UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-Q




(Mark
One)





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended September 30, 2008





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT





For the
transition period from _______________ to _______________.





Commission
file number 0-30639





World
Am, Inc.


(Exact
Name of Company as Specified in its Charter)




Nevada
              
              90-0142757(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)4340
      Von Karman Avenue
                Suite
      200
                Newport
      Beach, CA
              
              92660(Address
      of principal executive offices)
              
              (Zip
      Code)





Issuer’s
telephone number, including area code    (949)
955-5355





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  ̈.





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer   ̈
                Accelerated
      filer   ̈Non-accelerated
      filer   ̈
                  (Do
      not check if a smaller reporting company)
                Smaller
      reporting company  x





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).Yes     ̈    No    x .





Applicable
only to issuers involved in bankruptcy proceedings during the preceding five
years





Check whether the registrant filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Exchange Act after the distribution of securities under a plan confirmed by a
court.


Yes  ̈  No   ̈.









Applicable
only to corporate issuers:





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.  As of December 8, 2008,
there were 242,476,563 shares of common stock, par value $0.0001, issued and
outstanding.









WORLD
AM, INC.





TABLE OF
CONTENTS





PART I – FINANCIAL INFORMATION
                2ITEM
      1
                Financial
      Statements (Unaudited)
                2ITEM
      2
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                35ITEM
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                49ITEM
      4
                Controls
      and Procedures
                50ITEM
      4T
                Controls
      and Procedures
                52PART
      II – OTHER INFORMATION
                53ITEM
      1
                Legal
      Proceedings
                53ITEM
      1A
                Risk
      Factors
                55ITEM
      2
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                55ITEM
      3
                Defaults
      Upon Senior Securities
                55ITEM
      4
                Submission
      of Matters to a Vote of Security Holders
                55ITEM
      5
                Other
      Information
                55ITEM
      6
                Exhibits
                56









PART
I-FINANCIAL INFORMATION





This
Quarterly Report includes forward-looking statements within the meaning of the
meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the
Securities Exchange Act of 1934, and are subject to the safe harbor created by
those rules.  All statements, other than statements of fact, included
in this Quarterly Report, including, without limitation, statements regarding
our potential future plans and objectives, are forward-looking statements that
involve risks and uncertainties.  There can be no assurance that such
statements will prove to be accurate and actual results and future events could
differ materially from those anticipated in such
statements.  Technical complications that may arise could prevent the
prompt implementation of any strategically significant plan(s) outlined
above.  We caution that these forward looking statements are further
qualified by other factors including, but not limited to those, set forth in the
World Am, Inc. Form 10-KSB filing and other filings with the United States
Securities and Exchange Commission (available at www.sec.gov).  We
undertake no obligation to publicly update or revise any statements in this
Quarterly Report, whether as a result of new information, future events or
otherwise.





ITEM
1.    Financial Statements (unaudited).




2





WORLD
AM, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





September
      30,
                  2008
                
                
                December
      31,
                  2007(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                39,259
                
                
                $
                538,373Accounts
      receivable
                
                
                264,329
                
                
                
                77,167Unbilled
      revenues on uncompleted contracts
                
                
                42,364
                
                
                
                73,465Inventories
                
                
                79,063
                
                
                
                44,162Prepaid
      expenses and other current assets
                
                
                15,064
                
                
                
                32,156Advances
      to related party
                
                
                —
                
                
                
                3,259Total
      current assets
                
                
                440,079
                
                
                
                768,582Intangible
      assets
                
                
                213,973
                
                
                
                184,547Fixed
      assets, net
                
                
                51,503
                
                
                
                71,675Refundable
      deposit
                
                
                5,127
                
                
                
                5,127Total
      assets
                
                $
                710,682
                
                
                $
                1,029,931LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                
                $
                1,446,374
                
                
                $
                744,876Payroll
      taxes payable
                
                
                327,693
                
                
                
                192,177Deferred
      revenue
                
                
                51,938
                
                
                
                57,563Due
      to stockholders
                
                
                220,000
                
                
                
                321,884Due
      to related parties
                
                
                422,765
                
                
                
                186,901Notes
      payable – short term
                
                
                1,385
                
                
                
                1,193Related
      party note payable, including accrued interest
                
                
                203,051
                
                
                
                —Convertible
      debenture and accrued interest, net of unamortized discount of $
      49,234  and $118,548, respectively
                
                
                211,906
                
                
                
                157,687Total
      current liabilities
                
                
                2,885,112
                
                
                
                1,662,281Notes
      payable
                
                
                1,755
                
                
                
                2,239Derivative
      and warrant liabilities
                
                
                651,013
                
                
                
                2,056,313Total
      liabilities
                
                
                3,537,880
                
                
                
                3,720,833Commitments
      and contingenciesStockholders’
      deficit:Class
      A  convertible preferred stock, $0.0001 par value; liquidation
      preference of $1,700 per share; 40,000,000 shares authorized, 1,369 shares
      issued and no shares outstanding
                
                
                —
                
                
                
                —




3




WORLD
AM, INC.


CONDENSED
CONSOLIDATED BALANCE SHEET


(Continued)





September
                      30,
      2008
                    
                    
                    December
      31,
                      2007(unaudited)Class
      B convertible preferred stock, $0.0001 par value; liquidation preference
      of $8,000,025; 40,000,000 shares authorized, 55 shares issued and
      outstanding
                    
                    
                    —
                    
                    
                    
                    —Common
      stock; $0.0001 par value; 1,500,000,000 shares authorized, 174,683,313 and
      100,819,269 shares issued and outstanding
                    
                    
                    17,468
                    
                    
                    
                    10,082Additional
      paid-in capital
                    
                    
                    4,913,546
                    
                    
                    
                    4,240,396Accumulated
      deficit
                    
                    
                    (7,758,212
                    )
                    
                    
                    (6,941,380
                    )Total
      stockholders’ deficit
                    
                    
                    (2,827,198
                    )
                    
                    
                    (2,690,902
                    )Total
      liabilities and stockholders’ deficit
                    
                    $
                    710,682
                    
                    
                    $
                    1,029,931





See notes
to the condensed consolidated financial statements.




4





WORLD
AM, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Three
      Months
                  Ended
                  September
      30,
                  2008
                
                
                Three
      months
                  Ended
                  September
      30,
                  2007
                
                
                Nine
      months
                  Ended
                  September
      30,
                  2008
                
                
                Nine
      months
                  Ended
                  September
      30,
                  2007Revenues:Contract
      research and development revenue
                
                $
                59,244
                
                
                $
                —
                
                
                $
                222,714
                
                
                $
                —Product
      sales
                
                
                562,405
                
                
                
                376,884
                
                
                
                1,139,916
                
                
                
                499,294621,649
                
                
                
                376,884
                
                
                
                1,362,630
                
                
                
                499,294Cost
      and expenses:Cost
      of contract research and development revenue
                
                
                176,749
                
                
                
                —
                
                
                
                428,228
                
                
                
                —Cost
      of product sales
                
                
                265,624
                
                
                
                225,899
                
                
                
                581,732
                
                
                
                288,700General
      and administrative expenses
                
                
                838,927
                
                
                
                1,076,797
                
                
                
                2,569,415
                
                
                
                2,624,673Loss
      from operations
                
                
                (659,651
                )
                
                
                (925,812
                )
                
                
                (2,216,745
                )
                
                
                (2,414,079
                )Other
      income (expense)Change
      in fair value of derivative and warrant liabilities
                
                
                273,948
                
                
                
                1,071,385
                
                
                
                1,405,300
                
                
                
                922,211Interest
      expense
                
                
                (43,799
                )
                
                
                (24,925
                )
                
                
                (106,874
                )
                
                
                (81,416
                )Interest
      income
                
                
                —
                
                
                
                4,934
                
                
                
                —
                
                
                
                34,990Lawsuit
      settlement
                
                
                —
                
                
                
                —
                
                
                
                101,884
                
                
                
                —Miscellaneous
      income (expense)
                
                
                (1,477
                )
                
                
                —
                
                
                
                (397
                )
                
                
                1,600Total
      other income (expense)
                
                
                228,672
                
                
                
                1,051,394
                
                
                
                1,399,913
                
                
                
                877,385(Loss)
      income before provision for income taxes
                
                
                (430,979
                )
                
                
                125,582
                
                
                
                (816,832
                )
                
                
                (1,536,694
                )Provision
      for income taxes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Net
      income ( loss)
                
                $
                (430,979
                )
                
                $
                125,582
                
                
                $
                (816,832
                )
                
                $
                (1,536,694
                )Basic
      income (loss) per common share
                
                $
                (0.00
                )
                
                $
                0.00
                
                
                $
                (0.01
                )
                
                $
                (0.02
                )Basic
      weighted average common shares outstanding
                
                
                159,524,509
                
                
                
                93,831,936
                
                
                
                125,155,998
                
                
                
                69,234,133Diluted
      income (loss) per common share
                
                $
                (0.00
                )
                
                $
                0.00
                
                
                $
                (0.01
                )
                
                $
                (0.02
                )Diluted
      weighted average common shares outstanding
                
                
                159,524,509
                
                
                
                279,618,464
                
                
                
                125,155,998
                
                
                
                69,234,133





See notes
to the condensed consolidated financial statements




5




WORLD
AM, INC.


CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ DEFICIT


FOR
THE PERIOD FROM DECEMBER 31, 2006 THROUGH SEPTEMBER 30, 2008





Class
      A Preferred Stock
                
                
                Class
      B Preferred Stock
                
                
                Common
      Stock
                
                
                Additional
                  Paid-In
                
                
                Accumulated
                
                
                Total
                  Stockholders’Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                DeficitBalance,
      December 31, 2006
                
                
                1,369
                
                
                $
                —
                
                
                
                55
                
                
                $
                —
                
                
                
                33,003,709
                
                
                $
                3,301
                
                
                $
                659,917
                
                
                $
                (4,976,646
                )
                
                $
                (4,313,428
                )Common
      stock issued to pay operating expenses
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                19,761,736
                
                
                
                1,976
                
                
                
                973,089
                
                
                
                —
                
                
                
                975,065Common
      stock issued for cash
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                48,000,000
                
                
                
                4,800
                
                
                
                3,520,200
                
                
                
                —
                
                
                
                3,525,000Cancellation
      of common stock issued to a consultant in 2006, subsequently
      replaced
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (410,314
                )
                
                
                (41
                )
                
                
                (20,959
                )
                
                
                —
                
                
                
                (21,000
                )Cancellation
      of common stock issued to an employee in 2005
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (10,000
                )
                
                
                (1
                )
                
                
                (879
                )
                
                
                —
                
                
                
                (880
                )Initial
      fair value of warrants reclassified to derivatives and warrant
      liabilities
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (607,875
                )
                
                
                —
                
                
                
                (607,875
                )Common
      stock issued to convert debt at calculated price of $0.0021 per
      share
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                473,138
                
                
                
                47
                
                
                
                953
                
                
                
                —
                
                
                
                1,000Common
      stock issued for exercise of warrant
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                1,000
                
                
                
                —
                
                
                
                10,000
                
                
                
                —
                
                
                
                10,000Stock
      issuance costs
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                (324,750
                )
                
                
                —
                
                
                
                (324,750
                )Options
      vesting during the period
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                30,700
                
                
                
                —
                
                
                
                30,700




6




WORLD
AM, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT


FOR
THE PERIOD FROM DECEMBER 31, 2006 THROUGH SEPTEMBER 30, 2008


(continued)








Class
      A Preferred Stock
                
                
                Class
      B Preferred Stock
                
                
                Common
      Stock
                
                
                Additional
                  Paid-In
                
                
                Accumulated
                
                
                Total
                  Stockholders’Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                DeficitNet
      Loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                (1,964,734
                )
                
                
                (1,964,734
                )Balance,
      December 31, 2007
                
                
                1,369
                
                
                
                —
                
                
                
                55
                
                
                
                —
                
                
                
                100,819,269
                
                
                
                10,082
                
                
                
                4,240,396
                
                
                
                (6,941,380
                )
                
                
                (2,690,902
                )Common
      stock issued to pay operating expenses (unaudited)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                44,818,418
                
                
                
                4,482
                
                
                
                393,955
                
                
                
                —
                
                
                
                398,437Common
      stock issued to convert debt at calculated price of $0.00073
      (unaudited)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                29,015,477
                
                
                
                2,901
                
                
                
                18,248
                
                
                
                —
                
                
                
                21,149Common
      stock issued for exercise of warrant at $1.00 per share (unaudited) (Note
      6)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                30,149
                
                
                
                3
                
                
                
                211,490
                
                
                
                —
                
                
                
                211,493Options
      vesting during the period (unaudited)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                49,457
                
                
                
                —
                
                
                
                49,457Net
      loss (unaudited)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (816,832
                )
                
                
                (816,832
                )Balance,
      Sept. 30, 2008 (unaudited)
                
                
                1,369
                (1)
                
                $
                —
                
                
                
                55
                
                
                $
                —
                
                
                
                174,683,313
                
                
                $
                17,468
                
                
                $
                ,913,546
                
                
                $
                (7,758,212
                )
                
                $
                (2,827,198
                )





(1)
In January 2006, the Company made the determination to cancel the 1,369 shares
of Class A preferred stock based on non-performance under a related loan
agreement.  Therefore, the Company considers these shares to be
issued, since they have not actually been cancelled yet, but not
outstanding.





See notes
to the condensed consolidated financial statements.




7





WORLD
AM, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Nine
      Months
                  Ended
      September
                  30,
      2008
                
                
                Nine
      Months
                  Ended
      September
                  30,
      2007Cash
      flows from operating activities:Net
      loss
                
                $
                (816,832
                )
                
                $
                (1,536,754
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Change
      in fair value of derivative and warrant liability
                
                
                (1,405,300
                )
                
                
                (922,211
                )Depreciation
      and amortization
                
                
                90,987
                
                
                
                78,537Stock
      issued to pay operating expenses
                
                
                398,437
                
                
                
                834,766Options
      vesting during the period
                
                
                49,457
                
                
                
                22,049Lawsuit
      settlement
                
                
                (101,884
                )
                
                
                —Changes
      in operating assets and liabilities:Accounts
      receivable, net
                
                
                (187,162
                )
                
                
                (106,253
                )Unbilled
      revenues on uncompleted contracts
                
                
                31,101
                
                
                
                —Inventories
                
                
                (34,901
                )
                
                
                44,315Prepaid
      expenses and other current assets
                
                
                17,092
                
                
                
                (7,181
                )Accounts
      payable and accrued liabilities
                
                
                724,706
                
                
                
                (288,158
                )Payroll
      taxes payable
                
                
                135,516
                
                
                
                (68,678
                )Due
      to related parties
                
                
                239,124
                
                
                
                68,784Deferred
      revenue
                
                
                (5,626
                )
                
                
                (27,139
                )Net
      cash used in operating activities
                
                
                (865,285
                )
                
                
                (1,907,923
                )




8




WORLD
AM, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




(continued)




Nine
      Months
                Ended
      September
                30,
      2008
              
              
              Nine
      Months
                Ended
      September
                30,
      2007Cash
      flows from investing activities:Purchase
      of fixed assets
              
              
              (1,500
              )
              
              
              (75,949
              )Purchase
      of intangible assets
              
              
              (29,426
              )
              
              
              (154,323
              )Net
      cash used in investing activities
              
              
              (30,926
              )
              
              
              (230,272
              )Cash
      flows from financing activities:Net
      proceeds from sale of common and preferred stock, net of issuance
      costs
              
              
              —
              
              
              
              3,200,250Proceeds
      from exercise of warrants
              
              
              211,493
              
              
              
              —Principal
      payments on notes payable and related party note payable
              
              
              (14,396
              )
              
              
              (108,324
              )Proceeds
      from loan
              
              
              —
              
              
              
              3,970Proceeds
      from related party note payable
              
              
              200,000
              
              
              
              —Net
      cash provided by financing activities
              
              
              397,097
              
              
              
              3,095,896Net
      change in cash
              
              
              (499,114
              )
              
              
              957,701Cash,
      beginning of period
              
              
              538,373
              
              
              
              122,008Cash,
      end of period
              
              $
              39,259
              
              
              $
              1,079,709Supplemental
      disclosure of cash flow informationCash
      paid for income taxes
              
              $
              —
              
              
              $
              800Cash
      paid for interest
              
              $
              4,174
              
              
              $
              18,230Schedule
      of non-cash investing and financing activities:Common
      stock issued for the conversion of debt
              
              $
              21,149
              
              
              $
              1,023




See notes
to the condensed consolidated financial statements




9


WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE 1 – ORGANIZATION AND
BASIS OF PRESENTATION
  Organization.
 
 World Am,
Inc. (“World Am” or “the Company”) was incorporated in Florida in
1994.  In 2002, World Am changed its domicile from Florida to
Nevada.  The Company currently has two wholly owned subsidiaries:
Technology Development International, Inc. (“TDI”), and Isotec, Inc. (“Isotec”);
and one majority owned subsidiary Senz-It, Inc. (“Senz-It”).
  TDI is a
Colorado corporation incorporated in 1997 and, at present, is
dormant.
  Isotec is
a Colorado corporation incorporated in 1998 that develops, manufactures and
distributes automated passage control and security devices to government and
other commercial enterprises.  At present, the majority of the
Company’s revenue is generated by Isotec.
 
 Senz-It
is a California corporation incorporated on March 4, 2005 to develop,
commercialize and market technology in the field of micro-sensor elements and
sensor arrays to the homeland security, indoor air quality, food purity and
processing and medical diagnostic industries.
 
 Acquisition of Senz-It, Inc.
and Reverse Acquisition Accounting.
 
 On August
31, 2005, the Company consummated an agreement to acquire 100% of the issued and
outstanding capital stock of Senz-It, Inc. In exchange, the Company issued a
warrant to purchase 1,800,000 shares of its common stock and 55 shares of its
Series B convertible preferred stock to SUTI Holdings LP (“SUTI”), the owner of
Senz-It at the time.  The exercise price of the common shares under
these warrants is $0.01 per share. The warrant vested immediately and expires in
August 2010. Each share of Class B preferred stock is convertible into the
greater of (i) 1% of the outstanding common shares of the Company at the time of
conversion, including the common stock equivalents of all unexercised warrants,
options and convertible securities, and (ii) 727,273 shares of common stock. The
holders of the Series B preferred stock are entitled to the number of votes the
holder would be entitled to had they converted the shares of Series B preferred
stock at the time of the vote.  In addition, SUTI has selected three
directors to sit on the Company’s board of directors, constituting a majority of
the board.
 
 Due to
the change in voting control and of senior management, the transaction was
recorded as a “reverse-merger” whereby Senz-It was considered to be the acquirer
for accounting purposes. The transaction is equivalent to the issuance of stock
by Senz-It, a development stage company, for the net monetary assets of the
Company, a public company, accompanied by a recapitalization. Prior to the
transaction, World Am was a public company with assets of $88,656, liabilities
totalling $1,075,978 and 6,657,029 shares of common stock issued and
outstanding.  Senz-It was a privately owned, non-operating development
stage company.  The accounting for the transaction is identical to
that resulting from a reverse acquisition, except goodwill or other intangible
assets were not recorded. Accordingly, these financial statements are the
historical financial statements of Senz-It. The accompanying consolidated
financial statements reflect activities from March 4, 2005, the date of
inception of Senz-It and forward.
 
 10
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  On March
7, 2006, SUTI Holdings, LP, the former stockholder of Senz-It, assigned the
warrant to Select University Technologies, Inc., which then exercised the
warrant in a cashless transaction that resulted in the issuance of 1,788,000
restricted shares of common stock (the balance of 12,000 shares was withheld in
the cashless exercise of the warrant).
 
 Basis of
Presentation.
 
 The
unaudited interim condensed consolidated financial statements present the
condensed consolidated financial statements of the Company and its subsidiaries.
All intercompany transactions and balances have been eliminated in
consolidation.
 
 The
interim condensed financial information is unaudited. In the opinion of
management, all adjustments necessary to present fairly the consolidated
financial position as of September 30, 2008 and the results of operations for
the three and nine months ended September 30, 2008 and 2007 and cash flows for
the nine months ended September 30, 2008 and 2007 have been included in the
consolidated financial statements. Interim results are not necessarily
indicative of results of operations for the full year.
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and pursuant to the
instruction to Form 10-Q and Article 8 of Regulation S-X promulgated by the
Securities and Exchange Commission (“SEC”). Therefore, they do not include all
of the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements. The
consolidated financial statements should be read in conjunction with the
Company’s Form 10-KSB for the year ended December 31, 2007.
 
 Effective
January 1, 2008, the Company is no longer in the development stage, as defined
in Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and
Reporting by Development Stage Enterprises.” The Company believes that the
revenues generated from Senz-It and Isotec during the three and nine months
ended September 30, 2008 as well as the projected revenues for the remainder of
2008 demonstrate that WDAM has emerged from the product development
phase.
  On July
17, 2008, the Company’s board of directors declared a ten-to-one reverse stock
split on the shares of the Company’s common stock.  Each shareholder
of record on September 12, 2008, received one share of common stock for each ten
shares of common stock then owned.  The Company retained the current
par value of $.0001 per share for all shares of common stock.  All
references in the financial statements to the number of shares outstanding, per
share amounts, and stock option data of the Company’s common stock have been
retroactively restated to reflect the effect of the reverse stock split for all
periods presented.
  11
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Going
Concern.
  The
Company’s net losses and accumulated deficit were $7,758,212 through September
30, 2008. In addition, the Company has a working capital deficit of $2,445,033
and is default of its related party note payable (see Note 9) at September 30,
2008.  The Company cannot provide assurance that it can achieve or
sustain profitability on a quarterly or annual basis in the future. The Company
anticipates it will continue to incur losses until it is able to establish
significant levels of revenue while controlling its expenses. The Company’s
success is dependent upon the successful development and marketing of its
products, as to which there is no assurance.  Any future success that
the Company might experience will depend upon many factors, including factors
out of its control or which cannot be predicted at this time. These factors may
include changes in or increased levels of competition, including the entry of
additional competitors and increased success by existing competitors, changes in
general economic conditions, increases in operating costs, including costs of
supplies, personnel and equipment, reduced margins caused by competitive
pressures and other factors. These conditions may have a materially adverse
effect upon the Company or may force it to reduce or curtail operations. In
addition, the Company will require additional funds to sustain and expand its
sales and marketing activities, particularly if a well-financed competitor
emerges.
  In
view of the matters described above, recoverability of a major portion of the
recorded asset amounts shown in the accompanying condensed consolidated balance
sheets is dependent upon continued operations of the Company, which in turn is
dependent upon the Company’s ability to raise additional capital, obtain
financing and to succeed in its future operations. The condensed consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern.
 
 NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 
 Use of
Estimates.
  The
preparation of the condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Significant estimates include
the realization of accounts receivable and inventories, the realizability of
long-lived assets, the value of shares and options issued for services and the
amount of the deferred tax asset valuation allowance. Accordingly, actual
results could differ from these estimates.
  Concentration of Credit
Risk.
  Cash.
  The
Company maintains its cash balances at credit-worthy financial institutions that
are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to
$100,000. As of September 30, 2008 and December 31, 2007, the Company had cash
balances in excess of the FDIC limit of $0 and $438,373,
respectively.
  Customers.
  The
Company had four customers that accounted for essentially all revenue during the
three months ended September 30, 2008 and seven customers that accounted for
essentially all revenue during the nine months ended September 30,
2008.  One customer accounted for essentially all revenue for the
three months ended September 30, 2007 and two customers accounted for
essentially all of the revenue for the nine months ended September 30,
2007.  As of September 30, 2008, three customers owed $259,144. As of
December 31, 2007, two customers owed $64,820.
  12
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Accounts
Receivable.
  Accounts
receivable consists of amounts billed to customers upon performance of service
or delivery of goods. The Company performs ongoing credit evaluations of
customers and adjusts credit limits based upon payment history and the
customers’ current creditworthiness, as determined by its review of their
current credit information. The Company continuously monitors collections and
payments from its customers and maintains a provision for estimated credit
losses based upon its historical experience and any customer-specific collection
issues that it has identified. The Company records specific reserve provisions
for individual accounts when the Company becomes aware of a customer’s inability
to meet its financial obligation to the Company.  At September 30,
2008 and at December 31, 2007, the Company has not recorded a reserve for
doubtful accounts.
  Inventories.
  Inventories
are stated at the lower of cost or market.  Cost is principally
determined by using the average cost method. Inventories consist of raw
materials, work-in-process and finished goods held for sale. The Company’s
management monitors the inventories for excess and obsolete items and makes
necessary valuation adjustments when required. Adjustments are considered to be
a permanent reduction in the cost basis of the corresponding inventory.
Inventories consist of raw materials used in product sales by Isotec at
September 30, 2008. Certain raw materials used in Isotec’s products are only
available from a few suppliers. If these sources of raw materials are lost,
Isotec’s production could be significantly affected.
  Estimated Costs to Complete
and Accrued Loss on Contracts.
  The
Company reviews and reports on the performance of its contracts against the
respective plans. These reviews are summarized in the form of estimates of costs
to complete the contracts (“ETC”). ETCs include management’s current estimates
of remaining amounts for direct labor, material, subcontract support and
allowable indirect costs based on each contract’s completion status and either
the current or adjusted future technical requirements under the contract. If an
ETC indicates a potential overrun against budgeted program resources, management
generally seeks to revise the program plan in a manner consistent with customer
objectives to eliminate such overrun and to secure necessary customer agreement
to such revision. To mitigate the financial risk of such revisions, the Company
attempts to negotiate as much flexibility in deliverable dates as possible. When
revisions to the contract do not appear possible within program budgets, an
accrual for contract overrun is recorded based on the most recent ETC of the
particular program. For the three months ended September 30, 2008, the Company
estimates that there will be an additional cost overrun of $117,505 and for the
nine months ended September 30, 2008, the Company estimates that the total cost
overrun will be $205,514. This cost overrun was included in cost of goods sold
for the three and nine months ended September 30, 2008.  For the year
ended December 31, 2007, the Company did not estimate any cost overruns on its
contract.
  13
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Fixed
Assets.
  Fixed
assets are recorded at cost and are depreciated using the straight-line method
over the estimated useful lives of the assets. The useful lives for the related
assets range from three to seven years.
  Maintenance
and repairs are charged to expense as incurred. Renewals and improvements of a
major nature are capitalized. At the time of retirement or other disposition of
property and equipment, the cost and accumulated depreciation are removed from
the accounts and any resulting gains or losses are reflected in the consolidated
statement of operations.
  Intangible
Assets.
  Intangible
assets consist of a license to use the technology developed by the State
University of New York at Buffalo (“SUNY”) (see Notes 3 and 10) and are stated
at cost. Upon commencement of sales of the product, these amounts will be
amortized over the shorter of the expected life of the product or the remaining
term of the license agreement.
 
 Long-Lived
Assets.
  The
Company accounts for its long-lived assets in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the historical cost carrying value of an
asset may no longer be appropriate. The Company assesses recoverability of the
carrying value of an asset by estimating the future net cash flows expected to
result from the asset, including eventual disposition. If the future net cash
flows are less than the carrying value of the asset, an impairment loss is
recorded equal to the difference between the asset’s carrying value and fair
value or disposable value. As of September 30, 2008 and December 31, 2007, the
Company does not believe there has been any impairment of its long-lived assets.
There can be no assurances, however, that demand for the Company’s products and
services will continue, which could result in an impairment of long-lived assets
in the future.
  Convertible Debenture and
Beneficial Conversion Feature.
  If the
conversion feature of conventional convertible debt provides for a rate of
conversion that is below market value, this feature is characterized as a
beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a
debt discount pursuant to Emerging Issues Task Force (“EITF”) Issue No. 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingency Adjustable Conversion Ratio,” and EITF Issue No. 00-27, “Application
of EITF Issue No. 98-5 to Certain Convertible Instruments.” In those
circumstances, the convertible debt will be recorded net of the discount related
to the BCF. The Company amortizes the discount to interest expense over the life
of the debt using the effective interest method.
  14
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Derivative Financial
Instruments.
  In
accounting for non-conventional convertible debt, the Company bifurcates its
embedded derivative instruments and records them under the provisions of SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
amended, and EITF Issue No. 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” The
Company’s derivative financial instruments consist of embedded derivatives
related to a non-conventional debenture entered into with Golden Gate Investors,
Inc. /La Jolla Cove Investors, Inc. (“LaJolla Cove”) (see Note 6). These
embedded instruments related to the Debenture include the conversion feature,
liquidated damages related to registration rights and default provisions. The
accounting treatment of derivative financial instruments requires that the
Company record the derivatives and related warrants at their fair value as of
the inception date of the agreement and at fair value as of each subsequent
balance sheet date. Any change in fair value will be recorded as non-operating,
non-cash income or expense at each reporting period. If the fair value of the
derivatives is higher at the subsequent balance sheet date, the Company will
record a non-operating, non-cash charge. If the fair value of the derivative is
lower at the subsequent balance sheet date, the Company will record
non-operating, non-cash income.
  During
the year ended December 31, 2006, the Company recorded the initial fair value of
the conversion feature of $1,151,759 of which $876,759 was recorded as interest
expense in the consolidated statement of operations and $275,000 was recorded as
a discount on the debt and is being amortized to interest expense over the life
of the debt. The Company also recorded the initial fair value of the attached
warrants, related to the debt financing in 2006, of $2,075,694 as a component of
interest expense in the consolidated statements of operations for the year ended
December 31, 2006. The initial fair value of the conversion-related derivatives
and warrants were valued primarily using the Black-Scholes pricing model with
the following assumptions: dividend-yield of 0%, annual volatility of 127% and
risk-free interest rate of 4.70% – 4.74%. At December 31, 2007, the fair value
of the conversion feature and the warrants amounted to $1,788,376. At September
30, 2008, the fair value of the La Jolla Cove conversion feature and the
warrants amounted to $577,806. The decrease in the fair value of the La Jolla
Cove conversion features and warrants of $1,210,570 and $593,408 for the nine
months ended September 30, 2008 and September 30, 2007, respectively, are
included as other income (expense) in the accompanying condensed consolidated
statements of operations.
  As of
December 31, 2007, the derivatives and warrants were valued primarily using the
Black-Scholes pricing model with the following assumptions: dividend yield of
0%, annual volatility of 133.2% – 161.8%, and risk free interest rate of
3.07%-3.45%. The derivatives are classified as long-term liabilities in the
accompanying condensed consolidated balance sheets.
  As of
September 30, 2008, the derivatives and warrants were valued primarily using the
Black-Scholes pricing model with the following assumptions: dividend yield of
0%, annual volatility of 167.3% – 270.3%, and risk free interest rate of
1.60%-2.98%. The derivatives are classified as long-term liabilities in the
accompanying condensed consolidated balance sheet.
  In
addition, under the provisions of EITF Issue No. 00-19, as a result of entering
into the convertible debt, the Company is required to classify all other
non-employee stock options and warrants as liabilities and mark them to market
at each reporting date. Non-employee stock options and warrants were valued
primarily using the Black-Scholes pricing model with the following assumptions:
dividend yield of 0%, volatility of 138% and risk free interest rate of
4.54%.  At December 31, 2007, the fair value of the non-employee
warrant was $267,937. The decrease in the fair value of non-employee stock
options in the amount of $425,938 since December 31, 2006 is included in other
income in the December 31, 2007 consolidated statement of
operations.
  At
September 30, 2008, the fair value of the non-employee warrants was $73,207. The
decrease in the fair value of non-employee stock options and warrants in the
amount of $194,730 since December 31, 2007 and the decrease of $328,803 since
December 31, 2006 are included in other income (expense) in the accompanying
condensed consolidated statements of operations.
  15
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Fair Value of Financial
Instruments.
  The
Company’s financial instruments consist of cash, accounts receivable, accounts
payable, accrued expenses, amounts due to stockholders and related parties,
notes payable and convertible debentures. Pursuant to SFAS No. 107, “Disclosures
About Fair Value of Financial Instruments,” the Company is required to estimate
the fair value of all financial instruments at the balance sheet date. The
Company considers the carrying values of its financial instruments in the
financial statements to approximate their fair values due to their short
maturities and rates currently available to the Company for similar debt
instruments, except for convertible debt, for which an equivalent instrument
could not be located.
  Stock-Based
Compensation.
  All
issuances of the Company’s stock for non-cash consideration have been assigned a
per share amount equalling either the market value of the shares issued or the
value of consideration received, whichever is more readily determinable. The
majority of the non-cash consideration received pertains to services rendered by
consultants and others and have been valued at the amount billed by the
consultant for services provided.
  The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of EITF Issue
No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” and
EITF Issue No. 00-18, “Accounting Recognition for Certain Transactions Involving
Equity Instruments Granted to Other Than Employees.” The measurement date for
the fair value of the equity instrument issued is determined at the earlier of
(a) the date at which a commitment for performance by the consultant or vendor
is reached or (b) the date at which the consultant or vendor’s performance is
complete. In the case of equity instruments issued to consultants, the fair
value of the equity instrument is recognized over the term of the consulting
agreement. In accordance with EITF Issue No. 00-18, an asset acquired in
exchange for the issuance of fully vested, non-forfeitable equity instruments
should not be presented or classified as an offset to equity on the grantor’s
balance sheet once the equity instrument is granted for accounting purposes.
Accordingly, the Company will record the fair value of the fully vested
non-forfeitable common stock issued for future consulting services as prepaid
expenses in the condensed consolidated balance sheets.
  The
Company accounts for its employee stock-based compensation under the provisions
of SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No.
123(R)”).  SFAS No. 123(R) requires a public entity to measure the
cost of employee services received in exchange for an award of equity
instruments, including stock options, based on the grant-date fair value of the
award and to recognize it as compensation expense over the period the employee
is required to provide service in exchange for the award, usually the vesting
period. The Company has also applied the provisions of Staff Accounting Bulletin
(“SAB”) No. 107 relating to SFAS No. 123(R).
  16
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  SFAS No.
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company’s condensed
consolidated statements of operations.
  Stock-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period. SFAS No. 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. The forfeiture rate that the Company presently uses
is 0%.
  SFAS No.
123(R) requires the cash flows resulting from the tax benefits resulting from
tax deductions in excess of the compensation cost recognized for those options
to be classified as financing cash flows. Due to the Company’s loss position,
there were no such tax benefits for the three and nine months ended September
30, 2008 and 2007, respectively.
  Net Earnings (Loss) Per
Common Share.
  The
Company computes net income (loss) per common share in accordance with SFAS No.
128, “Earnings per Share,” and SAB No. 98. Under the provisions of SFAS No. 128
and SAB No. 98, basic net income (loss) per share is computed by dividing the
net income (loss) available to common stockholders for the period by the
weighted average number of shares of common stock outstanding during the period.
The calculation of diluted net income (loss) per share gives effect to common
stock equivalents; however, potential common shares are excluded if their effect
is anti-dilutive. For the three and nine months ended September 30, 2008 and for
the nine months ended September 30, 2007, basic and diluted loss per share were
the same due to the net loss for these periods. Had such shares been included in
diluted loss per share, they would have resulted in weighted-average common
shares of 2,582,752,504 and 2,548,383,993 for the three and nine months ended
September 30, 2008, respectively, and 255,020,662 for the nine months ended
September 30, 2007.
  Revenue
Recognition.
  The
Company recognizes revenue in accordance with SAB No. 101, “Revenue Recognition
in Financial Statements,” as revised by SAB No. 104.  As such, the
Company recognizes revenue when persuasive evidence of an arrangement exists,
title transfer has occurred, the price is fixed or readily determinable and
collection is probable.
  The
Company’s revenues were derived from product sales at Isotec, which primarily
consisted of shipments of security portals. Revenue from product sales are
recorded when products are shipped.
  Revenues
derived from contracts to develop prototypes and provide research, development,
design, testing and evaluation of complex detection and control defense systems
were $59,244 and $-0- during the three months ended September 30, 2008 and 2007,
respectively, and $222,714 and $-0- during the nine months ended September 30,
2008 and 2007, respectively. The Company’s research and development contract is
cost reimbursement. The Company’s cost reimbursement research and development
contracts require the Company’s good faith performance of a statement of work
within overall budgetary constraints, but with some flexibility as it relates to
scheduling and resources, both personnel and equipment. Revenues for research
and development contracts are recognized as costs are incurred in the proportion
that costs incurred bear to estimated final costs.
  17
  WORLD
AM, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Costs and
estimated earnings in excess of billings under government research and
development contracts are accounted for as unbilled revenues on uncompleted
contracts stated at estimated realizable value and expected to be realized in
cash within one year.
  As of
September 30, 2008 and December 31, 2007, the Company recorded deferred revenue
of $51,938 and $57,563, respectively, for customer deposits on ordered
products.
  The
Company has contracts with various governments and governmental agencies.
Government contracts are subject to audit by the applicable governmental agency.
Such audits could lead to inquiries from the government regarding the
acceptability of costs under applicable government regulations and potential
adjustments of contract revenues. To date, the Company has not been involved in
any such audits.
  Income
Taxes
  The Company accounts for income
taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” Under
SFAS No. 109, deferred tax assets and liabilities are recognized for future tax
benefits or consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. A
valuation allowance is provided for significant deferred tax assets when it is
more likely than not that these assets will not be realized through future
operations.
  Recent Accounting
Pronouncements.
  In
September 2006, the FASB adopted SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 establishes a framework for measuring fair value and expands disclosure
about fair value measurements. Specifically, this standard establishes that fair
value is a market-based measurement, not an entity specific measurement. As
such, the value measurement should be determined based on assumptions the market
participants would use in pricing an asset or liability, including, but not
limited to assumptions about risk, restrictions on the sale or use of an asset
and the risk of non-performance for a liability. The expanded disclosures
include disclosure of the inputs used to measure fair value and the effect of
certain of the measurements on earnings for the period. SFAS No. 157 was
effective for fiscal years beginning after November 15, 2007 and the FASB has
issued a one-year deferral of fair value measurement requirements for
non-financial assets and liabilities. The Company is currently evaluating the
impact that the adoption of SFAS No. 157 will have on its consolidated financial
position, results of operations and cash flows.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities- Including an Amendment of FASB
Statement No. 115.” SFAS No. 159 would create a fair value option of accounting
for qualifying financial assets and liabilities under which an irrevocable
election could be made at inception to measure such assets and liabilities
initially and subsequently at fair value, with all changes in fair value
reported in earnings.  SFAS No. 159 is effective as of the beginning
of the first fiscal year beginning after November 15, 2007. The Company is
currently evaluating the impact that the adoption of SFAS No. 159 will have on
its consolidated financial position, results of operations and cash
flows.
  18





WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




In June
2007, the FASB ratified a consensus opinion reached by the EITF on EITF Issue
07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities” (“EITF Issue 07-3”). The
guidance in EITF Issue 07-3 requires the Company to defer and capitalize
non-refundable advance payments made for goods or services to be used in
research and development activities until the goods have been delivered or the
related services have been performed. If the goods are no longer expected to be
delivered nor the services expected to be performed, the Company would be
required to expense the related capitalized advance payments. The consensus in
EITF Issue 07-3 is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2007 and is to be applied
prospectively to new contracts entered into on or after December 15, 2007. The
Company has adopted EITF Issue 07-3 effective January 1, 2008. The impact of
applying this consensus will apply to Senz-It’s research and development
contractual arrangements entered into after January 1, 2008 did not have a
material impact on its consolidated financial position, results of operations or
cash flows.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”. SFAS No. 161 is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity’s financial position, results of operations and cash
flows.  SFAS No. 161 requires that the enhanced disclosures include
the objectives for using derivative instruments in terms of underlying risk and
accounting designation. SFAS No. 161 also improves transparency about the
location and amounts of derivative instruments in the company’s financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS No. 133; and how derivative instruments and related hedged items
affects the company’s financial position, results of operations and cash
flows.   SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
The Company is currently evaluating the impact that the adoption of SFAS No. 161
will have on its consolidated financial position, results of operations and cash
flows.





In June
2008, the FASB ratified a consensus opinion reached by the EITF on EITF Issue
07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock” (“EITF Issue 07-5”). The guidance in EITF Issue 07-5
requires warrants which contain features that reprice if future shares are sold
at lower prices (or future options/warrants are granted at lower exercise
prices) to be considered as derivatives by the Company.  The consensus
in EITF 07-5 is effective for fiscal years, and for interim periods within those
fiscal years, beginning after December 15, 2008. The Company is currently
evaluating the impact that the adoption of EITF 07-5 will have on its
consolidated financial position, results of operations and cash
flows.


19


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 3 – INTANGIBLE
ASSETS




During
the year ended December 31, 2006, Senz-It entered into a technology license
agreement with the Research Foundation of SUNY (the “Foundation”) (the “License
Agreement”). The Foundation granted an exclusive field of use license to Senz-It
to facilitate the development and commercialization of certain technology
developed at SUNY. Per the License Agreement, Senz-It will have the exclusive
license to make, have made, use, sell and offer for sale certain licensed
products over the term of the License Agreement of ten years. In exchange for
this license, Senz-It paid an upfront fee of $25,000 which it recorded as an
intangible asset, royalties of 3% of net sales with an annual minimum of
$10,000, 35% of any defined sublicensing fees, reimburse the Foundation for
certain defined patent costs for the licensed technologies, and provide
additional research funding to SUNY, which the Company expenses, as
follows:




March
      31, 2009
                    
                    $
                    75,000March
      31, 2010
                    
                    $
                    100,000March
      31, 2011
                    
                    $
                    125,000





For the
nine months ended September 30, 2008 and September 30, 2007, the Company
recorded royalty fee expense of $7,617 and $-0- and patent cost reimbursement of
$29,426 and $154,323, respectively. As of September 30, 2008 and December 31,
2007, Senz-It has incurred a total of $213,973 and $184,547, respectively,
related to certain items of the License Agreement and has recorded the costs as
an intangible asset in the accompanying condensed consolidated financial
statements. Upon commencement of sales of the licensed technologies, Senz-It
will amortize the cost of the intangibles over the lesser of either their
estimated useful life or the remaining term of the License Agreement.
Amortizable intangible assets are tested for impairment based on undiscounted
cash flows, and, if impaired, written down to fair value based on either
discounted cash flows or appraised values.





NOTE 4 – DUE TO
STOCKHOLDERS





Due to
stockholders was $220,000 as of September 30, 2008 and $321,884 as of December
31, 2007. The balance consists of $70,000 payable related to a finder’s fee and
other services provided by a consultant and $150,000 related to the settlement
of a lawsuit with the former president and chief executive officer. See Note 10
for details regarding the lawsuit settlement. These amounts are non-interest
bearing and due on demand.




NOTE 5 – PAYROLL TAXES
PAYABLE




As of
September 30, 2008 and December 31, 2007, payroll taxes payable is comprised of
late payroll taxes and estimated accrued interest and penalties for payroll and
stock option activity totalling $327,693 and $192,177, respectively. An
agreement has been reached wherein the Company will timely make all current
payroll withholding payments and a meeting will be held in early 2009 for the
purpose of implementing a payment arrangement that will resolve the late payroll
taxes and the associated penalties and interest.


20


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




NOTE 6 – WARRANTS AND
CONVERTIBLE DEBENTURE




The
Company entered into a Securities Purchase Agreement with La Jolla Cove (see
Note 2), a company under common control with Golden Gate Investors, Inc.
(“Golden Gate”) dated June 19, 2006 (the “Agreement”) to replace the agreement
dated January 23, 2006 with Golden Gate.  Under the Agreement, La
Jolla Cove agreed to provide funds to the Company in the form of a convertible
debenture (the “Debenture”) in the aggregate principal amount of $500,000 with
an annual interest rate of 6.25%. The conversion price is equal to the lesser of
(i) $2.00, or (ii) 80% of the average of the three lowest volume weighted
average prices during the 20 trading days prior to the election to convert, or
(iii) 80% of the volume weighted average price on the trading day prior to the
election to convert. The number of common shares into which the Debenture may be
converted is equal to the dollar amount of the Debenture being converted
multiplied by eleven, minus the product of the conversion price multiplied by
ten times the dollar amount of the Debenture being converted, and the entire
foregoing result shall be divided by the conversion price. However, if the
volume weighted average price is below $0.005 per share during any ten
consecutive trading days, La Jolla Cove may elect to convert the Debenture only,
without exercising the related warrants (see below) (in such case, the number of
common shares that the holder receives upon conversion of this Debenture will be
the amount of the Debenture being converted divided by the conversion price). La
Jolla Cove advanced a total of $275,000 in debentures under the
Agreement.




The
initial fair value assigned to the conversion feature was $1,151,759, of which
$275,000 was recorded as a discount on convertible debt and $876,759 was
included in interest expense in 2006 consolidated statement of
operations.




The
discount on convertible debt is amortized to interest expense over the life of
the Debenture. Amortization expense charged to operations during the three and
nine months ended September 30, 2008 was $23,105 and $69,315, respectively.
Amortization expense charged to operations during the three and nine months
ended September 30, 2007 was $23,105 and $68,807, respectively. Interest accrued
on the Debenture and added to the principal balance was $4,172 for the three
months ended September 30, 2008 and $13,127 for the nine months ended September
30, 2008.  Interest accrued on the Debenture and added to the
principal balance was $1,542 for the three months ended September 30, 2007 and
$7,369 for the nine months ended September 30, 2007.  Interest
payments totalling $3,074 and $4,744 were made in the second quarter 2008 and
2007, respectively. During the three months and nine months ended September 30,
2008, 7,175,975 and 29,015,477 shares of common stock were issued to La Jolla
Cove, respectively, in connection with the conversion of $2,000 for the three
months ended September 30, 2008 and $21,149 for the nine months ended September
30, 2008 of the Debenture at a calculated conversion price of $0.00073, as
defined above. Additionally, the Company repaid $4,000 of the Debentures in the
three months ended March 31, 2008. The balance on the debenture, including
accrued interest payable (net of unamortized discount of $49,234 and $118,548 as
of September 30, 2008 and December 31, 2007) was $211,906 and $157,687,
respectively.




If La
Jolla Cove elects to convert a portion of the Debenture and, on the day that the
election is made, the volume weighted average price is below $0.10 per share,
the Company will have the right to prepay that portion of the Debenture that the
holder elected to convert, plus any accrued and unpaid interest, at 125% of such
amount. In the event that the Company elects to prepay that portion of the
Debenture, La Jolla Cove will have the right to withdraw its conversion notice.
If, at anytime during the month, the volume weighted average price is below
$0.10 per share, La Jolla Cove will not be obligated to convert any portion of
the Debenture during that month.


21


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




In
conjunction with the Debenture, the Company issued to La Jolla Cove a warrant,
dated June 19, 2006, to purchase 500,000 shares of common stock of the Company,
exercisable at $10.00 per share.  Subsequent to the ten-to-one reverse
stock split (see Note 1), the Company and La Jolla Cove are negotiating the
number of warrants that remain exercisable and the unit exercise price. During
the three and nine months ended September 30, 2008, La Jolla Cove exercised
11,000 and 30,149 warrants  leaving a warrant balance of 468,851
shares at September 30, 2008. The Company received $20,000 and $211,493 in cash
proceeds from the warrant exercise for the three and nine months ended September
30, 2008, respectively. The Company also issued a warrant to La Jolla Cove,
dated June 29, 2006, to purchase up to that number of shares of common stock
equal to $2,750,000 divided by 120% of the average of the closing prices of the
common stock for the 20 trading days prior to June 19, 2006, at a price per
share equal to the 120% of the average of the current market price of the common
stock for the 20 trading days prior to June 19, 2006, totalling 26,647,287
shares. In connection with this transaction, the Company also granted to La
Jolla Cove certain rights under a registration rights agreement, dated June 19,
2006, which requires that the Company register the shares into which the
Debenture and the related warrants may be converted into.




Beginning
in the first full calendar month after a registration statement is declared
effective, La Jolla Cove is required to convert at least 10% of the face value
of the Debenture and exercise 10% of the warrants in any particular calendar
month, the Company’s remedy will be that LaJolla will not be entitled to collect
interest on the Debenture for that month if the Company gives La Jolla written
notice, at least five business days prior to the end of the month, of its
failure to convert and/or exercise the minimum required amount for that month,
of its failure to covert and/or exercise the minimum required amount for that
month.  In the event that LaJolla does not covert at least 10% of the
Debenture or exercise 10% of the warrants for two consecutive calendar months,
in addition to the penalty set forth in the previous sentence, the Company may
repay, at par, an amount of the Debenture equal to two times the differential
between 10% of the face value of the Debenture and the amount actually converted
by La Jolla Cove.




Under a
letter agreement, dated June 26, 2006, the parties agreed to enter into an
additional Debenture and warrant to purchase common stock on the same terms and
conditions as the Debenture and the 500,000 share warrant discussed above. The
parties must enter into the additional debenture and warrant no later than
thirty days after the principal amount of the Debenture is less than $100,000.
Failure to enter into the additional debenture and warrant by either party will
result in $100,000 of liquidated damages by that party. To date, the parties
have not entered into an additional debenture.




The
market value of the Company’s common stock significantly impacts the extent to
which the Company maybe required or may be permitted to convert the unrestricted
portion of the debenture into shares of the Company’s common stock. The lower
the market price of the Company’s common stock at the respective times of
conversion, the more shares the Company will need to convert the principal and
interest payments then due on the Debenture. If the market price of the
Company’s common stock falls below certain thresholds, the Company will be
unable to convert any such repayments of principal and interest into equity, and
the Company will be forced to make such repayments in cash.  The
Company’s operations could be materially impacted if the Company is forced to
make repeated cash payments on the Debenture.




NOTE 7 – STOCK COMPENSATION
PLANS




2005 Non-Employee Directors
and Consultants Retainer Stock Plan.




The World
Am, Inc. Amended and Restated Non-Employee Directors and Consultants Retainer
Stock Plan (“Non-Employee Plan”), dated December 22, 2005, is intended to enable
the Company to promote the interests of the Company by attracting and retaining
consultants andindependent
contractors capable of furthering the business of the Company and by aligning
their economic interests more closely with those of the Company’s stockholders,
and allow the Company to pay their retainer or fees in the form of shares of
common stock or stock options. The maximum number of shares of stock that may be
issued under this plan is 29,100,000 as of September 30, 2008.


22


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




During
the nine months ended September 30, 2008, 216,128 shares of common stock were
issued under the Non-Employee Plan leaving a balance of 0 shares left to be
issued.




2006 Employee Stock
Incentive Plan.





The World
Am, Inc. Amended and Restated Employee Stock Incentive Plan (“ESIP Plan”), dated
February 7, 2006, is intended to allow designated officers and employees, and
certain non-employees of the Company, to receive options to purchase common
stock, and to receive common stock grants subject to certain restrictions. The
purpose of this plan is to provide employees with equity-based compensation
incentives to make significant and extraordinary contributions to the long-term
performance and growth of the Company, and to attract and retain employees of
exceptional ability. The purchase price of shares under the plan is $0.15 per
share. The option period begins on the date of grant and will not exceed ten
years. The maximum number of shares of stock that may be issued under the
amended ESIP Plan is 48,500,000 as of September 30, 2008.




During
the nine months ended September 30, 2008, a total of 10,531,993 shares of common
stock were awarded out of the ESIP Plan. As of September 30, 2008, there were 0
shares of common stock remaining to be issued under the ESIP plan.




2007 Stock Option
Plan.




The World
Am, Inc. Stock Option Plan, dated January 2, 2007, is intended to allow
designated directors, officers and employees of the Company, to receive options
to purchase restricted shares of common stock. The purpose of this plan is to
provide directors, officers and employees with equity-based compensation
incentives to make significant and extraordinary contributions to the long-term
performance and growth of the Company and to attract and retain directors,
officers and employees of exceptional ability. The purchase price of shares
under the plan is $0.05 per share. The option period begins on the date of grant
and will not exceed ten years. The maximum number of shares of stock that may be
issued under this plan is 4,500,000. Options covering a total of 4,450,000
shares have been granted through December 31, 2007 leaving a balance of 50,000
shares to be issued from this plan.





If the
employee has been employed (or in the case of an independent director, been in
such a position) for a period of one year from the date of the option grant,
then the employee vests in 25% of the total number of shares covered by the
option, and thereafter, 1/48th of the total number of shares covered by the
option at the end of each full calendar month. If the employee leaves the
Company prior to the expiration of the one-year period, then the employee does
not have the right to purchase any shares under the option. The option remains
valid only while the employee remains with the Company. Upon a termination of
his or her relationship with the Company, the employee has a period of 90
calendar days thereafter to purchase the amount of shares that are vested to
date or they are forfeited. During the three and nine months ended September 30,
2008, a total of 562,500 option shares were cancelled resulting from the
termination of employment by an optionee. As of September 30, 2008, there were a
total of 612,500 shares available for issuance.  As of September 30,
2008, 1,946,875 of the options have vested and -0- shares vested as of December
31, 2007.


23


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




2008 Non-Qualified Stock
Grant and Option Plan.





On July
10, 2008, the Company’s Board of Directors approved the 2008 Non-Qualified Stock
Grant and Option Plan, which, is intended to allow designated directors,
officers and employees of the Company, to receive options to purchase restricted
shares of common stock. The purpose of this plan is to provide directors,
officers and employees with equity-based compensation incentives to make
significant and extraordinary contributions to the long-term performance and
growth of the Company and to attract and retain directors, officers and
employees of exceptional ability. The purchase price of shares under the plan is
85% of the fair market value of the company stock on the date that the stock
option is granted. The option period begins on the date of grant and will not
exceed ten years. The maximum number of shares of stock that may be issued under
this plan is 120,000,000. On July 31, 2008, the Company filed a registration
statement on Form S-8 registering the shares underlying the 2008 Non-Qualified
Company Stock Grant and Option Plan. As a result of the 10-to-1 reverse stock
split, the number of shares that could be issued under the 2008 Plan was reduced
to 12,000,000 shares. On September 12, 2008, the Company’s Board of Directors
approved the first amendment to the 2008 Plan for the purpose of increasing the
number of shares of the Company’s common stock that can be issued under the 2008
Plan from 12,000,000 back up to 120,000,000.  On September 17, 2008
the Company filed Post-Effective Amendment No. 1 to the Company’s Form S-8 for
the purpose of registering the additional 108,000,000 shares under the 2008
Plan.





During
the three and nine months ended September 30, 2008, a total of 29,828,479 shares
of common stock were awarded out of the 2008 Non-Qualified Stock Grant and
Option Plan. As of September 30, 2008, there were 90,171,521 shares of common
stock remaining to be issued under the 2008 Non-Qualified Stock Grant and Option
Plan. No options have been granted under this plan.





General
Discussion.





The fair
value of each stock-based award is estimated on the grant date using the
Black-Scholes pricing model. Expected volatilities are based on the historical
volatilities of comparable companies. The expected term of options granted is
the maximum term for non-employee options; for employee options, it
is derived using the simplified method as defined in SAB No. 107. The
risk-free rate for periods within the contractual life of the option is based on
the U.S. Treasury interest rates in effect at the time of grant. The fair value
of options granted was estimated using the following weighted-average
assumptions:





2008
                  
                  
                  2007Risk-free
      interest rate
                  
                  
                  1.55-
      2.36
                  %
                  
                  
                  3.34%-
      4.48
                  %Expected
      life of the options
                  
                  
                  3
      years
                  
                  
                  
                  3-6
      yearsExpected
      volatility
                  
                  
                  156-
      173
                  %
                  
                  
                  127-
      162
                  %Expected
      dividend yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %


24


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




The
following is a summary of all stock option activity as of September 30, 2008 and
changes during the nine months ended September 30, 2008:




Number of Shares
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Term
                  (Years)
                
                
                Aggregate
                  Intrinsic
                  ValueOptions
      outstanding  at January 1, 2008
                
                
                7,361,999
                
                
                $
                0.088
                
                
                
                6.30
                
                
                $
                —Granted
                
                
                480,000
                
                
                $
                0.20Expired/forfeited
                
                
                (599,625
                )
                
                
                —Exercised
                
                
                —
                
                
                
                —Options
      outstanding at September 30, 2008
                
                
                7,242,374
                
                
                $
                0.098
                
                
                
                5.21
                
                
                $
                —Options
      exercisable at September 30, 2008
                
                
                5,301,749
                
                
                $
                0.116
                
                
                
                4.09
                
                
                $
                —Options
      expected to vest at September 30, 2008
                
                
                7,242,749
                
                
                $
                0.098
                
                
                
                5.21
                
                
                $
                —





The
aggregate intrinsic values set forth in the above table represent the total
pre-tax intrinsic values, based on the Company’s closing stock price of $0.0021
as of September 30, 2008, which would have been paid by the optionee had all of
them exercised their options as of that date.





Stock-based
compensation expense related to stock options for the three and nine months
ended September 30, 2008 was $8,149 and $49,457, respectively.  Stock
based compensation for the three and nine months ended September 30, 2007 were
$7,096 and $22,049, respectively. These amounts were included in general and
administrative expense in the accompanying consolidated statements of
operations.


25





WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





The
following summarizes the activity of the Company’s non-vested
options:




Weighted-AverageShares
                
                
                Grant-Date
                  Fair Value
                
                
                Remaining
                  Months to
                  Vest
                
                
                Remaining
                  Unrecognized
                  Compensation
                  CostNon-vested
      outstanding at January 1, 2008
                
                
                4,450,000
                
                
                $
                0.05
                
                
                
                49
                
                
                $
                127,722Granted
                
                
                480,000
                
                
                $
                0.20
                
                
                
                36
                
                
                
                7,036Vested
                
                
                (2,426,875
                )
                
                $
                0.08
                
                
                
                
                
                
                
                (49,457
                )Forfeited
                
                
                (562,500
                )
                
                
                —
                
                
                
                
                
                
                
                —Non-vested
      outstanding, related to the 2007 Stock Option Plan, at September 30,
      2008
                
                
                1,940,625
                
                
                $
                0.05
                
                
                
                40
                
                
                $
                85,301





The fair
value of options granted in 2008 was $7,036 or $0.015 per share.





NOTE 8 - STOCKHOLDERS’
DEFICIT





Preferred
Stock.





Class
A.





The
Company is authorized to issue up to 40 million shares of Class A convertible
preferred stock with a par value of $0.0001 per share. Each share has a
liquidation preference of $1,700 per preferred share. Such amounts shall be paid
on all outstanding Class A preferred shares before any payment shall be made or
any assets distributed to the holders of the common stock or any other stock of
any other series or class-ranking junior to the shares as to dividends or
assets. Each preferred share is convertible into 100,000 shares of the Company’s
common stock at the option of the holder. Each holder of Class A preferred stock
is entitled to 100,000 votes and is entitled to such dividends as may be
declared by the board of directors from time to time.





During
June 2004, the Company entered into a loan agreement with a lender whereby the
lender agreed to use its best efforts to provide the Company a loan in the
maximum amount of $2,000,000 subject to certain terms and conditions. The
Company agreed to issue 1,370 shares of Class A preferred stock as collateral on
the loan. The shares were issued in June 2004. The lender did not fund the loan
and accordingly, the Company provided a written demand for the return of the
shares; the certificate for 1,370 shares were returned to the Company and
cancelled.





During
May 2005, the lender assigned all rights set forth in the loan agreement to
Coldwater Capital Partners, LLC. On this basis, a certificate for 1,370 shares
of Class A preferred stock was issued on June 4, 2005. On July 21, 2005, the
Company authorized that one share of the Class A preferred stock be converted
into 100,000 restricted shares of common stock. The Company never received any
funding under this loan agreement. Therefore, in January 2006 the Company made
the determination to cancel the balance of 1,369 shares of Class A preferred
stock (such shares have not yet been cancelled). The Company is analyzing its
alternatives with regard to the 100,000 share conversion.


26


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Class
B.





The
Company is authorized to issue up to 40 million shares of Class B preferred
stock with a par value of $0.0001 per share. To the extent assets are available,
holders of Class B preferred shares have a liquidation preference equal to the
original issue price of the shares of $145,455 per share plus all declared but
unpaid dividends on the Series B preferred shares. Such amounts shall be paid on
all outstanding Class B preferred shares before any payment shall be made or any
assets distributed to the holders of common stock or of any other stock of any
series or class junior to the shares as to dividends or assets, but junior to
Class A preferred shareholders. Each share of Class B preferred stock is
convertible into the greater of (i) 1% of the shares of common stock outstanding
on the date of conversion, after giving consideration to shares issued as a
result of the conversion and any options, warrants or other convertible
securities outstanding and (ii) 727,273 shares of common stock. The holders of
these preferred shares shall have the right to vote and cost that number of
votes which the holder would have been entitled to cast had such holder
converted the shares immediately prior to the record date for such
vote.





On August
31, 2005, the Company completed a Share Exchange Agreement with Senz-It. Under
this agreement, Senz-It became a wholly owned subsidiary of the Company in
exchange for 55 shares of Class B convertible preferred stock that were issued
to SUTI Holdings, LP among other consideration (see Note 1).





Common
Stock.





The
holders of the Company’s common stock are entitled to one vote per share of
common stock held.





The
following summarizes the common stock activity for the nine months ended
September 30, 2008:





Shares
      issued under the ESIP Plan
                              
                              
                              10,531,993Shares
      issued for conversion of Debenture
                              
                              
                              29,015,477Exercise
      of warrants
                              
                              
                              30,149Shares
      issued under the Non-Employee Directors and Consultants
    Plan
                              
                              
                              216,128Shares
      issued under the 2008 Non-Qualified Stock Grant and Option
      Plan
                              
                              
                              29,828,479Shares
      issued under separate S-8 filing (a)
                              
                              
                              4,241,818Total
      net shares issued
                              
                              
                              73,864,044


27


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





(a)
            On
      July 31, 2008, the Company filed a Form S-8 to register the issuance of
      these shares.  These shares were issued during the three months
      ended June 30, 2008 and were in excess of the available shares that were
      contained in the 2005 Non-Employee Directors and Consultants Retainer
      Stock Plan as well as the 2006 Employee Stock Incentive
    Plan.




For the
three months ended September 30, 2008, the Company recorded $44,543 and $109,665
in general and administrative expenses for shares issued to employees and
non-employees, respectively, based on the closing price of the common stock on
the dates of issuance.




For the
nine months ended September 30, 2008, the Company recorded $163,590 and $234,847
in general and administrative expenses for shares issued to employees and
non-employees, respectively, based on the closing price of the common stock on
the dates of issuance.




A summary
of the warrant activity for the nine months ended September 30, 2008 is as
follows:





Warrants
                  
                  
                  Weighted-
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted-
                    Average
                    Remaining
                    Contractual
                    LifeBalance,
      December 31, 2007
                  
                  
                  44,989,182
                  
                  
                  $
                  0.235
                  
                  
                  
                  35
      monthsWarrants
      issued
                  
                  
                  1,857,895
                  
                  
                  $
                  0.026
                  
                  
                  
                  12
      monthsWarrants
      exercised
                  
                  
                  (30,149
                  )
                  
                  $
                  7.015Warrants
      expired
                  
                  
                  (1,807,895
                  )
                  
                  $
                  0.026Balance,
      September 30, 2008
                  
                  
                  45,009,032
                  
                  
                  $
                  0.228
                  
                  
                  
                  26 months





In
February 2008, the Company issued a warrant to G. Raymond Pironti, Jr. to
purchase 1,807,895 shares of its common stock at the lowest reported bid price
of the Company’s common stock from February 4, 2008 to March 31, 2008, which was
$0.017, for a period of twelve months in exchange for consulting services. The
fair value of the warrant was determined to be $695 at September 30, 2008 and is
included in derivative and warrant liabilities in the accompanying condensed
consolidated balance sheets.





NOTE 9 - RELATED PARTY
TRANSACTIONS





In
February 2008, the Company issued a warrant to an individual to purchase 50,000
shares of its common stock at $0.05 per share for a period of twelve months in
exchange for consulting services. The fair value of the warrant was
determined to be $14 at September 30, 2008 and is included in derivative and
warrant liabilities in the accompanying condensed consolidated balance
sheets.





G. Raymond Pironti,
Jr.





See Note
8 (above) for a description of the warrant that was issued to Mr. Pironti in
February 2008.


28


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





The
Company issued to JJ Ellis, an entity owned by Mr. Pironti, a warrant to
purchase $60,000 of the Company’s common stock and has been recorded as a
warrant liability in the accompanying consolidated balance sheet. The
calculation of the number of shares underlying this warrant is based on the
lowest bid price recorded ($0.025) over a 365-day look back period or a 20%
discount at time of execution, whichever is lower. Based on this calculation,
the number of shares fixed for this warrant on April 25, 2006 was 2,400,000.
This warrant is exercisable for a period of five years from the grant date of April
25, 2005 at the lower of $0.025 per share or 80% of the closing price on the
date of exercise and no warrants have been exercised as of September 30,
2008.





David J.
Barnes.





On June
19, 2008, Isotec received $125,000 in the form of a secured promissory note from
David Barnes. On July 15, 2008, Isotec received an additional $75,000 from David
Barnes. With the total monies loaned by David Barnes being raised to $200,000,
the security promissory note was amended and restated for the purpose of
increasing the total loaned amount to $200,000 (the “Note”).  All
other terms and conditions remain unchanged. The purpose of these monies is to
provide funds necessary to fulfil an order for the delivery of 20 security
portals to a distributor. The secured promissory note contains a financing fee
of 2.4% per month on the unpaid note balance. Subsequent to the issuance of the
amended and restated secured promissory note, Mr. Barnes was informed that,
under the laws of California, the maximum interest rate that an individual can
charge is 10% per annum.  The interest calculation, with the
concurrence of Mr. Barnes, was reduced to 10% per
annum.  Additionally, there is a security agreement that covers all
accounts, inventory and proceeds from all sales of security
portals.  Upon receipt of payment from the distributor, Mr. Barnes was
to be paid $6,250 for each unit paid for. On September 8, 2008, the Company and
Mr. Barnes executed a Note Modification Agreement formally amending the terms of
the Note and Security Agreement to reflect the Company’s previous breach of its
obligations under the Note and Security Agreement, the increased indebtedness
and a commitment to a schedule of payments.  Additionally, on
September 8, 2008, the Company executed a guarantee of payment in favour of Mr.
Barnes.  On November 17, 2008, the Company received a Notice of
Default from Mr. Barnes for the purpose of placing the Company on notice that it
is in default under the terms and provisions of the Note and to further notify
the Company that the unpaid principal amount and all accrued interest thereon is
now immediately due and payable.





The
secured promissory note and the accrued interest expense are included in the
condensed consolidated balance sheet. Interest expense related to this note
totalled $13,770 and $14,152 for the three and nine months ended September 30,
2008, respectively. Payments of interest totalled $1,100 during the three and
nine months ended September 30, 2008.





Select University
Technologies, Inc.





Venture
Acceleration Agreement.





A Venture
Acceleration Agreement, (“Venture Agreement”) was entered into between Senz-It
and Select University Technologies, Inc., the general partner of SUTI, dated
June 20, 2005. Under the terms of the Venture Agreement, Senz-It appointed
Select University Technologies, Inc. to provide certain services, personnel and
property for consideration of a management fee and a performance fee through
October 2009.


29


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





The
management fee calls for a one-time payment of $100,000, payable in $50,000 of
common stock and $50,000 of cash, at such time when the Company has the
financial capability to pay in cash and an annual management fee of $930,000
payable in monthly instalments of $77,500. Of the monthly management fee,
$25,000 is payable in cash and the remainder is payable in common stock. For the
three and nine months ended September 30, 2008 and September 30, 2007, the
Company recorded $232,500 and $697,500 in management fees. As of September 30,
2008 and December 31, 2007, the amount owed to Select University Technologies
Inc. in cash and common stock was $422,765 and $186,901 respectively, which
consists of amounts due under the terms of the Venture Agreement and amounts due
for rent and reimbursement of operating expenses, and is recorded in accounts
payable and accrued liabilities in the accompanying consolidated balance
sheets.





The
performance fee is 6% of gross revenue for the first three years of the Venture
Agreement. Thereafter, the performance fee is to be calculated at 15% of
quarterly operating profit (as defined in the Valuation Agreement). To date,
$22,163 has been expensed related to the performance fee.





Office
Space.





The
Company shares office space with Select University Technologies, Inc. The
Company is charged $800 per month, plus operating and administrative expenses.
The total rent and operating expenses charged to the Company for the three and
nine months ended September 30, 2008 was $2,400 and $7,200, respectively. The
total rent and operating expenses charged to the Company for the three and nine
months ended September 30, 2007 was $2,472 and $7,312,
respectively.





SUTI Holdings,
LP.





On May
18, 2006, the Company’s subsidiary, Isotec, issued a demand promissory note in
favor of the Company’s controlling stockholder, SUTI. Under the terms of the
promissory note, the Company may borrow up to $100,000 to assist in the ongoing
operations of the Company.





Principal
and interest are due no later than 30 days following the commencement date of
May 2006. The outstanding principal amount bears simple interest through the
maturity date at the rate of 8% of the loan amount. After an Event of Default
(as defined in the promissory note), all past due principal and, to the extent
permitted by applicable law, interest upon this note is to bear interest at the
rate per annum equal to 12%.  As of September 30, 2008 and December
31, 2007, the Company did not owe any monies related to this note.





NOTE 10 - COMMITMENTS AND
CONTINGENCIES





Litigation





(a) On
August 2, 2006, a complaint was filed against the Company and certain
individuals by Karen Alexander. The complaint principally alleged that World Am,
Inc. breached an employment agreement with the plaintiff by not paying her
certain amounts allegedly owing.


30


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





On
February 29, 2008, the Bolder County District Court (“the Court”) entered a
judgment against the Company and found that the Company owed Karen Alexander a
total of $39,000 plus reasonable attorney fees to be determined by the Court.
Accordingly, the Company has recorded $39,000 as accounts payable and accrued
liabilities in the accompanying condensed consolidated balance sheets as of
September 30, 2008 and December 31, 2007.  On November 6, 2008, the
District Court of Colorado awarded attorney fees in the amount of
$141,929.  While the Company decides whether or not to appeal this
judgement, $141,929 was included in accounts payable and accrued liabilities in
the accompanying condensed consolidated balance sheets as of September 30, 2008.
$141,929 was included in general and administrative expenses in the accompanying
condensed consolidated statements of operations for the nine months ended
September 30, 2008.





(b) On September 20, 2006, a complaint
was filed against the Company by James Alexander, the Company’s former president
and chief executive officer. The complaint principally alleged that World Am
breached an employment agreement with the plaintiff by not paying him certain
amounts allegedly owing and sought damages in the amount of $714,718. The
Company then filed a counterclaim against Mr. Alexander that sought damages for
breach of fiduciary duty and breach of the duty of loyalty to the
Company.





This
matter was settled in June 2008 and on June 10, 2008, a judgment was entered by
the United States District Court for the District of Colorado dismissing, with
prejudice, the lawsuit and the counterclaim between James Alexander and the
Company because a settlement had been reached.  Under the terms of the
settlement, the Company agreed to pay the sum of $150,000 to James
Alexander.  The settlement will be paid in the form of twelve
convertible notes.  Six of the convertible notes, each valued at
$16,667, will be issued to Jim Alexander and six of the convertible notes, each
valued at $8,333, will be issued to Mr. Alexander’s attorney.  Each
note will have at least a six month holding period with a stated conversion
date.  Beginning with the conversion date on the first convertible
note, the conversion date for each subsequent note will be on the date exactly
one month after the conversion date on the preceding note.  On the
conversion date, the note shall convert into a determined number of shares of
restrictive WDAM stock where the number of shares determined shall be equal to
the market value of the face amount of the note.  Market value shall
be determined by averaging the high and low prices of WDAM free trading stock on
the day preceding the conversion date.  Additionally, the Company
agrees to indemnify James Alexander for all unpaid federal income tax
withholdings, including penalties and interest, that the Company presently owes
the Internal Revenue Service.  The settlement amount of $150,000, is
included in due to stockholders in the accompanying condensed consolidated
balance sheets. The excess monies previously accrued as being owed James
Alexander, $101,884, are shown in other income in the accompanying condensed
consolidated statements of operations.





(c) On October 25, 2004, a
complaint was filed against the Company by Mitchell Vince. The complaint alleges
that Isotec terminated Mr. Vince without cause prior to the expiration of the
term of an alleged employment agreement.  The complaint sought
monetary damages of $240,000. This matter was settled in December 2006. Under
this settlement, Mr. Vince will be paid $6,000 per month in cash or shares of
free trading common stock for a period of 20 months commencing January 1, 2007.
The remaining balance of $5,751 is included in accounts payable in the
accompanying consolidated balance sheet as of September 30, 2008.





(d)On or about October 10,
2007, one of the Company’s former consultants filed a complaint against the
Company alleging breach of contract, failure to pay monies owed and other common
counts. The former consultant is seeking to recover $30,108.  The
Company is in settlement discussions with the former
consultant.


31


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




(e) On
January 30, 2004, a complaint was filed against the Company by Robert Hainey and
Internet Marketing Solutions, Inc.  The complaint, which has causes of
action for breach of contract and unjust enrichment, alleges that the defendants
failed to pay the plaintiffs for certain consulting and public relations and
related work, reimbursement of certain business expenses incurred on behalf of
the defendants, and to repay a loan made by the plaintiffs to the
defendants.  The complaint sought total monetary damages of
approximately $308,000.




In March
2008, the Company agreed to settle this matter. Under the terms of the
settlement, the Company agreed to pay Robert Hainey and Internet Marketing
Solutions, Inc. the sum of $116,000, which was recorded in general and
administrative expense in 2007. The Company has paid $12,000 in 2008 per the
settlement and monthly payments in the amount of $5,000, in stock or cash, began
in April 2008 and will continue through April 2010. In the event that the
Company fails to make any of the aforementioned payments, the Company agrees to
pay to Robert Hainey and Internet Marketing Solutions, Inc. a penalty of $1,000
for each occurrence. The remaining balance owed as of September 30, 2008 is
$53,000 and is included in accounts payable in the accompanying condensed
consolidated balance sheets.




Operating
Leases.





Isotec
leases a 4,800 square foot facility in Westminster, Colorado with a monthly rent
and common area expense of $4,169 through December 31, 2011.  Rent and
common area expense totalled $12,291 and $38,199 for the three and nine months
ended September 30, 2008, respectively. Rent and common area expense totalled
$12,378 and $39,130 for the three and nine months ended September 30, 2007,
respectively.





Senz-It
leases a 934 square foot facility in Newport Beach, California. The lease
commenced October 22, 2007 through October 21, 2008. Upon expiration, the lease
terms will continue for successive thirty-day periods until cancelled by either
party in writing. Rent and common area expense totalled $3,922 and $11,786 for
the three and nine months ended September 30, 2008.





Consulting
Agreement.





On March
10, 2008, the Company renewed its consulting agreement with its chief executive
officer, Robert Hovee, through an agreement with RAH Consulting Group,
Inc.  This agreement covered his services to be rendered for this
Company in that position for the period of January 1, 2008 through December 31,
2008.  In consideration of the services rendered, the
Company agreed to pay Mr. Hovee a fee of $8,000 per month, in cash or
stock, at the Company’s discretion.  Mr. Hovee was eligible to
participate in the Company’s Stock Option Plan.  The
Company agreed to reimburse Mr. Hovee for all reasonable business
expenses incurred while performing services for the Company. In addition,
healthcare insurance premiums for Mr. Hovee were to be paid by the Company. This
agreement was to remain in effect until terminated by either party as of
the date set forth in a written notice to the other party delivered in
accordance with the notice provisions of the agreement at least 30 days prior to
such date.  In the event of the termination of this agreement, any
accrued but unpaid fees were to be paid within ten days of the
effective date of such termination. During the third quarter 2008, Mr. Hovee
resigned his position as CEO and terminated the agreement.  As of
September 30, 2008, the Company owed $21,254 under this
agreement.


32


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





An
advance of $3,259 on the consulting fees owed Robert Hovee was made during
2007.  The remaining balance in the advance account as of September
30, 2008, $1,204, was offset against the expense monies owed Mr.
Hovee.





Distributor
Agreements





The
Company has entered into several distributor agreements for distribution of the
Company’s products in the United States.  These agreements call for
the provision of services to the distributors in exchange for the promotion of
the Company’s products.  The products are sold to the distributor at a
discount from the list price of 15% to 25%.





In
addition, the Company has alliance agreements to assist the Company in
establishing international distributorships.  The agreements have
one-year terms and may be renewed with the mutual consent of both
parties.  The alliance agreements specify a commission of 10% of
license fees and 5% of product sales made pursuant to the alliance
agreements.





On May 1,
2007, the Company entered into a distributor agreement for the purpose of
appointing a distributor responsible for the worldwide, excluding Singapore,
sales and marketing of the Senz-It product line for a period of forty-eight
months unless sooner terminated as specified in the agreement.  In
addition the distributor provides sales and marketing consulting services for an
initial term of twelve months. As payment for these consulting fees, the Company
agreed to the following compensation arrangement: (a) 1,000,000 shares (50% of
the shares in the form of S-8 shares and 50% of the shares were in the form of
Rule 144 shares) were issued totalling $60,000 (valued at the closing price of
$0.06 on the date issued), and (b) World Am stock options, fully vested, issued
monthly in the amount of 120,000 through November 2007 and 100,000 through May
2008 at an exercise price of $0.20 per share. The stock option shares remain
exercisable for a period of thirty-six months from the date of issuance. No
additional compensation or expense reimbursement shall be made to distributor
for their efforts in this matter. As of September 30, 2008, a total of 1,320,000
fully vested options have been issued, valued at $30,806. This amount has been
recorded in general and administrative expenses in the accompanying condensed
consolidated statements of operations.  This amount is also included
in the options vesting during the period (unaudited) in the accompanying
condensed consolidated statements of stockholders’ deficit.





License
Agreement





Through
September 30, 2008, the Company has incurred $213,973 related to certain terms
in the License Agreement, which the Company has recorded as an intangible asset
in the accompanying condensed consolidated financial statements (see Note 3).
Upon commencement of sales of the licensed technologies, Senz-It will amortize
the cost of the intangibles over the lesser of their estimated useful lives or
over the remaining term of the License Agreement.  Amortizable
intangible assets are tested for impairment based on undiscounted cash flows,
and, if impaired, written down to fair value based on either discounted cash
flows or appraised values.


33


WORLD
AM, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





In
connection with the License Agreement (see Note 3), Senz-It issued 100,000
restricted shares of its common stock in January 2007, and will issue additional
such shares to SUNY pursuant to the terms of a Stock Purchase Agreement dated
December 1, 2006, so that it will maintain a minimum ownership of 10% in
Senz-It.  Finally, Senz-It entered into a Stockholders Agreement dated
December 1, 2006 with SUNY that covers the rights of stockholders of
Senz-It.  At such time as Senz-It earns a profit, the minority
interest will be allocated to SUNY. In connection with these agreements, the
Company entered into confidentiality and non-disclosure agreements with SUNY as
to certain specific terms of the agreements.





Indemnities and
Guarantees.





During
the normal course of business, the Company has made certain indemnities and
guarantees under which it may be required to make payments in relation to
certain transactions.  These indemnities include certain agreements
with the Company’s officers under which the Company may be required to indemnify
such persons for liabilities arising out of their employment relationship, lease
agreements where the Company may be required to indemnify landlords for damages
arising from non-compliance with environmental laws, contracts where the Company
may be required to indemnify the other party from liabilities resulting from
claimed infringements of the proprietary rights of third parties or
confidentiality provisions and the La Jolla Cove agreement where the Company may
be required to indemnify La Jolla Cove for breach of representation or warranty.
The duration of these indemnities and guarantees varies, and in certain cases,
is indefinite.





The
majority of these indemnities and guarantees do not provide for any limitation
of the maximum potential future payments the Company would be obligated to
make.  Historically, the Company has not been obligated to make
significant payments for these obligations and no liability has been recorded
for these indemnities in the accompanying condensed consolidated balance
sheets.





NOTE 11 - SUBSEQUENT
EVENTS





(a) The
Company had the following stock issuances from October 1 through November 30,
2008:





(1)
            The
      Company issued 62,441,309 shares of its common stock valued at $0.0016 to
      pay operating expenses totalling
$52,142.


(2)
            The
      Company issued shares of its common stock to La Jolla Cove for the
      conversion of debt, at a calculated price of $0.000062 per share,
      totalling 6,466,588 shares valued at
$400.


(3)
            The
      Company issued shares of its common stock to La Jolla Cove in exchange for
      the exercise of 4,000 warrants at $1.00 per share, for cash proceeds of
      $4,000.


(4)
            Cancellation
      of 1,118,647 shares of the Company’s common stock, originally issued in
      the third quarter. The Company bought these shares back from the former
      employee for $3,580.





(b) On
September 29, 2008, a Channel Marketing Agreement was entered into between
Isotec, Inc and Kline Technical Consulting, LLC (KTC). The former CEO and CFO of
World Am owns KTC.  The purpose of the agreement is to penetrate new
markets and development opportunities both internationally and within the United
States Government.  KTC agrees to pay Isotec $15,000 which represents
the costs that will be incurred by Isotec in getting KTC familiar with the
Isotec product line.  The payments are to be made as follows: $5,000
upon signing the agreement with the remaining $10,000 being paid in two equal
instalments of $5,000. Payment is to occur every other month.  In
return, Isotec agrees to pay a finders fee of 5% on KTC orders under $100,000;
6% on KTC orders greater than $100,000 but less than $200,000; and 8% on all KTC
orders above $200,000.  The agreement will continue until either party
provides written notice to the other party that the agreement is to
expire.  Expiration will occur within 45 days of receipt of the
written termination notice.


34





ITEM
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.





Overview





All of
the operations are conducted through our majority-owned subsidiary, Senz-It and
our wholly owned subsidiary, Isotec, Inc.





Senz-It,
Inc. (“Senz-It”)





Senz-It,
Inc. is developing innovative advancements in the field of chemical and
biochemical sensing devices.  These sensing devices have broad
applications in Food Safety and Protection, Homeland Security and Indoor Air
Quality Monitoring.  Our highly robust systems are designed to rapidly
and selectively detect analytes of interest in liquids and gases for
significantly less cost than current available
technologies.  Engineering and development efforts have been primarily
focused on two benchmark projects:





In
November 2007, Senz-It was awarded a United States Air Force biological
development contract worth up to $417,000.  Under this contract,
Senz-It will develop protein imprinted microarrays for bovine serum albumin
(BSA) sensing applications.  Upon introduction of BSA into the sensing
platform, fluorescent reporter molecules will emit light wherein the emission
intensity is directly proportional to the BSA concentration.  The
Senz-It R&D team is placing considerable effort on improving the
sensitivity, selectivity and reproducibility of PIXIES technology originally
licensed from the University at Buffalo in order to produce a platform that is
ultimately more conducive to the detection of proteins other than BSA and
increase commercial applicability.





Senz-It
has obtained a contract extension with the Air Force and the Jackson Foundation,
which will push the final delivery date of the contract to the end of February
2009.  Upon completion of this Phase 1 contract, the Air Force plans
to look for funding opportunities for a Phase 2 project with Senz-It, which
entails the detection of the proteinaceous toxins Botulinum toxins A, B and E
and Enterotoxin B.





In
January 2008, Senz-It partnered with BioMedix, a biotech product management and
distribution company, to develop a sensor that will detect and quantify levels
of harmful biogenic amines in fish and other types of
seafood.  Biogenic amines are chemical byproducts specifically
associated with the level of decomposition in fish, and their levels are
presently tested in a purely qualitative and subjective manner that is highly
prone to error.  This system will be integrated in various points
throughout the supply chain to ensure that the public is receiving the freshest
product possible.





This
biogenic amine detector is based on a chemiluminescent technique; although the
concept of chemiluminescence is not novel, the application of this technique to
a product for biogenic amine detection in seafood is novel.  The
system will consist of a base unit housing the sample holder and the
corresponding electronics, hardware and software.  Sample collection
and preparation will be performed using disposable test kits containing the
appropriate sensing chemistry.


35


Senz-It’s
current full time staff includes individuals with expertise in electrical
engineering, chemistry, biochemistry, mechanical engineering, manufacturing,
software engineering and marketing.





Isotec,
Inc. (“Isotec, Inc.”)





Isotec
developments, integrates and manufactures Automated Security Portal products,
broadly categorized as Access Control, Weapons Control, or Materials Control
Systems.  These structures protect, not just detect, by rigorously
controlling passage of people and materials into and out of a facility based on
specific security rules, while reducing the need for security personnel.
Applications of the technology have been delivered to the commercial, retail and
government sectors. Isotec’s experience in this field allows it to provide high
quality, code compliant, feature-rich application-optimized solutions at the
lowest cost in the shortest timeframe.





Isotec
has installed systems for high security United States Department of Energy
facilities such as Los Alamos Labs, Lawrence Livermore Labs, and Sandia Labs,
and military installations for the United States Air Force and
Navy.  Commercial installations include a growing number of commercial
banking facilities, and various retail facilities such as jewelry
stores.





We
believe that Isotec’s continued growth and future profitability will depend in
large part on the ability to promote its products, expand its relationship with
current and new distributors, and gain new clients.  Accordingly,
Isotec intends to focus its attention and investment of resources in marketing,
strategic partnerships, and development of its client base.  If the
company is not successful in promoting its products and expanding its client and
distributor base, this may have a material adverse effect on its financial
condition and our ability to continue to operate the business.





Isotec’s
revenue in the third quarter continued the upward trend over prior
quarters.  We expect this trend to continue through the fourth
quarter. It should be noted that Isotec’s revenue continues to fluctuate due to
the effect of large contracts, and due to seasonality, and we continue to see
that occur, although with growing sales and distribution channels, the effect is
somewhat reduced from historical levels.





Much of
our sales development effort in the third quarter was again focused on continued
training and education of the distributor sales force to increase their
effectiveness, and that effort will continue in the fourth quarter. New printed
materials as well as web-based tools have been introduced, and our quotation
level continues to increase on a quarter-to-quarter basis. Providing three
dimensional CAD renderings with each product proposal has allowed the customer
to visualize their product in simulation, and provides a significant
differentiator relative to competitive offerings. The ability to customize our
already leading edge software and operator interface has allowed the
introduction of Data Output capability, which in turn allows our customers to
remotely monitor multiple portals from a central security station, and to
provide printed reports of events and statistics.


36





Results
of Operations for the Three Months Ended September 30, 2008 compared to the
Three Months Ended September 30, 2007.





Three
      Months
                        Ended
                        September
      30, 2008
                      
                      
                      Three
      Months
                        Ended
                        September
      30,
                        2007Revenues:Contract
      research anddevelopment
                      
                      $
                      59,244
                      
                      
                      $
                      —Product
      sales
                      
                      
                      562,405
                      
                      
                      
                      376,884621,649
                      
                      
                      
                      376,884Cost
      and expenses:Cost
      of contract researchand
      development
                      
                      
                      176,749
                      
                      
                      
                      —Cost
      of product sales
                      
                      
                      265,624
                      
                      
                      
                      225,899General
      and administrativeexpenses
                      
                      
                      838,927
                      
                      
                      
                      1,076,797Loss
      from operations
                      
                      
                      (659,651
                      )
                      
                      
                      (925,812
                      )Other
      income (expense), net
                      
                      
                      228,672
                      
                      
                      
                      1,051,394Net  (loss)
      income
                      
                      $
                      (430,979
                      )
                      
                      $
                      125,582





Revenue





Our
revenue for the three months ended September 30, 2008 was $621,649, compared to
revenues of $376,884 for the three months ended September 30, 2007, which was an
increase of $244,765.  The increase in revenue for the three months
ended September 30, 2008 was due to the increase in sales of Isotec’s security
portals to financial institutions through a primary distributor as well as
contract research and development revenue recognized by Senz-It based on its
Phase One United States Air Force biological development contract.





Cost of
revenue





Our total
cost of revenues were $442,373 for the three months ended September 30, 2008
compared to our total cost of revenues of $225,899 for the three months ended
September 30, 2007, which was an increase of $216,474.  Our increased
cost of revenues for the three months ended September 30, 2008 was due to the
increase in production costs associated with the increased level of sales at
Isotec and the Department of Air Force biological development contract is a cost
reimbursement contract which was not in existence during the three months ended
September 30, 2007.  Our gross profit percentage was 29% for the three
months ended September 30, 2008, compared to 40% for the three months ended
September 30, 2007.  The decrease in the gross profit percentage is
related to: (a) Isotec’s lower profit margin contracts being awarded, (b) the
Department of Air Force contract is cost reimbursement only, and the Company
recognized Senz-It’s additional contract overrun of $117,505 in the third
quarter 2008.


37





General and administrative
expenses





We
incurred general and administrative expenses of $838,927 for the three months
ended September 30, 2008 compared to general and administrative expenses of
$1,076,797 for the three months ended September 30, 2007, which was a decrease
of $237,870.  The major general and administrative expense categories
for the three months ended September 30, 2008 and 2007 were as
follows:





Three
      Months
                    Ended
                    September
      30,
                    2008
                  
                  
                  Three
      Months
                    Ended
                    September
      30,
                    2007Professional
      fees
                  
                  $
                  245,820
                  
                  
                  $
                  367,371Payroll
      expenses
                  
                  
                  107,190
                  
                  
                  
                  283,103Engineering
      salaries
                  
                  
                  116,163
                  
                  
                  
                  —Rent
                  
                  
                  18,614
                  
                  
                  
                  19,042Advertising
      and promotions
                  
                  
                  2,017
                  
                  
                  
                  76,200Management
      fees
                  
                  
                  232,500
                  
                  
                  
                  232,500Director
      fees
                  
                  
                  27,000
                  
                  
                  
                  —





Our
decreased expenses for the three months ended September 30, 2008 compared to the
three months ended September 30, 2007 were primarily the result of a decrease in
payroll expenses as well as a general reduction in the level of expenses for the
three months ended September 30, 2008.





Other Income (Expense),
Net





Our total
other income of $228,672 for the three months ended September 30, 2008 compared
to our total other income of $1,051,394 for the three months ended September 30,
2007, which was a decrease of $822,722.  This decrease was primarily
the result of a decrease in change in fair value of the derivative and warrant
liabilities in the three months ended September 30, 2008 than in the comparable
prior year period. Part of the reason why the decrease was less in three months
ended September 30, 2008 was due to a 10-to-1 reverse stock split in the third
quarter 2008.





Net Income
(Loss)





The
Company had a net loss of $430,979 for the three months ended September 30, 2008
compared to net income of $125,582 for the three months ended September 30,
2007, a decrease of $556,561.  The net loss for the three months ended
September 30, 2008 compared to the net income for the comparable prior year
period was primarily the result of a decrease in change in fair value of
derivatives and warrant liabilities than recognized in the three months ended
September 30, 2007, which was offset by the decrease in general and
administrative expenses.


38





Results
of Operations for the Nine Months Ended September 30, 2008 compared to the Nine
Months Ended September 30, 2007.





Nine
      Months
                      Ended
                      September
      30,
                      2008
                    
                    
                    Nine
      Months
                      Ended
                      September
      30,
                      2007Revenues:Contract
      research anddevelopment
                    
                    $
                    222,714
                    
                    
                    $
                    —Product
      sales
                    
                    
                    1,139,916
                    
                    
                    
                    499,2941,362,630
                    
                    
                    
                    499,294Cost
      and expenses:Cost
      of contract researchand
      development
                    
                    
                    428,228
                    
                    
                    
                    —Cost
      of product sales
                    
                    
                    581,732
                    
                    
                    
                    288,700General
      and administrativeexpenses
                    
                    
                    2,569,415
                    
                    
                    
                    2,624,673Loss
      from operations
                    
                    
                    (2,216,745
                    )
                    
                    
                    (2,414,079
                    )Other
      income (expense), net
                    
                    
                    1,399,913
                    
                    
                    
                    877,385Net  loss
                    
                    $
                    (816,832
                    )
                    
                    $
                    (1,536,694
                    )





Revenue





Our
revenue for the nine months ended September 30, 2008 was $1,362,630, compared to
revenues of $499,294 for the nine months ended September 30, 2007, which was an
increase of $863,336.  The increase in revenue for the nine months
ended September 30, 2008 was due to the increase in sales of Isotec’s security
portals to financial institutions through a primary distributor as well as
contract research and development revenue recognized by Senz-It based on its
Phase One United States Air Force biological development contract.





Cost of
revenue





Our total
cost of revenues were $1,009,960 for the nine months ended September 30, 2008
compared to our total cost of revenues of $288,700 for the nine months ended
September 30, 2007, which was an increase of $721,260.  Our increased
cost of revenues for the nine months ended September 30, 2008 was due to the
increase in production costs associated with the increased level of sales at
Isotec and the Department of Air Force biological development contract is a cost
reimbursement contract which was not in existence during the nine months ended
September 30, 2007.  Our gross profit percentage was 26% for the nine
months ended September 30, 2008, compared to 42% for the nine months ended
September 30, 2007.  The decrease in the gross profit percentage is
related to: (a) Isotec’s lower profit margin contracts being awarded, (b) the
Department of Air Force contract is cost reimbursement only, and (c) the Company
recognized a total cost overrun of $205,514 related to the Department of Air
Force contract for the nine months ended September 30, 2008.


39





General and administrative
expenses





The
Company incurred general and administrative expenses of $2,569,415 for the nine
months ended September 30, 2008 compared to general administrative expenses of
$2,624,673 for the nine months ended September 30, 2007, which was a decrease of
$55,258.  The major general and administrative expense categories for
the nine months ended September 30, 2008 and 2007 were as follows:





Nine
      Months
                            Ended
                            September
      30,
                            2008
                          
                          
                          Nine
      Months
                            Ended
                            September
      30,
                            2007Professional
      fees
                          
                          $
                          822,762
                          
                          
                          $
                          755,291Payroll
      expenses
                          
                          
                          361,447
                          
                          
                          
                          530,855Engineering
      salaries
                          
                          
                          364,594
                          
                          
                          
                          —Rent
                          
                          
                          57,167
                          
                          
                          
                          44,155Advertising
      andpromotions
                          
                          
                          2,117
                          
                          
                          
                          166,951Management
      fees
                          
                          
                          697,500
                          
                          
                          
                          697,500Director
      Fees
                          
                          
                          40,500
                          
                          
                          
                          —





Our
decreased expenses for the nine months ended September 30, 2008 compared to the
nine months ended September 30, 2007 were primarily the result of a decrease in
the level of payroll expenses and advertising and promotions which were offset
by an increase in engineering salaries, professional fees and director
fees.





Other Income (Expense),
Net





Our total
other income of $1,399,913 for the nine months ended September 30, 2008 compared
to our total other income of $877,385 for the nine months ended September 30,
2007, which was a increase of $522,528.  This increase was primarily
the result of the decrease in the fair value of the derivative and warrant
liabilities that were caused primarily by the decrease in our common stock price
throughout the first nine months and the favorable settlement of a lawsuit in
the amount of $101,884.





Net Income
(Loss)





We had a
net loss of $(816,832) for the nine months ended September 30, 2008 compared to
a net loss of ($1,536,694) for the nine months ended September 30, 2007, a
decrease of $719,862.  The decrease in the net loss for the nine
months ended September 30, 2008 compared to the comparable prior year period was
primarily the result of a decrease in general and administrative expense levels,
an increase in the fair value of derivatives and warrant liabilities as well as
the income recognized from the settlement of a lawsuit.


40





Liquidity
and Capital Resources.





Introduction





As of
September 30, 2008, we had total current assets of $440,079 and total current
liabilities of $2,885,112, resulting in a working capital deficit of
$2,445,033.  As of September 30, 2008, our current assets consisted
primarily of accounts receivable ($264,329), inventory ($79,063), unbilled
revenues of uncompleted contracts ($42,364), prepaid expenses and other assets
($15,064) and cash and cash equivalents ($39,259). We had an accumulated deficit
of $7,758,212 as of September 30, 2008.





Our
ability to continue as a going concern on a long-term basis is dependent upon
our ability to generate sufficient cash flow from operations to meet our
obligations on a timely basis, and our ability to obtain additional financing
and ultimately attain profitability.





Although
we have been successful in the past in raising capital, no assurance can be
given that sources of financing will continue to be available and/or that demand
for our equity/debt instruments will be sufficient to meet our capital needs, or
that financing will be available on favorable terms.   Our
condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of assets and liabilities that
might be necessary should we be unable to continue as a going
concern.





If
funding is insufficient at any time in the future, we may not be able to take
advantage of business opportunities or respond to competitive pressures or may
be required to reduce the scope of our planned product development and marketing
efforts, any of which could have a negative impact on business and operating
results.  In addition, insufficient funding may have a material
adverse effect on our financial condition, which could require us
to:





·
            curtail
      operations significantly;


·
            sell
      significant assets;


·
            seek
      arrangements with strategic partners or other parties that may require us
      to relinquish significant rights to products, technologies or markets;
      or


·
            explore
      other strategic alternatives including a merger or
  sale.





To the
extent that we raise additional capital through the sale of equity or
convertible debt securities, dilution of the interests of existing shareholders
may occur.  If we raise additional funds through the issuance of debt
securities, these securities may have rights, preferences and privileges senior
to holders of common stock and the terms of such debt could impose restrictions
on our operations.  Regardless of whether our assets prove to be
inadequate to meet our operational needs, we may seek to compensate providers of
services by issuance of stock in lieu of cash, which may also result in dilution
to existing shareholders.


41





Our cash,
accounts receivable, inventories, prepaid expenses, total current assets,
primary current liabilities, and total current liabilities as of September 30,
2008, compared to the end of our last fiscal year were:




As
      of
                  September
      30,
                  2008
                
                
                As
      of
                  December
      31,
                  2007
                
                
                ChangeCash
      and cash equivalents
                
                $
                39,259
                
                
                $
                538,373
                
                
                $
                (499,114
                )Accounts
      receivable
                
                
                264,329
                
                
                
                77,167
                
                
                
                187,162Unbilled
      revenues on uncompleted contracts
                
                
                42,364
                
                
                
                73,465
                
                
                
                (31,101
                )Inventories
                
                
                79,063
                
                
                
                44,162
                
                
                
                34,901Prepaid
      expenses and other current assets
                
                
                15,064
                
                
                
                35,415
                
                
                
                (20,351
                )Total
      current assets
                
                
                440,079
                
                
                
                768,582
                
                
                
                (328,503
                )Accounts
      payable and accrued expenses
                
                
                1,446,374
                
                
                
                744,876
                
                
                
                701,498Due
      to related parties
                
                
                442,765
                
                
                
                186,901
                
                
                
                255,864Related
      party notes payable
                
                
                203,051
                
                
                
                —
                
                
                
                203,051Due
      to stockholders
                
                
                220,000
                
                
                
                321,884
                
                
                
                (101,884
                )Payroll
      taxes payable
                
                
                327,693
                
                
                
                192,177
                
                
                
                135,516Total
      current liabilities
                
                $
                2,885,112
                
                
                $
                1,662,281
                
                
                $
                1,222,831





Cash
Requirements





We intend
to use our available funds as well as our working capital and our borrowing
ability to expand the operations of Senz-It and Isotec.




Sources and Uses of
Cash





Operating
Activities





Our net
cash used in operating activities was $865,285 for the nine months ended
September 30, 2008 and $1,907,923 for the nine months ended September 30, 2007,
a decrease of $1,042,638.  The principal components of the decrease
net cash used in operations for the nine  months ended September 30,
2008 were: (a)  decrease in prepaid expenses and
other  current assets of $17,092, (b) an increase in payroll taxes
payable of $135,516; (c) an increase in accounts payable and accrued expenses of
$724,706; (d) an increase in unbilled revenue of $31,101; (e) depreciation and
amortization of $90,987; (f) an increase in stock issued to pay operating
expenses of $398,437; (g) an increase in due to related parties of $239,124;
which were offset by (h) a net loss of $816,832: (i) change in fair value of
derivative and warrant liabilities of $1,405,300;  (j) lawsuit
settlement of $101,884; (k) increase in accounts receivable $187,162; and (l) an
increase in inventories of $34,901.


42





Investing
Activities





Our net
cash used in investing activities was $30,926 for the nine months ended
September 30, 2008 and was used for acquisition of intangible assets of $29,426
and purchase of fixed assets totaling $1,500, compared to our net cash used in
investing activities of $230,272 for the nine months ended September 30, 2007
which was used for the acquisition of fixed and intangible assets of $75,949 and
$154,323, respectively.





Financing
Activities





Our net
cash provided by financing activities of $397,097 for the nine months ended
September 30, 2008, resulted from proceeds from the exercise of warrants
totaling $211,493 and the proceeds from related party borrowings totaling
$200,000, offset by repayments of notes payable of $14,396. Our net cash
provided by financing activities was $3,095,896 for the nine months ended
September 30, 2007, which resulted from proceeds, net of issuance costs, from
sales of common stock to investors in a private stock offering of $3,200,250 and
proceeds from loans totaling $3,970 both of which were offset by repayments of
note payable of $108,324.





Contractual
Obligations.





Operating
Leases





Isotec
leases a 4,800 square foot facility in Westminster, Colorado with a monthly rent
and common area expense of $4,169 through December 31, 2011.  Rent and
common area expense totaled $12,291 and $38,199 for the three and nine months
ended September 30, 2008, respectively.  Rent and common area expense
totaled $12,378 and $39,130 for the three and nine months ended September 30,
2007, respectively.





As of
September 30, 2008, future minimum non-cancelable facility rental payments
required under the operating lease are as follows:





2008
      (last three months)
                    
                    $
                    12,5072009
                    
                    
                    50,5282010
                    
                    
                    52,0442011
                    
                    
                    53,608$
                    168,687





Senz-It
leases a 934 square foot facility in Newport Beach, California. The lease
commenced October 22, 2007 through October 21, 2008. Upon expiration, the lease
terms will continue for successive thirty-day periods until cancelled by either
party in writing. Rent and common area expense totaled $3,922 and $11,786 for
the three and nine months ended September 30, 2008.  There were no
rent and common area expenses associated with this lease for the three and nine
months ended September 30, 2007.  As of September 30, 2008 future
minimum non-cancellable facility rental payment required under the operating
lease for 2008 are $915.


43


Consulting
Agreement





On March
10, 2008, we renewed our consulting agreement with our chief executive officer,
Robert Hovee, through an agreement with RAH Consulting Group,
Inc.  This agreement covered his services to be rendered for us in
that position for the period of January 1, 2008 through December 31,
2008.  In consideration of the services rendered, we agreed
to pay Mr. Hovee a fee of $8,000 per month, in cash or stock, at the
Company’s discretion.  Mr. Hovee was eligible to participate in
the Company’s Stock Option Plan.  We agreed to reimburse Mr.
Hovee for all reasonable business expenses incurred while performing services
for us.  In addition, healthcare insurance premiums for Mr. Hovee were
to be paid by us.  This agreement was to remain in effect
until terminated by either party as of the date set forth in a written notice to
the other party delivered in accordance with the notice provisions of the
agreement at least 30 days prior to such date.  In the event of the
termination of this agreement, any accrued but unpaid fees were to be paid
within ten days of the effective date of such termination. During the third
quarter 2008, Mr. Hovee resigned his position as CEO and teminated this
agreement.  As of September 30, 2008, we owed $21,254 under this
agreement.





An
advance of $3,259 on the consulting fees owed Robert Hovee was made during
2007.  The remaining balance in the advance account as of September
30, 2008, $1,204, was offset against the expense monies owed Mr.
Hovee.





Distributor
Agreements





We have
entered into several distributor agreements for distribution of our products in
the United States.  These agreements call for the provision of
services to the distributors in exchange for the promotion of our
products.  The products are sold to the distributor at a discount from
the list price of 15% to 25%.





In
addition, we have alliance agreements to assist us in establishing international
distributorships.  The agreements have one-year terms and may be
renewed with the mutual consent of both parties.  The alliance
agreements specify a commission of 10% of license fees and 5% of product sales
made pursuant to the alliance agreements.





On May 1,
2007, we entered into a distributor agreement for the purpose of appointing a
distributor responsible for the worldwide, excluding Singapore, sales and
marketing of the Senz-It product line for a period of forty-eight months unless
sooner terminated as specified in the agreement.  In addition the
distributor provides sales and marketing consulting services for an initial term
of twelve months. As payment for these consulting fees, we agreed to the
following compensation arrangement: (a) 1,000,000 shares (50% of the shares in
the form of S-8 shares and 50% of the shares were in the form of Rule 144
shares) were issued totaling $60,000 (valued at the closing price of $0.06 on
the date issued), and (b) World Am stock options, fully vested, issued monthly
in the amount of 120,000 through November 2007 and 100,000 through May 2008 at
an exercise price of $0.20 per share. The stock option shares remain exercisable
for a period of thirty-six months from the date of issuance. No additional
compensation or expense reimbursement shall be made to distributor for their
efforts in this matter. As of September 30, 2008, a total of 1,320,000 fully
vested options have been issued, valued at $30,806. This amount has been
recorded in general and administrative expenses in the accompanying condensed
consolidated statements of operations.  This amount is also included
in the options vesting during the period (unaudited) in the accompanying
condensed consolidated statements of stockholders’ deficit (see Note
10).


44




License
Agreement





Through
September 30, 2008, we incurred $213,973 related to certain terms in the License
Agreement, which we recorded as an intangible asset in the accompanying
condensed consolidated financial statements (see Note 3). Upon commencement of
sales of the licensed technologies, Senz-It will amortize the cost of the
intangibles over the lesser of their estimated useful lives or over the
remaining term of the License Agreement.  Amortizable intangible
assets are tested for impairment based on undiscounted cash flows, and, if
impaired, written down to fair value based on either discounted cash flows or
appraised values.





In
connection with the License Agreement (see Note 3), Senz-It issued 100,000
restricted shares of its common stock in January 2007, and will issue additional
such shares to SUNY pursuant to the terms of a Stock Purchase Agreement dated
December 1, 2006, so that it will maintain a minimum ownership of 10% in
Senz-It.  Finally, Senz-It entered into a Stockholders Agreement dated
December 1, 2006 with SUNY that covers the rights of stockholders of
Senz-It.  At such time as Senz-It earns a profit, the minority
interest will be allocated to SUNY. In connection with these agreements, the
Company entered into confidentiality and non-disclosure agreements with SUNY as
to certain specific terms of the agreements.





Indemnities and
Guarantees





During
the normal course of business, we have made certain indemnities and guarantees
under which we may be required to make payments in relation to certain
transactions.  These indemnities include certain agreements with our
officers under which we may be required to indemnify such party for liabilities
arising out of their employment relationship, lease agreements where we maybe
required to indemnify the landlord for damages arising out of non-compliance
with environmental laws, contracts where we may be required to indemnify the
other party from damages resulting from claimed infringements of the propriety
rights of third parties or confidentiality provisions and the LaJolla Cove
agreement where we may be required to indemnify La Jolla Cove for breach of
representation or warranty.  The duration of these indemnities and
guarantees varies, and in certain cases, is indefinite.





The
majority of these indemnities and guarantees do not provide for any limitation
of the maximum potential future payments we would be obligated to
make.  Historically, we have not been obligated to make significant
payments for these obligations and no liability has been recorded for these
indemnities in the accompanying consolidated balance sheets.





Off Balance Sheet
Arrangements





Other
than our operating lease, we do not engage in any off balance sheet arrangements
that are reasonably likely to have a current or future effect on our
consolidated financial condition, revenues, and results of operations, liquidity
or capital expenditures.


45


Inflation





The
impact of inflation on our costs and the ability to pass on cost increases to
our customers over time is dependent upon market conditions.  We are
not aware of any inflationary pressures that have had any significant impact on
our operations over the past quarter, and we do not anticipate that inflationary
factors will have a significant impact on future operations.





Critical
Accounting Policies.





The SEC
has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies
provide additional disclosure and commentary on their most critical accounting
policies. In FRR 60, the SEC has defined the most critical accounting policies
as the ones that are most important to the portrayal of a company’s financial
condition and operating results and require management to make its most
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition and
in consultation with our Board of Directors, we have identified the following
accounting policies that we believe are critical to an understanding of our
financial statements.  These are important accounting policies that
require management’s most difficult, subjective judgments, and include: (a)
valuation of stock-based compensation arrangements; (b) revenue recognition; (c)
realizability of long-lived assets; (d) valuation of derivative financial
instruments; and (e) valuation of income taxes. The methods, estimates and
judgments the Company uses in applying these most critical accounting policies
have a significant impact on the results the Company reports in its consolidated
financial statements.





Valuation of Stock-Based
Compensation Arrangements





All
issuances of our stock for non-cash consideration have been assigned a per share
amount equaling either the market value of the shares issued or the value of
consideration received, whichever is more readily determinable. The majority of
the non-cash consideration received pertains to services rendered by consultants
and others and have been valued at the amount billed by the consultant for
services provided.




Our
accounting policy for equity instruments issued to consultants and vendors in
exchange for goods and services follows the provisions of EITF Issue No. 96-18,
“Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services,” and EITF Issue
No. 00-18, “Accounting Recognition for Certain Transactions Involving Equity
Instruments Granted to Other Than Employees.” The measurement date for the fair
value of the equity instrument issued is determined at the earlier of (a) the
date at which a commitment for performance by the consultant or vendor is
reached or (b) the date at which the consultant or vendor’s performance is
complete. In the case of equity instruments issued to consultants, the fair
value of the equity instrument is recognized over the term of the consulting
agreement.  In accordance with EITF Issue No. 00-18, an asset acquired
in exchange for the issuance of fully vested, non-forfeitable equity instruments
should not be presented or classified as an offset to equity on the grantor’s
balance sheet once the equity instrument is granted for accounting purposes.
Accordingly, we will record the fair value of the fully vested non-forfeitable
common stock issued for future consulting services as prepaid expenses in the
consolidated balance sheet.


46


We
account for our employee stock-based compensation under the provisions of SFAS
No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No.
123(R)”).  SFAS No. 123(R) requires a public entity to measure the
cost of employee services received in exchange for an award of equity
instruments, including stock options, based on the grant-date fair value of the
award and to recognize it as compensation expense over the period the employee
is required to provide service in exchange for the award, usually the vesting
period. We have also applied the provisions of Staff Accounting Bulletin (“SAB”)
No. 107 relating to SFAS No. 123(R).




SFAS No.
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in our consolidated statements of
operations.




Stock-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period. SFAS No. 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. The forfeiture rate that the Company presently uses
is 0%.




SFAS No.
123(R) requires the cash flows resulting from the tax benefits resulting from
tax deductions in excess of the compensation cost recognized for those options
to be classified as financing cash flows. Due to our loss position, there were
no such tax benefits for the three and nine months ended September 30, 2008 and
2007, respectively.




Revenue
Recognition





We
recognize revenue in accordance with SAB No. 101, “Revenue Recognition in
Financial Statements,” as revised by SAB No. 104.  As such, we
recognize revenue when persuasive evidence of an arrangement exists, title
transfer has occurred, the price is fixed or readily determinable and collection
is probable.




Our
revenues were derived from product sales at Isotec, which primarily consisted of
shipments of security portals.  Revenue from product sales are
recorded when products are shipped.




Revenues
derived from contracts to develop prototypes and provide research, development,
design, testing and evaluation of complex detection and control defense systems
were $59,244 and $222,714 during the three and nine months ended September 30,
2008, respectively. Our research and development contract is cost reimbursement.
Our cost reimbursement research and development contracts require our good faith
performance of a statement of work within overall budgetary constraints, but
with some flexibility as it relates to scheduling and resources, both personnel
and equipment. Revenues for research and development contracts are recognized as
costs are incurred in the proportion that costs incurred bear to estimated final
costs.




Costs and
estimated earnings in excess of billings under government research and
development contracts are accounted for as unbilled revenues on uncompleted
contracts stated at estimated realizable value and expected to be realized in
cash within one year.


47





As of
September 30, 2008 and December 31, 2007, we recorded deferred revenue of
$51,938 and $57,563, respectively, for customer deposits on ordered
products.




We have
contracts with various governments and governmental agencies. Government
contracts are subject to audit by the applicable governmental agency. Such
audits could lead to inquiries from the government regarding the acceptability
of costs under applicable government regulations and potential adjustments of
contract revenues. To date, we have not been involved in any such
audits.




Realizability of Long-Lived
Assets





The third
critical accounting policy relates to realizability of long-lived
assets.  We account for long-lived assets in accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”  SFAS No. 144 requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the historical cost carrying value of an asset may
no longer be appropriate.  We assess recoverability of the carrying
value of an asset by estimating the future net cash flows expected to result
from the asset, including eventual disposition.  If the future net
cash flows are less than the carrying value of the asset, an impairment loss is
recorded equal to the difference between the asset’s carrying value and fair
value or disposable value.  As of June 30, 2008, we do not believe
there has been any impairment of our long-lived assets.  There can be
no assurances, however, that demand for our products and services will continue,
which could result in an impairment of long-lived assets in the
future.





Valuation of Derivative
Financial Instruments





In
accounting for non-conventional convertible debt, we bifurcate our embedded
derivative instruments and records them under the provisions of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as amended, and
EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company’s Own Stock.” Our derivative financial
instruments consist of embedded derivatives related to a non-conventional
debenture entered into with Golden Gate Investors, Inc./La Jolla Cove Investors,
Inc. (“LaJolla Cove”) (see Note 6). These embedded instruments related to the
Debenture include the conversion feature, liquidated damages related to
registration rights and default provisions. The accounting treatment of
derivative financial instruments requires that we record the derivatives and
related warrants at their fair value as of the inception date of the agreement
and at fair value as of each subsequent balance sheet date. Any change in fair
value will be recorded as non-operating, non-cash income or expense at each
reporting period. If the fair value of the derivatives is higher at the
subsequent balance sheet date, we will record a non-operating, non-cash charge.
If the fair value of the derivative is lower at the subsequent balance sheet
date, we will record non-operating, non-cash income.




During
the year ended December 31, 2006, we recorded the initial fair value of the
conversion feature of $1,151,759 of which $876,759 was recorded as interest
expense in the consolidated statement of operations and $275,000 was recorded as
a discount on the debt and is being amortized to interest expense over the life
of the debt. We also recorded the initial fair value of the attached warrants,
related to the debt financing in 2006, of $2,075,694 as a component of interest
expense in the consolidated statements of operations for the year ended December
31, 2006. The initial fair value of the conversion-related derivatives and
warrants were valued primarily using the Black-Scholes pricing model with the
following assumptions: dividend-yield of 0%, annual volatility of 127% and
risk-free interest rate of 4.70% – 4.74%. At December 31, 2007, the fair value
of the conversion feature and the warrants amounted to $1,788,376. At September
30, 2008, the fair value of the La Jolla Cove conversion feature and the
warrants amounted to $577,806. The decrease in the fair value of the La Jolla
Cove conversion features and warrants of $1,210,570 and $593,408 for the nine
months ended September 30, 2008 and September 30, 2007, respectively, are
included as other income (expense) in the accompanying condensed consolidated
statements of operations.


48





As of
December 31, 2007, the derivatives and warrants were valued primarily using the
Black-Scholes pricing model with the following assumptions: dividend yield of
0%, annual volatility of 133.2% – 161.8%, and risk free interest rate of
3.07%-3.45%. The derivatives are classified as long-term liabilities in the
accompanying condensed consolidated balance sheets.




As of
September 30, 2008, the derivatives and warrants were valued primarily using the
Black-Scholes pricing model with the following assumptions: dividend yield of
0%, annual volatility of 167.3% – 270.3%, and risk free interest rate of
1.60%-2.98%. The derivatives are classified as long-term liabilities in the
accompanying condensed consolidated balance sheet.




In
addition, under the provisions of EITF Issue No. 00-19, as a result of entering
into the convertible debt, the Company is required to classify all other
non-employee stock options and warrants as liabilities and mark them to market
at each reporting date. Non-employee stock options and warrants were valued
primarily using the Black-Scholes pricing model with the following assumptions:
dividend yield of 0%, volatility of 138% and risk free interest rate of 4.54%.
At December 31, 2007, the fair value of the non-employee warrant was $267,937.
The decrease in the fair value of non-employee stock options in the amount of
$425,938 since December 31, 2006 is included in other income in the December 31,
2007 consolidated statement of operations.




At
September 30, 2008, the fair value of the non-employee warrants was $73,207. The
decrease in the fair value of non-employee stock options and warrants in the
amount of $194,730 since December 31, 2007 and the decrease of $328,803 since
December 31, 2006 are included in other income (expense) in the accompanying
condensed consolidated statements of operations.





Valuation of Income
Taxes





The fifth
critical accounting policy relates to valuation of income taxes.  We
account for income taxes under the provisions of SFAS No. 109, “Accounting for
Income Taxes.”  Under SFAS No. 109, deferred tax assets and
liabilities are recognized for future tax benefits or consequences attributable
to temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  A
valuation allowance is provided for significant deferred tax assets when it is
more likely than not that such assets will not be realized through future
operations.





ITEM
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





As a
smaller reporting company we are not required to provide the information
required by this Item.


49





ITEM
      4.
            Controls
      and Procedures.





Evaluation
of Disclosure Controls and Procedures





We conducted an evaluation, with the
participation of our President and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended, or the Exchange Act, as of September 30, 2008, to ensure that
information required to be disclosed by us in the reports filed or submitted by
us under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities Exchange Commission's rules
and forms, including to ensure that information required to be disclosed by us
in the reports filed or submitted by us under the Exchange Act is accumulated
and communicated to our management, including our principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.  Based on that evaluation, our President and Chief
Financial Officer have concluded that as of September 30, 2008, our disclosure
controls and procedures were not effective at the reasonable assurance level due
to the material weaknesses described below.





In light of the material weaknesses
described below, we performed additional analysis and other post-closing
procedures to ensure our financial statements were prepared in accordance with
generally accepted accounting principles.  Accordingly, we believe
that the consolidated financial statements included in this report fairly
present, in all material respects, our financial condition, results of
operations and cash flows for the periods presented.





A material weakness is a control
deficiency (within the meaning of the Public Company Accounting Oversight Board
(PCAOB) Auditing Standard No. 5) or combination of control deficiencies, such
that there is a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or
detected.  Management has identified the following two material
weaknesses which have caused management to conclude that, as of September 30,
2008, our disclosure controls and procedures were not effective at the
reasonable assurance level:





1.           We
do not have written documentation of our internal control policies and
procedures.  Written documentation of key internal controls over
financial reporting is a requirement of Section 404 of the Sarbanes-Oxley
Act.  Management evaluated the impact of our failure to have written
documentation of our internal controls and procedures on our assessment of our
disclosure controls and procedures and has concluded that the control deficiency
that resulted represented a material weakness.





2.           To
the extent we do have internal controls and procedures in place, they were not
always followed during the quarter ended September 30, 2008.  During
the quarter ended September 30, 2008, and the subsequent quarter, the president
of our wholly-owned subsidiary, Isotec, and our Board of Directors did not
follow all our internal procedures related to the documentation of financial
information and the transfer of that information from Isotec to the parent
company.  Management evaluated the impact of our failure to follow our
internal procedures regarding the documentation and transfer of financial
information on our assessment of our disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a material
weakness.


50


3.           We
do not have sufficient segregation of duties within accounting functions, which
is a basic internal control.  Due to our size and nature, segregation
of all conflicting duties may not always be possible and may not be economically
feasible.  However, to the extent possible, the initiation of
transactions, the custody of assets and the recording of transactions should be
performed by separate individuals.  Management evaluated the impact of
our failure to have segregation of duties on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that
resulted represented a material weakness.





4.           We
have deficiencies in our corporate governance.  First, we do not have
officers separate from our Directors.  As of September 30, 2008, our
three primary officer positions were filled by members of our Board of
Directors.  As a result, it does not allow our Directors to oversee
our President and Chief Financial Officer in the performance of their
duties.  Second, the shareholder that controls a majority of our
voting securities has independent relationships with our subsidiaries and some
of our third party vendors.  We do not believe these deficiencies in
our corporate governance have had a material impact on our officers’ ability to
perform their required tasks to prepare our financial statements, but we believe
this deficiency results in a material weakness.





To
address these material weaknesses, management performed additional analyses and
other procedures to ensure that the financial statements included herein fairly
present, in all material respects, our financial position, results of operations
and cash flows for the periods presented.





Remediation
of Material Weaknesses




To remediate the material weaknesses in
our disclosure controls and procedures identified above, we have continued to
refine our internal procedures to begin to implement segregation of duties and
to reduce the number of audit adjustments.  We have also taken
measures to ensure that the proper procedures are followed with regard to the
documentation and transfer of financial information from our wholly-owned
subsidiary, Isotec, to us as the parent company.  On November 26, 2008
and December 1, 2008, the individuals who were our officers and directors
resigned from their respective positions.  On December 12, 2008,
Fredrick T. Rogers was appointed by our majority shareholder as our sole officer
and director.  Based on these changes in our management and Board of
Directors, we were not able to continue our efforts to remediate our
deficiencies in our disclosure controls and procedures.   Mr.
Rogers is the president of the general partner of SUTI Holdings, LP, the holder
of a majority of the voting power of our issued and outstanding shares of
capital stock through its ownership of all of our Class B Convertible Preferred
Stock.  Therefore, he has been intimately familiar with our operations
for some time.  However, despite Mr. Rogers familiarity with our
operations, our failure to have a Chief Executive Officer/President and Chief
Financial Officer for a period of time in November and December, 2008, will
likely have a significant negative impact on our disclosure controls and
procedures for the fourth quarter of 2008.





Changes
in Internal Control over Financial Reporting




Except as noted above, there were no
changes in our internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.  However, as noted above, on November 26, 2008 and December
1, 2008, the individuals who were our officers and directors resigned from their
respective positions, leaving us with no officers or directors.  Since
these resignations occurred after the end of our quarter ended September 30,
2008, these are not changes in our internal control over financial reporting
during the quarter ended September 30, 2008.  Even though we were able
to retain other key personnel that assist us with the preparation of our
financial statements, we believe these resignations will have a significant
negative impact on our internal control over financial
reporting.


51




ITEM
      4T.
            Controls
      and Procedures.





At the end of the period covered by
this report, we carried out the above evaluation, under the supervision and with
the participation of our management, including our President and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Securities Exchange Act Rule
13a-14.




Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, based on the above factors, our disclosure controls and
procedures were not effective (1) to provide reasonable assurance that
information required to be disclosed by us in the reports filed or submitted by
us under the Securities Exchange Act were recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and
(2) to provide reasonable assurance that information required to be
disclosed by us in such reports is accumulated and communicated to our
management, including its President and Chief Financial Officer, as appropriate
to allow for timely decisions regarding required disclosure.




MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.  Our internal control over
financial reporting is a process designed under the supervision of our President
and Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our financial
statements for external reporting purposes in accordance with U.S. generally
accepted accounting principles.  Management made a comprehensive
review, evaluation and assessment of our internal control over financial
reporting as of December 31, 2007, and it is included in our Annual Report
on Form 10-KSB filed with the Commission on April 15, 2008.  In making
its assessment of internal control over financial reporting, management used the
criteria issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control−−Integrated Framework.





Other
than the failure of the management of Isotec and some members of our Board of
Directors to follow our internal procedures related to the documentation and
transfer of financial information from Isotec to World Am, there were no changes
to our internal control over financial reporting identified in connection with
the evaluation set forth in our last Annual Report during our fiscal quarter
ended September 30, 2008 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.  We believe we have subsequently remedied the issues
related Isotec.  Additionally, as noted above, on November 26, 2008
and December 1, 2008, the individuals who were our officers and directors
resigned from their respective positions, leaving us with no officers or
directors.  Since these resignations occurred after the end of our
quarter ended September 30, 2008, these are not changes in our internal control
over financial reporting during the quarter ended September 30,
2008.  Even though we were able to retain other key personnel that
assist us with the preparation of our financial statements, we believe these
resignations will have a significant negative impact on our internal control
over financial reporting.


52


PART
II – OTHER INFORMATION
  ITEM
1.                 Legal
Proceedings.
 
 Other
than as set forth below, we are not a party to any material pending legal
proceedings and, to the best of our knowledge, no such action by or against us
has been threatened.
 
 (a)           On
August 2, 2006, a complaint was filed in the District Court of Boulder County,
Colorado: Karen Alexander v.
World Am, Inc., Isotec, Inc., Robert A. Hovee, David J. Barnes, James R. Largent
and Ken Jochim.  The lawsuit was based on an alleged employment
contract between us and a former employee, the wife of our former CEO and
Chairman who is also suing us over his employment contract (see below). 
When this lawsuit was originally filed, there were seven causes of action
involving three additional named defendants, including two of our current
Board members.  By the time of trial, the three additional named defendants
had been dismissed and the only remaining causes of action were breach of
contract, intentional interference with contract, libel and slander, and a
Colorado Wage Act claim.  The libel and slander claim was dismissed during
trial and, at the close of evidence, the former employee demanded $1,000,000 in
damages.   On February 29, 2008, the jury returned a verdict in our
favor, finding that there was no breach of contract or intentional interference
with contract.  The jury did find that we owed plaintiff back
wages, which is a claim we never disputed.  The former employee was
awarded $39,000 for these back wages, a portion of which was a statutory
penalty.  As a result we accrued $39,000 in the 2007 consolidated
financial statements and as of June 30, 2008.  On November 6, 2008,
the Court awarded Ms. Alexander the sum of $141,929 in attorney’s fees.  We
have not decided if we will appeal this ruling and as a result have included the
amount of $141,929 in accounts payable and accrued liabilities in the
accompanying condensed consolidated balance sheets as of September 30,
2008.
 
 (b)           On
September 20, 2006, a complaint was filed in the District Court of Adams County,
Colorado: James H. Alexander
v. World Am, Inc.  The complaint principally alleges that we
breached an employment agreement with the plaintiff by not paying him certain
amounts allegedly owing and seeks damages in the amount of
$714,718.
 
 On June
9, 2008, we entered into a Settlement Agreement (the “Agreement”) with
James H. Alexander (“Alexander”) for the purpose of settling the
above-mentioned pending lawsuit (the “Lawsuit”).  Under the terms of
the Agreement, we agreed to pay Alexander the total sum of $150,000 (“Settlement
Payment”) to be paid as follows:  (i) issuing six (6) convertible
notes to Alexander, one per month for six (6) consecutive months beginning June
9, 2008, with each note in the principal amount of $16,667 and having a six (6)
month maturity date; and (ii) issuing six (6) convertible notes to Denis H.
Mark, one per month for six (6) consecutive months beginning June 9, 2008, with
each note in the principal amount of $8,333 and having a six (6) month maturity
date.  Under the terms of the notes, they are to be converted on their
maturity date at a price per share equal to the market value of our common stock
on the trading day immediately prior to conversion, and if we do not convert
them, or are unable to convert them, then we immediately owe the principal
amount in cash.  The notes are interest-free.
 
 Under the
Agreement, in exchange for the Settlement Payment, Alexander agreed to dismiss
the Lawsuit, with prejudice, and fully release us from any and all claims and
liabilities, known and unknown, that Alexander may have, or has ever had,
against us.
 
 53
  (c)           On
or about November 7, 2007, PR/DNA filed a Complaint for Breach of Contract,
Account Stated and Other Common Counts against World-Am in Superior Court of
California, Los Angeles County, Case No. 07CC11731 to recover $30,108.25,
claiming that timely notice of termination was not given to PR/DNA under the
terms of a written agreement and further claiming that PR/DNA is entitled to
reimbursement of certain costs incurred during the term of the
agreement.
  We filed
an answer to the complaint on or about December 28, 2007 and have commenced
settlement discussions with PR/DNA’s counsel.  This matter is set to
go to trial in late 2008.  We do not believe the outcome of this
lawsuit will be material.
  (d)           On
January 30, 2004, a complaint was filed in the District Court of Adams County,
Colorado: Robert Hainey and
Internet Marketing Solutions, Inc. v. World Am Communications, Inc. and Isotec,
Inc.  The complaint, which has causes of action for breach of
contract and unjust enrichment, alleges that the defendants failed to pay the
plaintiffs for certain consulting and public relations and related work,
reimbursement of certain business expenses incurred on behalf of the defendants,
and to repay a loan made by the plaintiffs to the defendants.  The
complaint sought total monetary damages of approximately $308,000.
 
 On July
27, 2005, the matter was settled.  Under the terms of this settlement,
we were obligated to pay the sum of $116,000 over a period of four years in
semi-annual installments, beginning on October 1, 2005.  The
plaintiffs were obligated to pay us the sum of $2,000 per installment payment to
reimburse it for administrative costs in connection with the payment of such sum
in the form of S-8 stock.  Accordingly, we assumed a settlement
liability of $116,000 on August 31, 2005, with $29,000 recorded as short-term or
amounts due within one year and $87,000 recorded as long-term.
 
 Management
was previously advised by local legal counsel that the settlement was
unenforceable in the State of Colorado because the action dismissed the
plaintiff with prejudice, and cannot be presented in any other
jurisdiction.  In addition, this legal counsel advised that a new
action cannot be re-filed since the relevant statute of limitations on this
matter has expired.  Accordingly, we eliminated the settlement
liability and recorded a settlement gain of $116,000 as of December 31,
2005.
  The
plaintiff subsequently filed a Motion to Reopen Case and Application for Entry
of Judgment against World Am.  On October 29, 2007, the District Court
entered a judgment against us and found that we breached the previous settlement
agreement by not paying any portion of the $116,000.  The Court did
not address the issue that the plaintiff never paid the $2,000 per installment
fee.  On November 9, 2007, we filed a Motion for Reconsideration of
Judgment Entered on October 29, 2007 requesting the judgment for $116,000 be
withdrawn pending the Plaintiff’s request and payment of $2,000 for an
installment; alternatively that said judgment be amended to $50,000 and no
future installment need be made by us until a proper tender of $2,000 is made;
or alternatively, for vacating said judgment pending a hearing to be set on
notice by either party on Plaintiffs motion.
 
 In March
2008, we settled this matter.  Under the terms of the settlement, we
agreed to pay to Robert Haney and Internet Marketing Solutions, Inc., the sum of
$116,000.  Payments will be made as follows: a payment of $6,000 was
made in January 2008, and another payment of $6,000 was made upon execution of
the agreement, March 4, 2008.  Monthly payments in the amount of
$5,000, in stock or cash, began in April 2008 and are due to be paid each month
thereafter until fully paid in April 2010.  We have paid $12,000 in
2008 per the settlement agreement.  .  As of September 30,
2008, the balance owed is $53,000.  In the event that we fail to make
any of the aforementioned payments, we agree to pay Robert Haney and Internet
Marketing Solutions, Inc., a penalty of $1,000 per
occurrence.
  54
  ITEM
1A.              Risk
Factors.
 
 As a
smaller reporting company we are not required to provide the information
required by this Item.
 
 ITEM
2.                 Unregistered
Sales of Equity Securities and Use of Proceeds.
 
 On August
12, 2008, we issued an aggregate of 3,142,857 (adjusted for 1-for-10 reverse
stock split) shares of our common stock to La Jolla Cove Investors, Inc. We
issued 3,141,857 (post-split) of these shares pursuant to a conversion request
submitted to us by La Jolla to convert $1,000 of the outstanding amount due
under that certain 63⁄4% Convertible Debenture dated June 8, 2006.  We
issued the additional 1,000 shares (post-split) pursuant to a mandatory exercise
provision under a Warrant issued with the Convertible
Debenture.  Under the Warrant the exercise price is $10.00 per share
(adjusted to reflect reverse stock split), so we received $10,000 as a result of
this exercise.  The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, and the investor was
accredited.
 
 On
September 12, 2008, we issued an aggregate of 4,044,118 shares (post-split) of
our common stock to La Jolla Cove Investors, Inc. We issued 4,034,118
(post-split) of these shares pursuant to a conversion request submitted to us by
La Jolla to convert $1,000 of the outstanding amount due under that certain 63⁄4%
Convertible Debenture dated June 8, 2006.  We issued the additional
10,000 shares pursuant to a mandatory exercise provision under a Warrant issued
with the Convertible Debenture.  Under the Warrant the exercise price
is $1.00 per share, so we received $10,000 as a result of this
exercise.  The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, and the investor was
accredited.
 
 ITEM
3.                 Defaults
Upon Senior Securities.
 
 There
have been no events required to be reported under this Item.
 
 ITEM
4.                 Submission
of Matters to a Vote of Security Holders.
 
 There
have been no events required to be reported under this Item.
 
 ITEM
5.                 Other
Information.
 
 Stock Option Plan and
Reverse Stock  Split
 
 On July
10, 2008, our Board of Directors approved the 2008 Non-Qualified Company Stock
Grant and Option Plan (the “Plan”).  The number of shares that could
be granted under the Plan, or subject to outstanding options granted under the
Plan, was 120,000,000 (pre-split) shares of our common stock.  On
August 1, 2008 we filed a Registration Statement on Form S-8 registering all the
shares under the Plan.
  55
  Effective
September 12, 2008, our amended and restated Articles of Incorporation went
effective with the State of Nevada.  We amended and restated our
Articles of Incorporation for the primary purpose of effectuating a 1-for-10
reverse stock split of our outstanding common stock.  Pursuant to this
stock split our ticker symbol changed to “WOAM,” effective September 12,
2008.
 
 As a
result of the 1-for-10 reverse stock split, the number of shares that could be
issued under the Plan was reduced to 12,000,000 shares.  On September
12, 2008, our Board of Directors approved the first amendment to the Plan for
the purpose of increasing the number of shares of our common stock that can be
issued under the Plan from 12,000,000 back up to 120,000,000.  On
September 17, 2008, we filed Post-Effective Amendment No. 1 to our Form S-8 for
the purpose of registering the additional 108,000,000 shares under the
Plan.
 
 Change in
Management
 
 Effective
on November 6, 2008, the holder of all of our Class B Convertible Preferred
Stock, appointed Robert A. Hovee and Malcolm Lennie to the Board of
Directors.  These appointments brought our Board of Directors to five
members.  On November 26, 2008, Mr. Hovee and Mr. Lennie resigned from
our Board of Directors.
 
 On
December 1, 2008, C. Robert Kline, James R. Largent and David J. Barnes resigned
from their positions as directors and officers.  All of their
resignations were effective immediately.  None of the resigning
directors held any positions on any committee of our Board of Directors at the
time of his resignation.
 
 Mr. Kline, Mr. Largent, and Mr. Barnes
furnished us with letters of resignation wherein they discussed disagreements
with SUTI Holdings, LP, our majority shareholder, regarding its level of control
and influence over our Board of Directors and our operations, policies and
practices, which disagreements ultimately led to their
resignations.
 
 These resignations left us without any
officers and directors until SUTI Holdings, LP hired and appointed Fredrick T.
Rogers as our sole officer and director, respectively.  Mr. Rogers is
the president of the general partner of SUTI Holdings, L.P., the holder of a
majority of the voting power of our issued and outstanding shares of capital
stock through its ownership of all of our Class B Convertible Preferred
Stock.  We are currently looking to hire and appoint additional
officers and directors.
 
 ITEM
6.                 Exhibits.
 (a)           Exhibits
  2.1
                          Agreement
      and Plan of Merger between the Company and Allmon Corporation, dated May
      11, 2000 (incorporated by reference to Exhibit 2.1 of the Form 8-K12g-3
      filed on May 16, 2000).2.2
                          Stock
      Purchase Agreement between the Company, Isotec, Incorporated, and selling
      shareholders, dated February 22, 2000 (incorporated by reference to
      Exhibit 2.2 of the Form 10-QSB filed on May 21, 2001).2.3
                          Share
      Exchange Agreement between the Company and World Am Security Venture
      Company, Ltd., dated May 18, 2004 (incorporated by reference to Exhibit 2
      of the Form 8-K filed on May 26,
2004).
 
 56
 
 3.1
                    Articles
      of Incorporation, dated July 5, 2002 (incorporated by reference to Exhibit
      3.1 of the Form 10-QSB/A filed on February 5, 2004).3.2
                    Certificate
      of Amendment to Articles of Incorporation, dated August 20, 2002
      (incorporated by reference to Exhibit 3.2 of the Form 10-QSB/A filed on
      February 5, 2004).3.3
                    Certificate
      of Amendment to Articles of Incorporation, dated December 20, 2002
      (incorporated by reference to Exhibit 3.3 of the Form 10-QSB/A filed on
      February 5, 2004).3.4
                    Certificate
      of Amendment to Articles of Incorporation, dated August 2, 2004
      (incorporated by reference to Exhibit 3.4 of the Form 10-QSB filed on
      August 20, 2004).3.5
                    Certificate
      of Amendment of Articles of Incorporation, dated November 8, 2004
      (incorporated by reference to Exhibit 3.1 of the Form 8-K filed on
      November 16, 2004).3.6
                    Certificate
      of Amendment of Articles of Incorporation, dated December 1, 2004
      (incorporated by reference to Exhibit 3.2 of the Form 8-K filed on
      November 16, 2004).3.7
                    Amended
      and Restated Articles of Incorporation filed August 18, 2008, effective
      September 12, 2008 (filed herewith)3.8
                    Bylaws,
      dated August, 2000 (incorporated by reference to Exhibit 3.2 of the Form
      8-K12g-3 filed on May 16, 2000).4.1
                    Employee
      Stock Incentive Plan, dated January 22, 2001 (incorporated by reference to
      Exhibit 4.1 of the Form S-8 filed on January 29, 2001).4.2
                    Non-Employee
      Directors and Consultants Retainer Stock Plan, dated January 5,
      2001   (incorporated by reference to Exhibit 4.2 of the
      Form S-8 filed on January 29, 2001).4.3
                    Common
      Stock Purchase Agreement between us and Four Way Associates, Inc., dated
      June 1, 2001 (incorporated by reference to Exhibit 4.3 of the Form SB-2
      filed on August 28, 2001).4.4
                    Amended
      and Restated Employee Stock Incentive Plan, dated November 20, 2001
      (incorporated by reference to Exhibit 4.1 of the Form S-8 POS filed on
      January 31, 2002).4.5
                    Amended
      and Restated Non-Employee Directors and Consultants Retainer Stock Plan,
      dated November 20, 2001 (incorporated by reference to Exhibit 4.2 of the
      Form S-8 POS filed on January 31, 2002).4.6
                    2002
      Non-Employee Directors and Consultants Retainer Stock Plan, dated
      September 12, 2002 (incorporated by reference to Exhibit 4 of the Form S-8
      filed on September 18,
2002).
 
 57
 
 4.7
                  2002
      Stock Compensation Plan, dated December 16, 2002 (incorporated by
      reference to Exhibit 4 of the Form S-8 filed on December 23,
      2002).4.8
                  2003
      Consultants Stock Compensation Plan dated August 19, 2003 (incorporated by
      reference to Exhibit 4 of the Form S-8 filed on August 22,
      2003).4.9
                  2003
      Non-Qualified Stock Option Plan, dated September 29, 2003 (incorporated by
      reference to Exhibit 4 of the Form S-8 filed on October 1,
      2003).4.10
                  Amended
      and Restated Non-Employee Directors and Consultants Retainer Stock Plan
      (Amendment No. 2), dated February 10, 2004 (incorporated by reference to
      Exhibit 4 of the Form S-8 POS filed on February 13,
  2004).4.11
                  Amended
      and Restated Non-Employee Directors and Consultants Retainer Stock Plan
      (Amendment No. 3), dated June 1, 2004 (incorporated by reference to
      Exhibit 4 of the Form S-8 POS filed on June 10, 2004).4.12
                  Amended
      and Restated Employee Stock Incentive Plan (Amendment No. 2), dated July
      15, 2004   (incorporated by reference to Exhibit 4 of the
      Form S-8 POS filed on August 6, 2004).4.13
                  Amended
      and Restated Non-Employee Directors and Consultants Retainer Stock Plan
      (Amendment No. 4), dated October 12, 2004 (incorporated by reference to
      Exhibit 4 of the Form S-8 POS filed on October 19,
  2004).4.14
                  Amended
      and Restated Non-Employee Directors and Consultants Retainer Stock Plan
      (Amendment No. 5), dated December 1, 2004 (incorporated by reference to
      Exhibit 4 of the Form S-8 POS filed on December 13,
  2004).4.15
                  Amended
      and Restated Employee Stock Incentive Plan (Amendment No. 3), dated
      October 17, 2005 (incorporated by reference to Exhibit 4 of the Form S-8
      POS filed on December 6, 2005).4.16
                  Amended
      and Restated Non-Employee Directors and Consultants Retainer Stock Plan
      (Amendment No. 6), dated December 22, 2005 (incorporated by reference to
      Exhibit 4 of the Form S-8 POS filed on January 6,
2006).4.17
                  Securities
      Purchase Agreement between the Company and Golden Gate Investors, Inc.,
      dated January 23, 2006 (incorporated by reference to Exhibit 4.1 of the
      Form 8-K filed on February 10, 2006).4.18
                  63⁄4%
      Convertible Debenture issued to Golden Gate Investors, Inc., dated January
      23, 2006 (incorporated by reference to Exhibit 4.2 of the Form 8-K filed
      on February 10, 2006).4.19
                  Warrant
      to Purchase Common Stock (due January 6, 2009) issued to Golden Gate
      Investors, Inc., dated January 23, 2006 (incorporated by reference to
      Exhibit 4.3 of the Form 8-K filed on February 10,
  2006).
 
 58
 
 4.20
                    Warrant
      to Purchase Common Stock (due January 6, 2011) issued to Golden Gate
      Investors, Inc., dated January 23, 2006 (incorporated by reference to
      Exhibit 4.4 of the Form 8-K filed on February 10,
2006).4.21
                    Registration
      Rights Agreement between the Company and Golden Gate Investors, Inc.,
      dated January 23, 2006 (incorporated by reference to Exhibit 4.5 of the
      Form 8-K filed on February 10, 2006).4.22
                    Addendum
      to Convertible Debenture and Warrant To Purchase Common Stock, dated
      February 7, 2006 (incorporated by reference to Exhibit 4.6 of the Form 8-K
      filed on February 10, 2006).4.23
                    Amended
      and Restated Employee Stock Incentive Plan (Amendment No. 4), dated
      February 7, 2006 incorporated by reference to Exhibit 4 of the Form S-8
      POS filed on February 14, 2006).4.24
                    Cancellation
      Letter between the Company and Golden Gate Investors, Inc., dated June 14,
      2006 (incorporated by reference to Exhibit 4.7 of the Form 8-K/A filed on
      June 27, 2006).4.25
                    Securities
      Purchase Agreement between the Company and La Jolla Cove Investors, Inc.,
      dated June 19, 2006 (incorporated by reference to Exhibit 4.8 of the Form
      8-K/A filed on June 27, 2006).4.26
                    63⁄4%
      Convertible Debenture issued to La Jolla Cove Investors, Inc., dated June
      19, 2006 (incorporated by reference to Exhibit 4.9 of the Form 8-K/A filed
      on June 27, 2006).4.27
                    Warrant
      to Purchase Common Stock (due June 19, 2009) issued to La Jolla Cove
      Investors, Inc., dated June 19, 2006 (incorporated by reference to Exhibit
      4.10 of the Form 8-K/A filed on June 27, 2006).4.28
                    Warrant
      to Purchase Common Stock (due June 19, 2011) issued to La Jolla Cove
      Investors, Inc., dated June 19, 2006 (incorporated by reference to Exhibit
      4.11 of the Form 8-K/A filed on June 27, 2006).4.29
                    Registration
      Rights Agreement between the Company and La Jolla Cove Investors, Inc.,
      dated June 19, 2006 (incorporated by reference to Exhibit 4.12 of the Form
      8-K/A filed on June 27, 2006).4.30
                    Additional
      Transaction Letter between the Company and La Jolla Cove Investors, Inc.,
      dated June 22, 2006 (incorporated by reference to Exhibit 4.13 of the Form
      8-K/A filed on June 27, 2006).4.31
                    2007
      World Am, Inc. Stock Option Plan, dated January 2, 2007 (incorporated by
      reference to Exhibit 4.31 of the Form 10-KSB filed on April 15,
      2008).
 
 59
 
 4.32
                  Certificate
      of Designation of Series B Convertible Preferred Stock of World Am, Inc.,
      filed on August 16, 2005 (incorporated by reference to Exhibit 10.1 of the
      Form 8-K/A filed on September 7, 2005).4.33
                  World
      Am, Inc. 2008 Non-Qualified Company Stock Grant and Option Plan (the
      “Plan”) (incorporated by reference to Exhibit 4.33 of the Registration
      Statement on Form S-8 filed on August 1, 2008)4.34
                  Form
      of Non Statutory Stock Option Agreement relating to options granted under
      the Plan (incorporated by reference to Exhibit 4.34 of the Registration
      Statement on Form S-8 filed on August 1, 2008)4.35
                  Form
      of Common Stock Purchase Agreement relating to stock granted under the
      Plan (incorporated by reference to Exhibit 4.35 of the Registration
      Statement on Form S-8 filed on August 1, 2008)4.36
                  First
      Amendment to World Am, Inc. 2008 Non-Qualified Company Stock Grant and
      Option Plan (incorporated by reference to Exhibit 4.36 of the Form S-8 POS
      filed on September 17, 2008)10.1
                  Employment
      Agreement between the Company and James Alexander, dated February 20, 2002
      (incorporated by reference to Exhibit 10.4 of the Form 10-QSB filed on May
      14, 2002).10.2
                  Amendment
      A to Employment Agreement between the Company and James Alexander, dated
      as of February 20, 2002 (incorporated by reference to Exhibit 10.1 of the
      Form 10-KSB filed on April 11, 2003).10.3
                  Amendment
      B to Employment Agreement between the Company and James Alexander, dated
      January 15, 2004 (incorporated by reference to Exhibit 10.3 of the Form
      10-KSB filed on April 20, 2004).10.4
                  Share
      Exchange Agreement between the Company, on the one hand, and Senz-It, Inc.
      and the stockholder of Senz-It, on the other hand, dated June 10, 2005
      (including the following: Exhibit A: Shares to be Issued; Exhibit B:
      Warrant; Exhibit C Series B Preferred Stock Certificate of Designation;
      and Exhibit I: Funding Schedule) (not including the following: Exhibit D:
      World Am, Inc. Officer’s Certificate; Exhibit E: Senz It, Inc. Officer’s
      Certificate; Exhibit F: Senz It Financial Statements; Exhibit G: Senz It
      Contracts; Exhibit H: World Am Contracts; Exhibit J: Form 8-K; Exhibit K:
      Press Release; Schedule 5.7: Taxes; and Schedule 5.9: Legal Proceedings)
      (incorporated by reference to Exhibit 10.1 of the Form 8-K/A filed on
      September 7, 2005).10.5
                  Promissory
      Note issued by the Company in favor of Torrey Peaks Ventures, dated June
      13, 2005 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed
      on March 21, 2006).
 
 60
 
 10.6
                  Amendment
      “A” to Promissory Note, dated July 14, 2005 (incorporated by reference to
      Exhibit 10.2 of the Form 8-K filed on March 21, 2006).10.7
                  First
      Amendment to Share Exchange Agreement between the Company, on the one
      hand, and Senz-It, Inc. and the stockholder of Senz-It, on the other hand,
      dated August 31, 2005 (incorporated by reference to Exhibit 10.2 of the
      Form 8-K/A filed on September 7, 2005).10.9
                  Venture
      Acceleration Agreement between Senz-It, Inc. and Select University
      Technologies, Inc., dated June 20, 2005 (incorporated by reference to
      Exhibit 10.4 of the Form 8-K/A filed on November 28,
  2005).10.10
                  Demand
      Promissory Note issued by the Company in favor of SUTI Holdings, LP, dated
      May 18, 2006 (incorporated by reference to Exhibit 10.10 of the Form
      10-KSB filed on April 2, 2007).10.11
                  $75,000
      Factoring Agreement between the Company and JJ Ellis, LLC, dated April 25,
      2005, and attached warrant (incorporated by reference to Exhibit 10.11 of
      the Form 10-KSB filed on April 2, 2007).10.12
                  Addendum
      to Factoring Agreement, dated August 8, 2005 (incorporated by reference to
      Exhibit 10.12 of the Form 10-KSB filed on April 2,
  2007).10.13
                  Consulting
      Agreement between the Company and Robert Hovee, dated February 21, 2007
      (incorporated by reference to Exhibit 10.13 of the Form 10-KSB filed on
      April 2, 2007).10.14
                  Consulting
      Agreement between the Company and Robert Hovee, dated February 19, 2008
      (incorporated by reference to Exhibit 10.14 of the Form 10-KSB filed on
      April 15, 2008).10.15*
                  Cost
      Reimbursement Subcontract dated November 1, 2007 (incorporated by
      reference to Exhibit 10.1 of the Form 8-K filed on December 12,
      2007).10.16
                  Settlement
      Agreement with James H. Alexander dated June 9, 2008 (incorporated by
      reference to Exhibit 10.1 of the Form 8-K filed on June 11,
      2008).10.17
                  Form
      of Promissory Note for Settlement Agreement with James H. Alexander dated
      June 9, 2008 (incorporated by reference to Exhibit 10.2 of the Form 8-K
      filed on June 11, 2008).14
                  Code
      of Business Conduct and Ethics, adopted by the Company’s board of
      directors (incorporated by reference to Exhibit 14 of the Form 10-KSB
      filed on April 20, 2004).16.1
                  Letter
      on Change in Certifying Accountant (incorporated by reference to Exhibit
      16 of the Form 8-K/A filed on August 3,
2006).
 
 61
 
 21
                  Subsidiaries
      of the Company (incorporated by reference to Exhibit 21 of the Form
      10-KSB/A filed on June 30, 2006).31.1
                  Rule
      13a-14(a)/15d-14(a) Certification of Fredrick T. Rogers (filed
      herewith).31.2
                  Rule
      13a-14(a)/15d-14(a) Certification of Fredrick T. Rogers (filed
      herewith).32.1
                  Section
      1350 Certification of Fredrick T. Rogers (filed
  herewith).32.2
                  Section
      1350 Certification of Fredrick T. Rogers (filed
  herewith).99.1
                  Confirmation
      of Provisional Patent Application, dated September 2, 2004 (incorporated
      by reference to Exhibit 99.3 of the Form 10-KSB filed on April 21,
      2005).99.2
                  Confirmation
      of Provisional Patent Application, dated September 2, 2004 (incorporated
      by reference to Exhibit 99.4 of the Form 10-KSB filed on April 21,
      2005).
  *
                    Portions of
      the exhibit have been omitted pursuant to a request for confidential
      treatment filed with the
  Commission.
 
 62
 
 SIGNATURES
 
 In accordance with the requirements of
the Exchange Act, the registrant caused this amended report to be signed on its
behalf by the undersigned, thereunto duly authorized.
 
 World
      Am, Inc.Dated: 
      December 18, 2008
                  /s/ Fredrick T.
      RogersBy:          Fredrick
      T. RogersIts:           President
      and Director
 
 63