<PAGE>   1
                                                                             


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                    [X] Quarterly report pursuant to Section
                          13 or 15(d) of THE SECURITIES
                              EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

       [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT

                         Commission file number 2-31876

                                   WORLDS INC.
        (Exact name of small business issuer as specified in its charter)

                                   NEW JERSEY
                         (STATE OR OTHER JURISDICTION OF
                         INCORPORATION OR ORGANIZATION)

                                   13-3768554
                        (IRS EMPLOYER IDENTIFICATION NO.)

                   15 UNION WHARF, BOSTON, MASSACHUSETTS 02109
               (Address of principal executive offices)(Zip Code)


                                 (617) 725-8900
                           (Issuer's telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days. 
Yes [X] No [ ]

The number of shares of Common Stock outstanding was 16,149,996 shares as of 
May 14, 1998

Transitional Small Business Disclosure Format:    Yes  [  ]   No [X]



                                                        
<PAGE>   2
                                                                            

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS.




                                                                            



                                              WORLDS INC.
                         (A DEVELOPMENT STAGE ENTERPRISE)



























                                                           FINANCIAL STATEMENTS
                                          PERIOD FROM APRIL 8, 1997 (INCEPTION)
                                                              TO MARCH 31, 1998





<PAGE>   3






























                                                        WORLDS INC.
                                   (A DEVELOPMENT STAGE ENTERPRISE)

























===============================================================================
                                                            FINANCIAL STATEMENTS
                                           PERIOD FROM APRIL 8, 1997 (INCEPTION)
                                                               TO MARCH 31, 1998




                                      F-1

<PAGE>   4



                                                                 WORLDS INC.
                                            (A DEVELOPMENT STAGE ENTERPRISE)

                                                                    CONTENTS







WORLDS INC. (THE "COMPANY")

FINANCIAL STATEMENTS (UNAUDITED):                      
   Balance sheets                                                    F-3
   Statements of operations                                          F-4
   Statement of stockholders' deficit                                F-5
   Statements of cash flows                                          F-6
   Summary of accounting policies                             F-7 - F-10
   Notes to financial statements                             F-11 - F-14


WORLDS INC. ("PREDECESSOR")
 [Predecessor company - information prior 
  to date of merger with the Company
  herein disclosed]:

FINANCIAL STATEMENTS (UNAUDITED):
   Statements of operations                                         F-17
   Statements of cash flows                                         F-18
   Summary of accounting policies                            F-19 - F-21
   Notes to financial statements                             F-22 - F-23


                                      F-2

<PAGE>   5
<TABLE>
<CAPTION>



                                                                                                       WORLDS INC.
                                                                                  (A DEVELOPMENT STAGE ENTERPRISE)

                                                                                                    BALANCE SHEETS



                                                                                       December 31, 1997           March 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    (Unaudited)
<S>                                                                                          <C>                      <C>
ASSETS
CURRENT:
   Cash and cash equivalents                                                                 $3,541,829               $2,821,472   
   Trade receivables, less allowance for doubtful accounts of
      $140,318 and $140,318                                                                         538                        -
   Prepaid expenses and other current assets                                                     74,175                   47,438
------------------------------------------------------------------------------------------------------------------------------------
           TOTAL CURRENT ASSETS                                                               3,616,542                2,868,910
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION AND
   AMORTIZATION                                                                                 209,452                  155,411
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             $3,825,994               $3,024,321    
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
   Accounts payable                                                                          $  568,707               $  203,429   
   Accrued expenses                                                                             592,250                  759,350
   Advanced customer billings and deferred revenue                                              436,140                  436,140
   Current maturities of notes payable                                                          269,333                  291,886
------------------------------------------------------------------------------------------------------------------------------------
           TOTAL CURRENT LIABILITIES                                                          1,866,430                1,690,805
LONG-TERM PORTION, NOTES PAYABLE                                                              1,968,333                1,937,500
------------------------------------------------------------------------------------------------------------------------------------
           TOTAL LIABILITIES                                                                  3,834,763                3,628,305
------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT (NOTES 2 AND 3):
   Common stock, $.001 par value - shares authorized
      30,000,000; outstanding 16,119,996 and 16,149,996                                          16,120                   16,150
   Additional paid-in capital                                                                 6,661,582                6,688,052
   Deficit accumulated during the development stage                                          (6,686,471)              (7,308,186)
------------------------------------------------------------------------------------------------------------------------------------
           TOTAL STOCKHOLDERS' DEFICIT                                                           (8,769)                (603,984)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             $3,825,994               $3,024,321   
------------------------------------------------------------------------------------------------------------------------------------

                                                                                 See accompanying summary of accounting policies
                                                                                              and notes to financial statements.

                                                          
</TABLE>
                                       F-3
<PAGE>   6
<TABLE>
<CAPTION>



                                                                                                       WORLDS INC.
                                                                                  (A DEVELOPMENT STAGE ENTERPRISE)

                                                                              STATEMENTS OF OPERATIONS (UNAUDITED)


                                                                                                                   
                                                                                                                Cumulative, period
                                                                                   Three months ended           from inception to
                                                                                     March 31, 1998             March 31, 1998 (a)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                          <C>         
NET REVENUES                                                                             $      4,002                 $      5,422
COSTS AND EXPENSES:
   Cost of revenues                                                                            (2,601)                      (2,601)
   Selling, general and administrative                                                       (548,340)                  (1,223,370)
   Research and development                                                                  (231,912)                    (231,912)
   Acquired research and development                                                                 -                  (6,135,538)
------------------------------------------------------------------------------------------------------------------------------------
        OPERATING LOSS                                                                       (778,851)                  (7,587,999)
OTHER INCOME (EXPENSES):
   Interest income                                                                              41,938                       55,531
   Interest expense                                                                           (36,456)                     (53,148)
------------------------------------------------------------------------------------------------------------------------------------
        LOSS BEFORE EXTRAORDINARY ITEM                                                       (773,369)                  (7,585,616)
EXTRAORDINARY ITEM - GAIN ON DEBT SETTLEMENT                                                  151,654                      277,430
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS                                                                                                               $(7,308,186)
------------------------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE (BASIC AND DILUTED):
   Loss before extraordinary item                                                        $        (.05)
   Extraordinary item                                                                              .01
-----------------------------------------------------------------------------------------------------------
        NET LOSS PER SHARE (BASIC AND DILUTED)                                           $        (.04)
-----------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
   Basic and diluted                                                                        16,149,996
------------------------------------------------------------------------------------------------------------------------------------

--------------

(a)   Includes the results of Predecessor and Academic (from December 4, 1997)
      which were merged into the Company on December 3, 1997.
------------------------------------------------------------------------------------------------------------------------------------

                                                                                 See accompanying summary of accounting policies
                                                                                              and notes to financial statements.
</TABLE>

                                       F-4

<PAGE>   7
<TABLE>
<CAPTION>



                                                                                                        WORLDS INC.
                                                                                   (A DEVELOPMENT STAGE ENTERPRISE)

                                                                                 STATEMENT OF STOCKHOLDERS' DEFICIT



Period from April 8, 1997 (inception) to March 31, 1998
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Deficit
                                                                                                  accumulated
                                                      Common Stock                                 during the       Total
                                            -------------------------------       Additional      development   stockholders'
                                               Shares              Amount      paid-in capital       stage         deficit
-------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>           <C>              <C>            <C>           
Issuance of common stock to                                                                                                        
   founding stockholders                      8,400,000          $  8,400      $   195,600      $          -   $     204,000      
Sale of shares in private offering
   memorandum and shares
   issued to placement agent
   (Note 3)                                   4,810,000             4,810        3,689,866                 -       3,694,676
Issuance of shares to Academic
   Computer Systems, Inc.
   (Note 2)                                     910,000               910          557,116                 -         558,026
Issuance of shares pursuant to
   merger with Predecessor
   (Note 2)                                   1,999,996             2,000        1,998,000                 -       2,000,000
Capital contribution resulting
   from forgiveness of debt to
   shareholders of Predecessor                        -                 -          221,000                 -         221,000
Net loss for the period April 8 to
   December 31, 1997                                  -                 -                -       (6,686,471)     (6,686,471)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997                   16,119,996            16,120        6,661,582       (6,686,471)         (8,769)
Additional sale of shares in
   private offering memorandum
   (January 1998)                                30,000                30           26,470                 -          26,500
Net loss for the three months
   ended March 31, 1998
   (unaudited)                                        -                 -                -         (621,715)       (621,715)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998                                                                                                            
   (UNAUDITED)                               16,149,996           $16,150       $6,688,052      $(7,308,186)      $(603,984)
-------------------------------------------------------------------------------------------------------------------------------

                                                                                 See accompanying summary of accounting policies
                                                                                              and notes to financial statements.

</TABLE>

                                       F-5

<PAGE>   8
<TABLE>
<CAPTION>



                                                                                                       WORLDS INC.
                                                                                  (A DEVELOPMENT STAGE ENTERPRISE)

                                                                              STATEMENTS OF CASH FLOWS (UNAUDITED)


                                                                                                                   

                                                                                                                Cumulative, period
                                                                                   Three months ended           from inception to
                                                                                     March 31, 1998             March 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                      <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                                 $  (621,715)             $(7,308,186)  
   Adjustments to reconcile net loss to net cash used in operating
      activities:
        Depreciation and amortization                                                            54,041                   70,364
        Gain on debt settlement                                                                (151,654)                (277,430)
        Acquired research and development                                                             -                6,135,538
        Changes in operating assets and liabilities, net of effects from merger
           with Predecessor and Academic:
              Trade receivables                                                                     538                        -
              Prepaid expenses and other assets                                                  26,737                  120,453
              Accounts payable and accrued expenses                                             (46,524)                 167,837
------------------------------------------------------------------------------------------------------------------------------------
                NET CASH USED IN OPERATING ACTIVITIES                                          (738,577)              (1,091,424)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock to founding stockholders                                        -                  204,000
   Proceeds from sale of common stock in private offering
      memorandum                                                                                 26,500                3,721,176
   Payments on note payable                                                                      (8,280)                 (12,280)
------------------------------------------------------------------------------------------------------------------------------------
                NET CASH PROVIDED BY FINANCING ACTIVITIES                                        18,220                3,912,896
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                          (720,357)                2,821,472
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                3,541,829                        -
------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     $2,821,472              $ 2,821,472
------------------------------------------------------------------------------------------------------------------------------------

                                                                                 See accompanying summary of accounting policies
                                                                                              and notes to financial statements.

</TABLE>

                                       F-6

<PAGE>   9







                                                                     WORLDS INC.
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                  SUMMARY OF ACCOUNTING POLICIES

--------------------------------------------------------------------------------


DEFINITIONS                             The Company is the resulting entity of 
                                        two contemporaneous mergers  
                                        (the "Mergers") of Worlds Inc., a 
                                        Delaware corporation ("Predecessor"), 
                                        with and into Worlds Acquisition Corp., 
                                        a Delaware corporation ("WAC"), and WAC 
                                        with and into Academic Computer Systems,
                                        Inc., a New Jersey corporation 
                                        ("Academic"), which changed its name to 
                                        Worlds Inc. (see Note 2). While Academic
                                        was the legal entity that survived the 
                                        mergers, WAC was the accounting acquiror
                                        in both mergers. The Company's fiscal 
                                        year-end is December 31.

                                        The term the "Company," as used herein,
                                        refers to the consolidated entity
                                        resulting from the two contemporaneous
                                        mergers, as well the pre-merger
                                        Predecessor, WAC and Academic; however,
                                        Predecessor, WAC and Academic are
                                        hereinafter sometimes referred to
                                        separately as the context requires.



NATURE OF BUSINESS                      WAC was incorporated on
                                        April 8, 1997 to design, develop and
                                        market three-dimensional ("3D") music
                                        oriented Internet sites on the World
                                        Wide Web. These web sites are
                                        anticipated to utilize 3D technologies
                                        developed by Predecessor.



BASIS OF PRESENTATION                   The accompanying  financial statements 
                                        are unaudited; however,  in the opinion 
                                        of  management,  all  adjustments  
                                        necessary for a fair statement  of 
                                        financial  position  and results for the
                                        stated  periods have been included.   
                                        These  adjustments  are  of  a  normal  
                                        recurring  nature.  Selected information
                                        and footnote  disclosures  normally 
                                        included in financial statements 
                                        prepared in accordance with generally 
                                        accepted  accounting  principles have 
                                        been condensed or omitted. Results for 
                                        interim periods are not necessarily 
                                        indicative of the results to be expected
                                        for an entire  fiscal year.  It is 
                                        suggested  that these  condensed 
                                        financial  statements be read in 
                                        conjunction  with the audited financial 
                                        statements and accompanying  notes for 
                                        the Company for the year ended December 
                                        31, 1997 and for the Predecessor for the
                                        period ended December 3, 1997.

                                        The financial statements include the
                                        results of Predecessor and Academic from
                                        December 4, 1997, the date of the
                                        Mergers (the "Merger Date").


                                       F-7

<PAGE>   10



                                                                     WORLDS INC.
                                                 (A DEVELOPMENT STAGE ENTERPRISE

                                                  SUMMARY OF ACCOUNTING POLICIES

-------------------------------------------------------------------------------

                                        The financial statements have been
                                        prepared in accordance with the
                                        provisions of Statement of Financial
                                        Accounting Standards ("SFAS") No. 7,
                                        "Accounting, and Reporting by
                                        Development Stage Enterprises," which
                                        requires development stage enterprises
                                        to employ the same accounting principles
                                        as operating companies.



FAIR VALUE OF FINANCIAL                 The carrying amounts of financial 
INSTRUMENTS                             instruments, including cash and 
                                        short-term debt, approximated fair value
                                        as of March 31, 1998 because
                                        of the relatively short maturity of the
                                        instruments. The carrying value of
                                        long-term debt, including the current
                                        portion, approximates fair value as of
                                        March 31, 1998, based upon estimates for
                                        similar debt issues.



USE OF ESTIMATES                        The preparation of financial statements 
                                        in conformity with generally accepted 
                                        accounting principles requires 
                                        management to make estimates and 
                                        assumptions that affect the reported 
                                        amounts of assets and liabilities and 
                                        disclosures of contingent assets and 
                                        liabilities at the date of the financial
                                        statements and the reported amounts of 
                                        revenues and expenses during the 
                                        reporting period. Actual results could 
                                        differ from these estimates.



CASH AND CASH EQUIVALENTS               Cash and cash equivalents are comprised 
                                        of highly liquid money market 
                                        instruments, which have original 
                                        maturities of three months or less at 
                                        the time of purchase.



PROPERTY AND EQUIPMENT                  Property and equipment are
                                        stated at cost. Depreciation is
                                        calculated using the straight-line
                                        method over the estimated useful lives
                                        of the assets, which range from two to
                                        five years.



REVENUE RECOGNITION                     Revenue from technology
                                        development and licensing contracts is
                                        recognized upon the attainment of
                                        contractual milestones (approximating
                                        the percentage-of-completion method).
                                        Cash received in advance of revenues
                                        earned is recorded as deferred revenue.




                                       F-8

<PAGE>   11



                                                                     WORLDS INC.
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                  SUMMARY OF ACCOUNTING POLICIES


-------------------------------------------------------------------------------


SOFTWARE DEVELOPMENT                    Software development costs are charged 
COSTS                                   to expense when incurred until the
                                        technological feasibility of the product
                                        has been established. After
                                        technological feasibility has been
                                        established, any additional costs would
                                        be capitalizable in accordance with the
                                        Financial Accounting Standards Board's
                                        ("FASB") SFAS No. 86 ("SFAS No. 86"). No
                                        such costs have been capitalized to
                                        date.



RESEARCH AND DEVELOPMENT                Research and development costs are 
COSTS                                   expensed as incurred.



INCOME TAXES                            The Company uses the
                                        liability method of accounting for
                                        income taxes in accordance with SFAS No.
                                        109, "Accounting for Income Taxes."
                                        Deferred income tax assets and
                                        liabilities are recognized based on the
                                        temporary differences between the
                                        financial statement and income tax bases
                                        of assets, liabilities and carryforwards
                                        using enacted tax rates. Valuation
                                        allowances are established, when
                                        necessary, to reduce deferred tax assets
                                        to the amount expected to be realized.



LOSS PER SHARE                          In 1997, the FASB's SFAS No. 128,
                                        "Earnings per Share," replaced the
                                        calculation of primary and fully diluted
                                        earnings (loss) per share with basic and
                                        diluted earnings (loss) per share.
                                        Unlike primary earnings per share, basic
                                        earnings per share excludes any dilutive
                                        effects of options, warrants and
                                        convertible securities. Diluted earnings
                                        per share is very similar to the
                                        previously reported fully diluted
                                        earnings per share. The loss per share
                                        amounts have been presented to conform
                                        to SFAS No. 128 requirements. The common
                                        stock equivalents which would arise from
                                        the exercise of stock options and
                                        warrants are excluded from calculation
                                        of diluted loss per share since their
                                        effect is anti-dilutive. Therefore, the
                                        amounts reported for basic and diluted
                                        loss per share are the same.




                                       F-9

<PAGE>   12


                                                                     WORLDS INC.
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                  SUMMARY OF ACCOUNTING POLICIES

-------------------------------------------------------------------------------


STOCK-BASED COMPENSATION                In October 1995, the FASB issued SFAS
                                        No. 123, "Accounting for Stock-Based
                                        Compensation" ("SFAS No. 123"). SFAS No.
                                        123 encourages entities to adopt the
                                        fair value method in place of the
                                        provisions of Accounting Principles
                                        Board Opinion No. 25, "Accounting for
                                        Stock Issued to Employees" ("APB No.
                                        25"), for all arrangements under which
                                        employees receive shares of stock or
                                        other equity instruments of the employer
                                        or the employer incurs liabilities to
                                        employees in amounts based on the price
                                        of its stock. The Company has not
                                        adopted the fair value method encouraged
                                        by SFAS No. 123 and will continue to
                                        account for such transactions in
                                        accordance with APB No. 25.



COMPREHENSIVE INCOME                    Effective January 1, 1998, the Company
                                        adopted SFAS No. 130, "Reporting
                                        Comprehensive Income", which establishes
                                        standards for reporting and display of
                                        comprehensive income, its components and
                                        accumulated balances. Comprehensive
                                        income is defined to include all changes
                                        in equity except those resulting from
                                        investments by owners and distributions
                                        to owners. Adoption of the standard has
                                        had no effect on financial statement
                                        disclosures.





                                      F-10

<PAGE>   13


                                                                     WORLDS INC.
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                   NOTES TO FINANCIAL STATEMENTS


-------------------------------------------------------------------------------

    1.   GOING CONCERN                  As discussed in Note 3, the Company
                                        completed a private placement raising
                                        gross proceeds of $4,415,000 and
                                        consummated a merger agreement with a
                                        development stage enterprise,
                                        Predecessor. Predecessor had not
                                        generated significant revenues from
                                        operations and had an accumulated
                                        deficit from inception to the Merger
                                        Date of $21,236,139 and a capital
                                        deficit of $4,135,538. The acquisition
                                        of Predecessor by the Company was
                                        accounted for as a purchase.
                                        Accordingly, $6,135,538, the portion of
                                        the purchase allocable to in- process
                                        research and development projects that
                                        had not reached technological
                                        feasibility and had no probable
                                        alternative future uses, was expensed by
                                        the Company at the date of merger.

                                        The accompanying financial statements
                                        have been prepared assuming that the
                                        Company will continue as a going
                                        concern. The Company is in the
                                        development stage and has had minimal
                                        revenues from operations since the
                                        series of merger transactions. The
                                        Company anticipates that it currently
                                        has only a portion of the funds
                                        necessary to complete product
                                        development and commercialization. There
                                        can be no assurance that the Company
                                        will be able to obtain the substantial
                                        additional capital resources necessary
                                        to pursue its business plan or that any
                                        assumptions relating to its business
                                        plan will prove to be accurate. The
                                        Company is pursuing sources of
                                        additional financing and there can be no
                                        assurance that any such financing will
                                        be available to the Company on
                                        commercially reasonable terms, or at
                                        all. Any inability to obtain additional
                                        financing will have a material adverse
                                        effect on the Company, including
                                        possibly requiring the Company to
                                        significantly curtail or cease
                                        operations.

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




                                      F-11

<PAGE>   14


                                                                     WORLDS INC.
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                   NOTES TO FINANCIAL STATEMENTS

-------------------------------------------------------------------------------


    2.   THE MERGERS                    On December 3, 1997, Predecessor was
                                        merged with and into WAC in a series of
                                        related transactions which included a
                                        simultaneous capital transaction between
                                        the Company and Academic (the "Mergers")
                                        and a private offering of WAC's
                                        securities (the "Private Placement"). In
                                        both the merger with Predecessor and the
                                        capital transaction with Academic, WAC
                                        was the acquiror for accounting
                                        purposes.

                                        The acquisition of Predecessor was
                                        accounted for as a purchase whereby all
                                        of the common and preferred stock of
                                        Predecessor were exchanged for 1,999,996
                                        shares of WAC. The shares issued to
                                        Predecessor common and preferred
                                        shareholders were valued at $1.00 per
                                        share which represented the share value
                                        in the private placement that occurred
                                        during this time period (see Note 3); a
                                        purchase price of approximately
                                        $2,000,000. The exchange ratio was
                                        determined after extensive negotiation
                                        between management of Predecessor and
                                        WAC. Predecessor was a development stage
                                        company, had not generated significant
                                        revenues from operations and had an
                                        accumulated deficit from inception to
                                        December 3, 1997 of $21,236,139 and a
                                        capital deficit of $4,135,538. The
                                        assets acquired of Predecessor (cash,
                                        prepaid expenses, property and
                                        equipment) were recorded at fair market
                                        value which approximated book value at
                                        December 3, 1997, and, as discussed in
                                        Note 1 above, since technological
                                        feasibility of the various Predecessor
                                        technologies acquired had not been
                                        established, the excess purchase price
                                        over Predecessor's capital deficit of
                                        $6,135,538 was expensed as acquired
                                        research and development.

                                        Academic was an inactive company with no
                                        operations. The value assigned to the
                                        910,000 shares in the capital
                                        transaction with Academic on December 3,
                                        1997 represented Academic's net tangible
                                        assets (primarily cash) of $558,026.
                                        Academic voluntarily reported under the
                                        Securities Exchange Act of 1934 (the
                                        "Exchange Act").

                                        The Company intends to continue
                                        reporting under the Exchange Act. While
                                        no trading market existed for the
                                        securities of Academic, or currently
                                        exists for the securities of the
                                        Company, the Company intends to cause
                                        its common stock to be traded on the
                                        Bulletin Board.




                                      F-12

<PAGE>   15


                                                                     WORLDS INC.
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                   NOTES TO FINANCIAL STATEMENTS


-------------------------------------------------------------------------------


    3.   THE PRIVATE PLACEMENT          The Private Placement called for WAC to
                                        offer for sale a maximum of 50 units
                                        (57-1/2 with the over-allotment), each
                                        consisting of 120,000 shares of WAC's
                                        common stock (the "Units") at a price of
                                        $120,000 per Unit. In connection with
                                        the Private Placement, the placement
                                        agent was to receive one warrant to
                                        purchase one share of WAC's common stock
                                        at $1 per share for every $40 of gross
                                        proceeds from the sale of the Units. On
                                        November 21, 1997, WAC sold 31.67 Units
                                        with gross proceeds of $3,800,000
                                        (3,800,000 shares) (the "Initial Private
                                        Placement Closing") and the placement
                                        agent was issued 425,000 shares of
                                        common stock. On December 31, 1997, the
                                        Company sold 4.88 Units with gross
                                        proceeds of $585,000 (585,000 shares).
                                        On January 2, 1998 a further 30,000
                                        shares were issued with gross proceeds
                                        of $30,000. Cumulative net proceeds,
                                        after commissions and expenses of the
                                        offering, aggregated $3,721,176. WAC
                                        agreed to include the shares of common
                                        stock underlying the Units sold in the
                                        Private Placement (the "Private
                                        Placement Shares") in a registration
                                        statement to be filed with the
                                        Securities and Exchange Commission (the
                                        "SEC"). Such registration statement was
                                        declared effective by the SEC on May 1,
                                        1998.




    4.   SUBSEQUENT EVENT               On May 7, 1998, the Company signed a
                                        letter of intent ("Letter of Intent")
                                        with Unity First Acquisition Corp., a
                                        Delaware corporation ("Unity"), whereby
                                        Unity would acquire all of the
                                        outstanding shares of Worlds Inc. (the
                                        "Company") in exchange for shares of its
                                        own common stock. The acquisition, if
                                        consummated, calls for each share of the
                                        Company's stock being converted into
                                        .357 shares of Unity's common stock. At
                                        that point, the Company would
                                        "reverse-merge" into Unity which would
                                        then change its name to "Worlds Inc."
                                        The Company's current management will
                                        continue as management following the
                                        transaction.


                                      F-13

<PAGE>   16


                                                                     WORLDS INC.
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                   NOTES TO FINANCIAL STATEMENTS

-------------------------------------------------------------------------------


                                        Unity is a "blank check" company with no
                                        operations, formed in May 1996 for the
                                        sole and exclusive purpose of acquiring
                                        an operating business. Certain of
                                        Unity's management and stockholders are
                                        stockholders of the Company. In the
                                        aggregate, directly and indirectly, they
                                        own approximately 1.1 million shares of
                                        the Company's common stock. Unity's
                                        unaudited financial statements as of
                                        January 31, 1998 showed that Unity had
                                        approximately $6,400,000 in net worth,
                                        almost all of which is in the form of
                                        cash or cash equivalents. On May 7,
                                        1998, Unity had outstanding 1,875,000
                                        shares of common stock; 1,350,000 Class
                                        A warrants exercisable at $5.50 per
                                        share; and 1,350,000 Class B warrants
                                        exercisable at $7.50 per share. Unity
                                        also has 125,000 underwriter's warrants
                                        outstanding, exercisable at a price of
                                        $6.60 per warrant to purchase up to a
                                        like number of shares of common stock,
                                        and Class A and Class B warrants.
                                        Unity's common stock is quoted on the
                                        Bulletin Board under the symbol "UFAC"
                                        and, on May 6, 1997, closed at $4.875.

                                        The Letter of Intent contemplates that
                                        following the consummation of the
                                        transaction, the officers, directors and
                                        principal stockholders of the Company
                                        and Unity will lock up their shares for
                                        twelve months.

                                        The Letter of Intent is not binding on
                                        either corporation. The consummation of
                                        the contemplated transaction is subject
                                        to the Company and Unity agreeing to the
                                        terms of a definitive agreement and plan
                                        of merger to be negotiated between them
                                        and then to the approval of the
                                        stockholders of each corporation.
                                        Accordingly, no assurance can be given
                                        that the transaction discussed herein
                                        will ever be consummated or, if a
                                        transaction is consummated, that its
                                        terms will be as contemplated in the
                                        Letter of Intent or favorable to the
                                        stockholders of the Company.





                                      F-14

<PAGE>   17





























                                  WORLDS INC. - PREDECESSOR
                                       (A DEVELOPMENT STAGE
                                                ENTERPRISE)



















                                                            FINANCIAL STATEMENTS
                               Three months Ended March 31, 1997 and Period from
                                  APRIL 26, 1994 (INCEPTION) TO DECEMBER 3, 1997




<PAGE>   18
























                                    WORLDS INC. - PREDECESSOR
                                         (A DEVELOPMENT STAGE
                                                  ENTERPRISE)























-------------------------------------------------------------------------------


                                                            FINANCIAL STATEMENTS
                               THREE MONTHS ENDED MARCH 31, 1997 AND PERIOD FROM
                                  APRIL 26, 1994 (INCEPTION) TO DECEMBER 3, 1997





                                      F-15

<PAGE>   19



                                                       WORLDS INC. - PREDECESSOR
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                                        CONTENTS







Worlds Inc. ("Predecessor") is considered a predecessor company and the
information disclosed herein is as of and prior to the date of merger with 
Worlds Inc. (formerly Worlds Acquisition Corp.) ("WAC") on December 3, 1997.


FINANCIAL STATEMENTS (UNAUDITED):              
   Statements of operations                                             F-17
   Statements of cash flows                                             F-18
   Summary of accounting policies                                F-19 - F-21
   Notes to financial statements                                 F-22 - F-23




                                      F-16

<PAGE>   20
<TABLE>
<CAPTION>




                                                                                               WORLDS INC. - PREDECESSOR
                                                                                        (A DEVELOPMENT STAGE ENTERPRISE)

                                                                                                STATEMENTS OF OPERATIONS

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             
                                                                                  Three months ended          Cumulative, period
                                                                                    March 31, 1997            from inception to
                                                                                      (unaudited)             December 3, 1997 (a)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                     <C>     
NET REVENUES                                                                         $    39,985                 $ 6,026,691
------------------------------------------------------------------------------------------------------------------------------------
  COSTS AND EXPENSES
   Cost of revenues                                                                       18,603                  11,279,348
   Selling, general and administrative                                                 1,244,093                  10,602,749
   Research and development                                                              311,564                   5,388,340
   Lawsuit settlements                                                                         -                     509,200
------------------------------------------------------------------------------------------------------------------------------------
        TOTAL COSTS AND EXPENSES                                                       1,574,260                  27,779,637
------------------------------------------------------------------------------------------------------------------------------------
        OPERATING LOSS                                                                (1,534,275)                (21,752,946)
OTHER INCOME AND (EXPENSES):
   Interest income                                                                         9,913                     237,629
   Interest expense                                                                      (36,828)                   (171,082)
   Gain (loss) on disposal of property and equipment                                       6,155                     (79,125)
   Income from sale of technology                                                        260,100                     260,100
------------------------------------------------------------------------------------------------------------------------------------
        LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM                               (1,294,935)                (21,505,424)
INCOME TAXES                                                                               2,500                     120,000
------------------------------------------------------------------------------------------------------------------------------------
        LOSS BEFORE EXTRAORDINARY ITEM                                                (1,297,435)                (21,625,424)
EXTRAORDINARY ITEM - GAIN ON DEBT SETTLEMENT                                                   -                     389,285
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS                                                                             $(1,297,435)               $(21,236,139)
------------------------------------------------------------------------------------------------------------------------------------
--------------

(a)   Date of merger with Worlds Inc. (formerly Worlds Acquisition Corp.)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                 See accompanying summary of accounting policies
                                                                                              and notes to financial statements.

</TABLE>

                                      F-17

<PAGE>   21
<TABLE>
<CAPTION>



                                                                                         WORLDS INC. - PREDECESSOR
                                                                                  (A DEVELOPMENT STAGE ENTERPRISE)

                                                                                          STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                            Cumulative, period 
                                                                                                            from April 26,
                                                                                  Three months ended        1994 (inception) to
                                                                                    March 31, 1997          December 3, 1997 (a)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                      (unaudited)
<S>                                                                                     <C>                       <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                             $(1,297,435)              $(21,236,139)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                           66,370                    721,097
      (Gain) loss on disposal of property and equipment                                       (6,155)                    79,125
      Gain on debt settlement                                                                      -                   (389,284)
      Compensation related to stock options                                                    2,710                    761,453
      Compensation related to common stock issuance                                                -                     58,525
      Licensed technology expense                                                                  -                    750,000
      Changes in operating assets and liabilities:
        Trade receivables                                                                    388,910                          -
        Prepaid expenses and other assets                                                     52,093                   (167,891)
        Accounts payable and accrued liabilities                                            (363,153)                 1,856,619
        Advanced customer billings and deferred revenue                                            -                    436,140
------------------------------------------------------------------------------------------------------------------------------------
              NET CASH USED IN OPERATING ACTIVITIES                                       (1,156,660)               (17,130,355)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
   Acquisition of property and equipment                                                           -                   (999,302)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock                                                          -                    116,857
   Proceeds from issuance of preferred stock, net of issuance costs                                -                 16,163,766
   Advance from Worlds Inc. (formerly Worlds Acquisition Corp.)                                    -                    561,397
   Payments on capital lease                                                                       -                   (116,018)
   Payments on note payable                                                                  (40,000)                  (190,000)
   Proceeds from note payable                                                                500,000                  1,650,000
------------------------------------------------------------------------------------------------------------------------------------
              NET CASH PROVIDED BY FINANCING ACTIVITIES                                      460,000                 18,186,002
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        (696,660)                    56,345
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                               894,692                          -
------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 $   198,032               $     56,345
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid                                                                         $         -               $     23,916
   Income taxes paid                                                                               -                      5,620
------------------------------------------------------------------------------------------------------------------------------------
DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:
   In the quarter ended March 1997, as part of the restructuring of operations, the Predecessor disposed of property and equipment
   with a net book value of $252,180, which included $138,439 of equipment under capital leases. The related capital lease
   obligations, totaling $123,013, were assumed by the lessor and a party which acquired certain assets used in the Predecessor's
   prior Seattle operations.  The agreement with this party also resulted in a reduction of trade payables totaling $87,226.
------------------------------------------------------------------------------------------------------------------------------------
--------------

(a)Date of merger with Worlds Inc. (formerly Worlds Acquisition Corp.)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                 See accompanying summary of accounting policies
                                                                                              and notes to financial statements.

</TABLE>

                                      F-18

<PAGE>   22


                                                      WORLDS INC. - PREDECESSOR
                                               (A DEVELOPMENT STAGE ENTERPRISE)

                                                 SUMMARY OF ACCOUNTING POLICIES

-------------------------------------------------------------------------------


NATURE                                  OF BUSINESS Worlds Inc. (the
                                        "Predecessor") was incorporated under
                                        the laws of Delaware on April 26, 1994.
                                        The Predecessor was formed to develop
                                        and commercialize 3D multi-user tools
                                        and technologies for the Internet
                                        market. The Predecessor is in the
                                        development stage and, as such, has not
                                        generated significant revenues from
                                        operations.



BASIS OF PRESENTATION                   The accompanying financial statements
                                        are unaudited; however, in the opinion
                                        of management, all adjustments necessary
                                        for a fair statement of financial
                                        position and results for the stated
                                        periods have been included. These
                                        adjustments are of a normal recurring
                                        nature. Selected information and
                                        footnote disclosures normally included
                                        in financial statements prepared in
                                        accordance with generally accepted
                                        accounting principles have been
                                        condensed or omitted. Results for
                                        interim periods are not necessarily
                                        indicative of the results to be expected
                                        for an entire fiscal year. It is
                                        suggested that these condensed financial
                                        statements be read in conjunction with
                                        the audited financial statements and
                                        accompanying notes for the Predecessor
                                        for the period ended December 3, 1997.

                                        The accompanying financial statements
                                        have been prepared assuming that the
                                        Predecessor will continue as a going
                                        concern. The Predecessor is in the
                                        development stage (see Note 1) and has
                                        suffered recurring losses from
                                        operations since its inception that
                                        raises substantial doubt about its
                                        ability to continue as a going concern.
                                        The financial statements do not include
                                        any adjustments that might result from
                                        the outcome of this uncertainty. As more
                                        fully described in Note 2, on December
                                        3, 1997, the Predecessor consummated a
                                        merger agreement with Worlds Inc.
                                        (formerly Worlds Acquisition Corp.)
                                        ("WAC"), a company which had completed a
                                        private placement offering of
                                        securities.

                                        The financial statements have been
                                        prepared in accordance with the
                                        provisions of Statement of Financial
                                        Accounting Standards ("SFAS") No. 7,
                                        "Accounting and Reporting by Development
                                        Stage Enterprises," which requires
                                        development stage enterprises to employ
                                        the same accounting principles as
                                        operating companies.




                                      F-19


<PAGE>   23


                                                      WORLDS INC. - PREDECESSOR
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                 SUMMARY OF ACCOUNTING POLICIES

--------------------------------------------------------------------------------


RESTRUCTURING OF OPERATIONS             Due to recurring losses, insufficient
                                        revenue, a working capital deficit and a
                                        net stockholders' deficit, the
                                        Predecessor's management made
                                        significant reductions in operations in
                                        February 1997 that are reflected in the
                                        Predecessor's financial statements for
                                        the period ended December 3, 1997. In
                                        March 1997, the Predecessor engaged an
                                        outside management firm to assist with
                                        the downsizing of operations which has
                                        included a major reduction in employees
                                        and a consolidation of all operations to
                                        one location in San Francisco.



USE OF ESTIMATES                        The preparation of financial statements
                                        in conformity with generally accepted
                                        accounting principles requires
                                        management to make estimates and
                                        assumptions that affect the reported
                                        amounts of assets and liabilities and
                                        disclosures of contingent assets and
                                        liabilities at the date of the financial
                                        statements and the reported amounts of
                                        revenues and expenses during the
                                        reporting period. Actual results could
                                        differ from these estimates.



REVENUE                                 RECOGNITION Revenue from technology
                                        development and licensing contracts is
                                        recognized upon the attainment of
                                        contractual milestones (approximating
                                        the percentage-of-completion method).
                                        Cash received in advance of revenues
                                        earned is recorded as deferred revenue.



SOFTWARE DEVELOPMENT COSTS              Software development costs are charged
                                        to expense when incurred until the
                                        technological feasibility of the product
                                        has been established. After
                                        technological feasibility has been
                                        established, any additional costs would
                                        be capitalizable in accordance with SFAS
                                        No. 86. No such costs have been
                                        capitalized to date.



RESEARCH AND DEVELOPMENT COSTS          Research and development costs are
                                        expensed as incurred.





                                      F-20

<PAGE>   24


                                                      WORLDS INC. - PREDECESSOR
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                 SUMMARY OF ACCOUNTING POLICIES

--------------------------------------------------------------------------------

INCOME TAXES                            The Predecessor uses the liability
                                        method of accounting for income taxes in
                                        accordance with SFAS No. 109,
                                        "Accounting for Income Taxes.". Deferred
                                        income tax assets and liabilities are
                                        recognized based on the temporary
                                        differences between the financial
                                        statement and income tax bases of
                                        assets, liabilities and carryforwards
                                        using enacted tax rates. Valuation
                                        allowances are established, when
                                        necessary, to reduce deferred tax assets
                                        to the amount expected to be realized.



CONCENTRATION OF CREDIT RISK            The Predecessor derives revenues from
                                        corporate customers in a variety of
                                        industries. For the periods ended March
                                        31, 1997 and December 3, 1997, no
                                        individual customer accounted for more
                                        than 10% of revenues.



NEW ACCOUNTING STANDARDS                Effective January 1, 1996, the
                                        Predecessor adopted the provisions of
                                        SFAS No. 123, "Accounting for
                                        Stock-Based Compensation". Under this
                                        standard, companies are encouraged, but
                                        not required, to adopt the fair value
                                        method of accounting for employee
                                        stock-based transactions. Under the fair
                                        value method, compensation cost is
                                        measured at the grant date based on the
                                        fair value of the award and is
                                        recognized over the service period,
                                        which is usually the vesting period.
                                        Companies are permitted to continue to
                                        account for employee stock-based
                                        transactions under Accounting Principles
                                        Board Opinion ("APB") No. 25,
                                        "Accounting for Stock Issued to
                                        Employees," but are required to disclose
                                        pro forma net income and earnings per
                                        share as if the fair value method has
                                        been adopted. The Predecessor has
                                        elected to continue to account for
                                        stock-based compensation under APB No.
                                        25.



                                      F-21

<PAGE>   25


                                                      WORLDS INC. - PREDECESSOR
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                  NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


    1.   GOING CONCERN                  The accompanying financial statements
                                        have been prepared on a going- concern
                                        basis, which contemplates the
                                        realization of assets and the
                                        satisfaction of liabilities in the
                                        normal course of business. As shown in
                                        the financial statements, the
                                        Predecessor, as of December 3, 1997, had
                                        incurred recurring losses since
                                        inception totaling $21,236,139. As
                                        discussed in Note 2, on December 3,
                                        1997, the Predecessor consummated a
                                        merger agreement with WAC, a company
                                        which had completed a private placement
                                        offering of securities whereby
                                        $4,415,000 of gross proceeds was raised.

                                        The Predecessor anticipates, however,
                                        that it currently has only a portion of
                                        the funds necessary to permit it to
                                        complete product development and
                                        commercialization. There can be no
                                        assurance that the Predecessor will be
                                        able to obtain the substantial
                                        additional capital resources necessary
                                        to permit the Predecessor to pursue its
                                        business plan or that any assumptions
                                        relating to its business plan will prove
                                        to be accurate. WAC is pursuing sources
                                        of additional financing and there can be
                                        no assurance that any such financing
                                        will be available to WAC on commercially
                                        reasonable terms, or at all. Any
                                        inability to obtain additional financing
                                        will have a material adverse effect on
                                        the Predecessor and WAC, including
                                        possibly requiring the Predecessor or
                                        WAC to significantly curtail or cease
                                        operations.

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








                                      F-22

<PAGE>   26


                                                      WORLDS INC. - PREDECESSOR
                                                (A DEVELOPMENT STAGE ENTERPRISE)

                                                  NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


    2.   MERGER                         On December 3, 1997, the Predecessor was
                                        merged with and into Worlds Inc.
                                        (formerly Worlds Acquisition Corp.)
                                        ("WAC") in a series of related
                                        transactions which included the
                                        simultaneous merger with and into
                                        Academic Computer Systems, Inc., a New
                                        Jersey corporation ("Academic") (the
                                        "Mergers") and a private offering of
                                        WAC's securities (the "Private
                                        Placement"). All of the common and
                                        preferred stock of the Predecessor were
                                        exchanged for 1,999,996 shares of WAC.
                                        WAC was incorporated in Delaware on
                                        April 8, 1997 to engage in designing,
                                        developing and marketing
                                        three-dimensional ("3D") music oriented
                                        Internet sites on the World Wide Web.
                                        These web sites are anticipated to
                                        utilize 3D technologies developed by the
                                        Predecessor. Academic was an inactive
                                        company with no operations. Academic
                                        voluntarily reported under the
                                        Securities Exchange Act of 1934
                                        "Exchange Act"). The combined entity
                                        that resulted from the Mergers (the
                                        "Combined Entity") intends to continue
                                        reporting under the Exchange Act. While
                                        no trading market existed for the
                                        securities of Academic, or currently
                                        exists for the securities of the
                                        Combined Entity, the Combined Entity
                                        intends to cause its common stock to be
                                        traded on the Bulletin Board.



                                      F-23

<PAGE>   27


ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS.

     Statements contained herein which are not historical facts are
forward-looking statements. Forward-looking statements involve a number of risks
and uncertainties including, but not limited to, general economic conditions,
the Company's ability to complete development and then market its products,
competitive factors and other risks as stated in other of the Company's public
filings with the Securities and Exchange Commission.

     The Company was originally formed on May 20, 1998. Since 1975 the Company
has been inactive with no operations and its only income has come from interest
and dividends. Following the contemporaneous mergers (the "Mergers") of Worlds
Inc, a Delaware corporation formed on April 26, 1994 ("Predecessor"), with and
into Worlds Acquisition Corp., a Delaware corporation formed on April 8, 1998
("WAC") and of WAC with and into the Company, then called Academic Computer
Systems, Inc., which changed its name to Worlds Inc., the Company is engaged in
the business and operations formerly conducted by Predecessor. Accordingly, a
discussion and analysis of the Company's financial condition and results of its
operations would be of limited import to any reader as it would only cover
activities (or lack thereof) which have no meaning in the context of the
Company's current operations. Thus, included herein is a discussion and analysis
of, and comparison to, the financial condition and results of the operations of
Predecessor's pre-Mergers operations. The following discussion should be read in
conjunction with the Financial Statements and related notes thereto included
elsewhere herein.


BACKGROUND


     Predecessor was formed in April 1994 to design, develop and commercialize
3D multi-user tools and technologies for the Internet market. From inception
through 1997, Predecessor's operations were limited and consisted primarily of
start-up activities, including recruiting personnel, raising capital, and
research and development. In the third quarter of 1996, Predecessor launched its
first commercial user-oriented 3D chat site, Worlds Chat 1.0 and began selling
the client interface software through direct sales channels. In October of 1996,
Predecessor introduced its first commercial toolset for developing 3D multi-user
applications. In the first quarter of 1997, after an unsuccessful effort to
raise capital, Predecessor became insolvent and released most of its personnel,
and management sought to sell Predecessor and/or its technology.

     Predecessor has not generated significant revenues, and the Company will
not generate significant revenues, if ever, until after it successfully
completes development and market testing of Worlds Platinum and its 3D Internet
music sites, and attracts and retains a significant number of subscribers and/or
advertisers. The Company anticipates that it will continue to incur significant
losses until, at the earliest, the Company generates sufficient revenues to
offset the substantial up-front expenditures and operating costs associated with
developing and commercializing its proposed products. There can be no assurance
that the Company will be able to attract and retain a sufficient

                                        2

<PAGE>   28



number of subscribers and/or advertisers to generate significant revenues or
achieve profitable operations or that its products and services will prove to be
commercially viable.

     Predecessor (and now the Company), classified its expenses into three broad
groups: (i) research and development; (ii) cost of revenues; and (iii) selling,
general and administrative. Revenues consisted primarily of production service
activities and sales of technology licenses.

     Software development costs (consisting primarily of salaries and related
expenses) incurred prior to establishing technological feasibility are expensed
in accordance with Financial Accounting Standards Board (FASB) Statement No. 86.
In accordance with FASB 86, the Company will capitalize software development
costs at such time as the technological feasibility of the product has been
established.



PLAN OF OPERATION

     During the next twelve months of operation the Company intends to (i)
refine and commercialize the technology of Predecessor by producing interactive,
3D, music related websites and distribute access to these web sites on enhanced
compact discs ("CD+") of various recording artists via traditional retail record
outlets, working in conjunction with major record labels, (ii) provide the
Company's proprietary 3D toolsets to aid programmers in the creation of unique
3D user experiences on the Internet, and (iii) offer the Company's 3D technology
for non-music applications such as corporate intranets.

     The Company is presently completing work on Worlds Platinum, the latest
version of the Company's 3D internet software, to adapt it for distribution and
use on CD+ media. The Company is also in discussions with several major record
labels and companies for them to distribute Worlds Platinum, along with music
related web site access and graphics files co-authored by the Company and the
particular record label or company. While the Company foresees no particular
obstacle to completing work on Worlds Platinum, the development of software is
inherently fraught with unforeseen delays resulting from bugs, lack of
coordination among development staff, integration with other software and
hardware, and general design flaws, among other problems. In addition, the
Company's strategy of distributing its products on CD+ is wholly dependent upon
obtaining distribution agreements with record labels or companies. To date, the
Company has no such agreements and does not expect to have any until it can
demonstrate that it has successfully adapted Worlds Platinum for distribution on
CD+ media as planned.

     The Company's present cash resources are insufficient to meet the
requirements of its business plan over the next twelve months, however, if
substantially all of the shares currently being offered by the Company are sold
or if the Company successfully completes its anticipated merger with Unity First
Acquisition Corp, the Company will have sufficient cash resources for at least
the next twelve months. The Company currently has 7 full-time employees and does
not anticipate hiring more than 2-3 additional employees or purchasing
additional plant or equipment until product sales increase significantly and
additional financing is obtained.



RESULTS OF OPERATIONS OF THE COMPANY

     (Note  to  Results  of  Operations.  The  Predecessor  merged  into WAC and
     Academic on December 3, 1997)

                                        3

<PAGE>   29





     The following data extracted from the attached financial statements
compares the results of operations of the Company for the three months ended
March 31, 1998 to those of the Predecessor for the three months ended March 31,
1997.




                                        Worlds Inc.      Worlds Inc.-Predecessor

                                                  Three months ended

                                         3/31/98                    3/31/97
                                         -------                    -------


Net Revenue                            $   4,002                     39,985


Costs & Expenses:

         Cost of revenues                 (2,601)                   (18,603)

         Selling, general

         & administrative               (548,340)                (1,244,093)

         Research & development         (231,912)                  (311,564)
                                        ---------                  ---------

Operating Loss                          (778,851)                (1,534,275)
                                      

Other Income (Expense):

         Interest income                  41,938                      9,913

         Interest expense                (36,456)                   (36,828)

         Loss on disposal of equipment        -0-                     6,155

         Income from sale of technology       -0-                   260,100
                                         --------                  --------

Loss before taxes & extraordinary item   (773,369)               (1,294,935)


Income taxes                                  -0-                    (2,500)

Extraordinary item - gain
    on debt settlement                    151,654                       -0-
                                          -------                       ---

Net Loss                                 (621,715)               (1,297,435)
                                         ---------               -----------



     In the first quarter of 1998 the company continued the implementation of
the new business plan. Significant expenditure was incurred towards completion
of the Platinum technology and also with legal and professional fees as the
company proceeds with its public share listing. In the first quarter of 1997
Predecessor was insolvent and had failed to raise any additional capital. In
January and February the majority of Predecessor's personnel were released and
most of its management team resigned. Normal operations of Predecessor ceased
and significant wind down costs were incurred.

                                        4

<PAGE>   30




     The Seattle network operations center and Active Worlds, an earlier
generation of Predecessor's technology, were both sold, resulting in gross
proceeds of approximately $305,000

     Revenues are nominal and are derived from the company's WorldsChat product.
Revenue was $4,002 and had associated direct costs of $2,601 for the three
months ended March 31, 1998 compared to $39,985 in revenue and $18,603 of direct
costs for the same period in 1997.

     Selling, general and administrative expenses were $548,340 for the three
months ended March 31, 1998. This represented a decrease of $695,753 from
$1,244,093 compared to the three months ended March 31, 1997. This decrease was
directly attributable to the higher costs associated with the Predecessor
ceasing normal operations in the first quarter of 1997.

     Research and development costs decreased by $79,652 to $231,912 for the
three months ended March 31, 1998 from $311,564 for the three months ended March
31, 1998. This decrease is directly attributable to the company developing
technology on three platforms in the first quarter of 1997 and two platforms in
1998. The Activeworlds technology was sold in 1997.

     Other income included $41,938 of interest income in the three months to
March 31,1998 earned from the proceeds of the recent share offering. Other
income in the three months to March 31, 1997 included interest income of $9,913,
the sale of the Activeworlds technology in the amount of $260,100 and a property
disposal gain of $6,155 Other expenses included interest expense of $36,456
directly attributable to the Predecessor's notes payable in the three months to
March 31, 1998. Interest expenses in the three months to March 31, 1997 were
$36,828.

     As a result of the foregoing the Company incurred a net loss of $621,715
for the three months to March 31,1998, compared to a loss $1,297,436 for the
three months to March 31,1997 a decrease of 52%.



LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY


     Net cash used by the Company's operating activities from January 1,1998
through March 31, 1998 was $738,577. At March 31, 1998 the Company had cash of
$2,821,472; its working capital was $1,750,112.

     On December 3, 1997, Predecessor merged with and into WAC.
Contemporaneously, WAC, closed the first round of a private placement of its
common stock (the "Private Offering") raising gross proceeds of $3.8 million (of
which it netted approximately $3,000,000) and WAC merged with and into the
Company, then called Academic Computer Systems, Inc. ("Academic"), an inactive
corporation with approximately $600,000 of assets, all in the form of cash or
cash equivalents. Thereafter, Academic changed its name to Worlds Inc. The
merger of Predecessor into WAC and the subsequent merger of WAC with and into
Academic are sometimes hereinafter collectively referred to herein as the
"Mergers."

     Prior to the Mergers, the Company had 910,000 shares outstanding. Effective
December 31, 1997, the Company closed on an additional $585,000 of gross
proceeds from the Private Offering, of which it netted $529,000, and issued an
additional 585,000 shares of Common Stock and on January 2, 1998 received an
additional $30,000, of which it netted $26,500, and issued an additional 30,000
shares. The total issued and outstanding shares of the Company as of March 31,
1998 is therefore 16,149,996 shares. The terms of the Mergers called for the
issuance, in exchange for all of the outstanding shares of WAC (which also
included the former shareholders of Predecessor), of an aggregate of 14,000,000
shares of Academic's common stock distributed, as follows: 8,400,000 to the
former shareholders of WAC; 1,999,996 to the former shareholders of Predecessor
and;

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<PAGE>   31




3,800,000 to the investors in the private placement offering. As part of the
Merger, the Company issued 425,000 shares as a financial advisory fee to
International Capital Growth, Ltd.

     On May 1, 1998 the Securities and Exchange Commission declared effective a
registration statement of the Company (as Supplemented on May 7, 1998) covering
the Company's sale of 2,000,000 shares of common stock at $1.00 per share and
the sale by securityholders of 5,604,375 shares of common stock.

     The Company's capital requirements relating to the development and
commercialization of Worlds Platinum have been and will continue to be
significant. The Company is dependent on the proceeds of its current offering
and other future financings in order to continue in business and develop and
commercialize its proposed products.

     The Company anticipates, based on currently proposed business plans and
assumptions relating to its operations (including the timetable of, and costs
associated with, product development and commercialization), that the proceeds
of its current offering, will provide only a portion of the funds necessary to
permit the Company to complete product development and commercialization.
Satisfactory completion of product development and commercialization will
require capital resources substantially greater than the proceeds of its current
offering or otherwise currently available to the Company. In addition, as a
result of the Mergers by operation of law, the Company assumed the Predecessor's
liabilities of approximately $4 million. Although the Company is in the process
of negotiating the amount and timing of payment of some of its liabilities,
there is no assurance that such negotiations will be successful.



                                     PART II

                                OTHER INFORMATION



ITEM 5.       OTHER INFORMATION.

     On May 7, 1998, the Company signed a Letter of Intent with Unity First
Acquisition Corp., a Delaware corporation ("Unity"), whereby Unity would acquire
all of the outstanding shares of Worlds Inc. (the "Company") in exchange for
shares of its own common stock, par value $.0001 per share. The acquisition, if
consummated, calls for each share of the Company's stock being converted into
 .357 shares of Unity's common stock. At that point the Company would
"reverse-merge" into Unity which would then change its name to "Worlds Inc." The
Company's current management will continue as management following the
transaction.

     Unity is a "blank check" company with no operations formed in May 1996 for
the sole and exclusive purpose of acquiring an operating business. Certain of
Unity's management and stockholders are shareholders of the Company. In the
aggregate, directly and indirectly, they own approximately 1.1 million shares of
the Company's common stock. Unity's unaudited financial statements as of January
31, 1998 showed that Unity had approximately $6,400,000 in net worth, almost all
of which is in the form of cash or cash equivalents. As of the date hereof,
Unity had outstanding 1, 875,000 shares of common stock; 1,350,000 Class A
Warrants exercisable at $5.50 per share; and 1,350,000 Class B Warrants
exercisable at $7.50 per share. Unity also has 125,000 underwriter's warrants
outstanding exercisable at a price of $6.60 per warrant to purchase up to a like
number of shares of common stock, Class A and Class B warrants. Unity's common
stock is quoted on the Bulletin Board under the symbol "UFAC" and on May 6,
1997, closed at $4.875.

     The Letter of Intent contemplates that following the consummation of the
transaction the officers, directors and principal shareholders of the Company
and Unity will lockup their shares for twelve months.

     The Letter of Intent is not binding on either corporation. The consummation
of the contemplated transaction is subject to the Company and Unity agreeing to
the terms of a definitive agreement and

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<PAGE>   32




plan of merger to be negotiated between them and then to the approval of the
shareholders of each corporation. Accordingly, no assurance can be given that
the transaction discussed herein will ever be consummated, or if a transaction
is consummated, that its terms will be as contemplated in the Letter of Intent
or favorable to the shareholders of the Company.

     As disclosed above in Item 2, the Company requires additional financing to
reach its goals. The Company believes that if the Unity transaction is
successfully consummated on its currently proposed terms, the Company will have
additional funds to help complete its current projects, although additional
financing in the future may be required.

     The Company's management and its largest shareholder, which currently
control in the aggregate approximately 49.5% of the Company's common stock,
intend to vote in favor of the transaction should it develop to that level.

     The disclosure in this Item 5 is a "forward looking statement" which may
never eventuate.





ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K.



     (a)      A financial data schedule is filed herewith as an exhibit.



     (b)      No reports on Form 8-K were filed during the quarter for which
              this report is being filed.



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<PAGE>   33







                                   SIGNATURES





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



Date: May 14, 1997



                                               WORLDS INC.



                                               By: /s/
                                                   --------------------------
                                                   Thomas Kidrin,
                                                   President, CEO and Treasurer





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