deficit)
        
         
Common stock (Par value $.001, authorized 65,000,000 shares, issued and out standing 44,824,341shares)
     44,824  
  Common stock subscribed but not yet issued (5,411,764 common shares)     5,411   
Additional paid in capital
     21,140,760  
Accumulated deficit
     (22,956,259 )
         
Total stockholders deficit
     (1,765,264 )
         
Total Liabilities and stockholders deficit
    $ 346,263  
         
The accompanying notes are an integral part of these financial statements.
 

Worlds.com, Inc.
Statements of Operations
For the year ended December 31, 2007 and 2006
   
2007
    
2006
  
Revenues
            
 
Revenue
    $ 5,269      $ 2,144  
                   
Total
       5,269       2,144  
                   
                   
Cost and Expenses
                
                   
 
Cost of Revenue
     57,312       1,056  
 
Selling General & Administrative
     510,958       50,920  
                   
 
Operating loss
     (563,001)       (49,832)  
                   
                   
Other Income (Expense)
                
 
 
     -       -  
 
Interest Expense
     (115,383)       (153,844)  
 
Debt forgiven
     2,740,751       77,531  
                   
                   
Net Income (Loss)
    $ 2,062,367      $ (126,145)  
                   
        -       -   
 The accompanying notes are an integral part of these financial statements.
 
 
Worlds.com, Inc.
Cash Flows
For the year ended December 31, 2007 and 2006
   
2007
    
2006
  
Cash flows from operating activities
            
Net Income/(loss)
    $ 2,062,367      $ (126,145 )
Adjustments to reconcile net income (loss) to net cash provided by <used in>
                
 operating activities
                
 Fair value of stock options issued     296,506       -  
 Forgiveness of notes payable             (904,447)       -  
Deferred Costs
     (55,695)       -  
 
                
Accounts receivable
                
Prepaid expenses and other current assets
     (9,860)        -   
 
                
Accounts payable and accrued expenses
     (1,660,203)       124,813  
 
              
                 
Net cash provided by (used in) operating activities
     (271,332)       (1,332 )
                 
Cash flows from investing activities
                
Acquisition of property and equipment
     (9,375)       -   
                 
                 
Net cash used in investing activities
     (9,375)       -   
                 
                 
Cash flows from financing activities
                
Proceeds from sale of common stock
     550,000       -   
 
                
                 
Net cash provided from investing activities
     550,000       -   
                 
Net increase(decrease) in cash
     269,293       (1,332 )
                 
Cash beginning of year
     2,041       3,373  
                 
Cash end of year
    $ 271,334      $ 2,041  
                 
                 
Supplemental disclosure of cash flow information:
                
Cash paid during the year for
                
Interest
     -       -  
Income taxes
     -       -  
                 
The accompanying notes are an integral part of these financial statements.
 
 
Worlds.com, Inc.
Statement of Stockholders' Equity
  
Period from January 1, 2006 to December 31, 2007
  
                                     
               
Additional
                
Total
  
   
Common stock
    
Common stock
    
Paid-in
  
Common
shares
subscribed
but not
 
 Common
stock
 subscribed
but not
  
Accumulated
    
stockholders'
  
   
Shares
    
Amount
    
Capital
  
 Issued
  
 Issued
  
Deficit
    
(deficit)
  
Balances, January 1, 2006
    $ 33,824,341     $ 33,824     $ 20,146,723           $ (24,892,481 )   $ (4,711,934 )
                                               
Net <loss> income for the year ended December 31, 2006
                                   (126,145 )     (126,145 )
Balances, December 31, 2006
    $ 33,824,341     $ 33,824     $ 20,146,723           $ (25,018,626 )   $ (4,838,079 )
                                               
Equity Investment
     11,000,000       11,000       539,000                     550,000  
Conversion of Note payable
                     69,589  
 411,764
  
 411
             70,000  
Conversion of Officer Loan payable
                     88,942  
 5,000,000
  
 5,000
             93,942  
Issuance of Options
                     296,506                     296,506  
Net Income for the year ended December 31, 2007
                                   2,062,367       2,062,367  
                                               
Balances, December 31, 2007
    $ 44,824,314     $ 44,824     $ 21,140,760  
$  5,411,764
     $      5,411   $ (22,956,259 )   $ (1,765,264 )
                                               
The accompanying notes are an integral part of these financial statements.
 

Worlds.com, Inc.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 2007
 
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 no full time employees, performing primarily consulting services and licensing software and 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.

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.

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.

 
Worlds.com, Inc.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 2007
 
Extraordinary Item

The Company had accounts payables on its books in the amount of $1,018,106.  In the year ended December 31, 2007 these accounts payables were legally extinguished pursuant to applicable statues of limitations.  The amount was treated as an extraordinary item, forgiveness of debt.

The Company had accrued expenses on its books in the amount of $810,695.  In the year ended December 31, 2007 these accrued expenses were legally extinguished pursuant to applicable statue of limitations.  The amount was treated as an extraordinary item.

The Company had notes payables on its books in the amount of $911,950.  In the year ended December 31, 2007 these notes payables were legally extinguished through mutual consent with the note holders.  The amount was treated as an extraordinary item.

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 December 31, 2007 the Company recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheet.

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.  A reserve of $122,598 has been recorded on the balance sheet for this liability.

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.

During 2007, we issued stock options to various parties. The stock options allow the parties to purchase shares of our common stock at various prices per share per each individual option agreement. The options allow the various parties to purchase one common share of our stock for each option. The options expire at various times through September 2012 per each individual option agreement. We 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 2007. During the year ended December 31, 2007, we recorded an expense of approximately $296,507, equal to the estimated fair value of the options at the date of each grant. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 5.0% risk-free interest, 0% dividend yield, 60% volatility, and expected lives ranging from one to five years.
 
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 two years. 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 - PRIVATE PLACEMENT

In September 2007, the Company completed a private placement of 11,000,000 shares of our common stock for aggregate proceeds of $550,000.

An officer of the Company was authorized to recived 5,000,000 shares to settle salary and loans owed to him and other persons received an aggregate of 775,000 options for services rendered to the Company during 2007. Subsequent to 2007, the Company issued said 5,000 shares.

NOTE 4 – 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.

NOTE 5 - NOTES PAYABLE

Short-term debt at December 31, 2007 consists of the following:

The Company has promissory notes payable due to two shareholders. The principal amounts are, $124,230 and $635,642 with interest accruing at 8% per annum and 10% per annum, respectively. The principal amounts plus all accrued interest are past due.

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.

Note 6- Property and Equipment

Computer Equipment                                 $9,375
Less: accumulated depreciation                          0
                                                                                $9,375
 
Depreciation expense was $0 because the computer equipment was purchased in December and not placed in service at year end.
 
 

On September 5, 2007 we signed an engagement letter with Bongiovanni & Associates, P.A. to become our independent accountant to audit our financial statements.  Inasmuch as we have not filed any annual or quarterly reports since the first quarter of 2001, the engagement contemplates the filing of all unfiled quarterly and annual reports since such date.  Prior to such engagement, we have not consulted our new auditors on any substantive issue with respect to our financial statements.  The last time our financial statements were audited was for our fiscal year ended December 31, 2000.  Our independent auditor at that time was Grant Thornton LLP. We did not have any disputes with Grant Thornton LLP over accounting principles or practices, financial statement disclosure or auditing scope or procedure.  Grant Thornton LLP has not provided any services to us for more than six years.
 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and our Principal Accounting and Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.
 
As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
 
The Certifying Officers have also concluded, based on our evaluation of our controls and procedures that as of December 31, 2007, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.
 
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements under all potential conditions. Therefore, effective internal control over financial reporting provides only reasonable, and not absolute, assurance that a restatement of our financial statements would be prevented or detected.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Commission that permit the Company to provide only management's report in this annual report.
 
Item 8B.  Other Information
 
None.

 
PART III
 
 
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.
 

Name
Age
Position
Thomas Kidrin
55
President, Chief Executive Officer, Secretary, Treasurer, Director
Christopher J. Ryan
47
Vice President- Finance, Principal Accounting and Finance Officer
Bernard Stolar
61
Director
Jay Coleman
57
Director
Robert Fireman
59
Director
 
Thomas Kidrin has been president, chief executive officer, secretary and treasurer since December 1997. 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. Since October 1999, Mr. Kidrin has also served as a director of EMT Corporation, which is engaged in the development and marketing of an interactive web-browser with user customized features focused on affinity online marketing. 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. Mr. Kidrin is a graduate of 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 Incorporated.  Mr. Ryan is a certified public accountant. He is a graduate of Montclair State College in New Jersey and received an M.B.A. degree from Fordham University in New York.

Bernard Stolar is 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 (emcionline.com), 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. 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 as 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.

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 draft of the Code of Ethics is filed herewith as Exhibit 14.1 hereto. 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-KSB, any failure to comply therewith during the fiscal year ended December 2007.  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.
 
 
The following table sets forth the compensation paid by us during the fiscal periods ending December 31, 2006 and 2007, to our chief executive officer and to our other most highly compensated executive officers whose compensation exceeded $100,000 for those fiscal periods.
 
SUMMARY COMPENSATION TABLE (1)(2)
  
Name and principal position
(a)
Year
(b)
  
Salary ($)
(c)
    
Bonus ($)
(d)
    
Stock Awards ($)
(e)
    
Option Awards ($)
(f)
  
All Other Compensation ($)
(g)
    
Total ($)
(h)
  
Thomas Kidrin
President and CEO
2007
     71,100       0       0     $ 252,932     0     $ 324,032  
2006
     0       0       0       0       0       0  
 
(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.

Stock Option Grants

The following table sets forth information as of December 31, 2007 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, 2007
 
   
 
  
  
                                            
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
  
5,000,000
 
10,000,000
 (1)
 0
  
$
0.05
  
08-31-12
                       
 
(1)
50% vests on 8/31/08and the balance on 8/31/09.
     

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. 
 
During the fiscal year ended December 31, 2007, we also granted to one of our directors, Mr. Jay Coleman, a three-year option to purchase 75,000 shares of our common stock at an exercise price of $0.11 per share for his efforts in obtaining a contract for us.
 
The following table sets forth information concerning the compensation paid to each of our non-employee directors during 2007 for their services rendered as directors.

DIRECTOR COMPENSATION FOR FISCAL YEAR 2007
 
                 
Name
  
Fees
 Earned
 or Paid
 in Cash
 ($)
    
Stock
 Awards
 ($)
    
Option
 Awards
 ($)(1)
  
All Other
 Compensation
 ($)
  
Total
($)
  
Jay Coleman
     0       0     $ 6,944     $ 6,944  
Robert Fireman
     0       0     $ 2,529     $ 2,529  
Bernard Stolar
     0       0     $ 2,529     $ 2,529  
 
(1) This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2007 fiscal year for the fair value of stock options granted to the named director in fiscal year 2007, 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 vest 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, 15,775,000 options have been issued under the plan.
 
 
 
The following table sets forth as of March 4, 2008, 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 49,830,393 shares of Common Stock outstanding as of March 4, 2008.

OFFICERS, DIRECTORS AND BENEFICIAL OWNERS, AS OF MARCH 4, 2008

Name & Address of Beneficial Owner(1)
Amount & Nature of Beneficial Owner
% of Class(2)
Thomas Kidrin
11,290,000(3)
20.59%
Jay Coleman
150,000(4)
0.3%
Robert Fireman
150,000(4)
0.3%
Bernard Stolar
150,000(4)
0.3%
     
All directors and executive officers as a group (one person)
11,740,000(5)
21.24%
     

(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 5 million currently exercisable stock options.
 
(4) Consists of currently exercisable stock options.
 
(5) Includes 5,450,000 currently exercisable stock options.
 
 
Jay Coleman, one of our directors, received 75,000 stock options exercisable for 3 years at a price of $0.11 per share, which was the closing price of our common stock on the date of grant, as compensation for his efforts in obtaining a contract for us to provide services to an unaffiliated 3rd party.
 
ITEM 13. 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 **
 
(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.
 
** Filed herewith
 

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, 2007 and 2006. Bongiovanni was retained as our auditor in 2007. Audit fees and other fees of auditors are listed as follows:

Year Ended December 31
2007
2006
   
Bongiovanni
      
Bongiovanni
      
                   
Audit Fees (1)
$
10,000
(3)
  
$
15,100
(2)
  
Audit-Related Fees (4)
--
--
Tax Fees (5)
 $
7,000
--
All Other Fees (6)
--
--
Total Accounting Fees and Services
$
17,000
$
15,100
 
(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 2006 relate to (i) the audit of our annual financial statements for the fiscal year ended December 31, 2006, and (ii) the review of the financial statements included in our filings on Form 10-QSB for the first, second and third quarters of 2006.
 
(3)
The amounts shown for Bongiovanni in 2007 relate to (i) the audit of our annual financial statements for the fiscal year ended December 31, 2007, and (ii) the review of the financial statements included in our filings on Form 10-QSB for the first, second and third quarters of 2007.
 
(4) 
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.
 
(5)
Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.
 
(6)
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.
 
25

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 2, 2008                                                                            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 2, 2008
Thomas Kidrin                                 and Director
 
/s/ Christopher J. Ryan                     Vice President - Finance and                                  April 2, 2008
Christopher J. Ryan                          Principal Accounting and
                                                       Financial Officer
/s/ Bernard Stolar                             Director                                                                April 2, 2008
Bernard Stolar
 
/s/ Jay Coleman                                Director                                                                April 2, 2008
Jay Coleman
 
/s/ Robert Fireman                            Director                                                                April 2, 2008
Robert Fireman