SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For Fiscal Year ended December 31, 1998

                        Commission File Number 2-31876

                                   WORLDS INC.
             (Exact Name of Registrant as Specified in its Charter)

                     New Jersey                        22-1848316
(State or other jurisdiction of incorporation        (I.R.S. Employer 
or organization)                                      Identification No.)

15 Union Wharf, Boston, Massachusetts                                  02109
(Address of Principal Executive Offices)                            (Zip Code)

Registrant's telephone number, including Area Code:             (617) 725-8900

         Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                                     Title of Class
                            Common Stock, par value $.001

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was  required  to file such  reports)  and (2) has been  subject to such  filing
requirements for the past ninety (90) days.

                                                                 Yes [X]  No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
registrant's  best  knowledge,  in definitive  proxy or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of voting stock held by non-affiliates of the 
Registrant:  $8,034,496

The number of shares outstanding of Registrant's Common Stock as of 
March 19, 1999: 17,919,131


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ITEM 1.           BUSINESS

BACKGROUND

         The  Company  today is the  result of the  contemporaneous  Mergers  on
December 3, 1997 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, 1997  ("WAC")  and of WAC,  with and into  Academic  Computer
Systems,  Inc.,  a New Jersey  corporation  formed on May 20, 1968  ("Academic")
which changed its name to Worlds Inc.  after the Mergers.  Thus,  the Company is
really Academic Computer Systems,  Inc. with a new name carrying on the business
previously  conducted by Predecessor in conjunction  with the new business focus
provided  by WAC. In a  transaction  related to the  Mergers,  an  aggregate  of
$4,415,000 in gross  proceeds was raised in a private  offering.  The purpose of
the  Mergers  was to  provide  financing  and a  publicly-held  vehicle  for the
technology of Predecessor to be further  developed and marketed.  The Merger was
accounted for as the acquisition of Predecessor by WAC and a simultaneous merger
into the Company with WAC deemed the "Accounting Acquiror" in both transactions.

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  and
competitive factors and other risk factors detailed herein.

OVERVIEW

         The   Company   develops   applications   for   its   three-dimensional
("3D")Internet  technology  for  different  markets.  At present  the Company is
targeting  three  different  markets  for its 3D  Internet  technology:  (1) the
Company is in the process of marketing  its 3D Internet  technology  with record
companies to produce music-oriented websites; (2), the Company is in the process
of  marketing  its Gamma 3D Internet  technology  to  businesses  for  corporate
intranet applications; and (3) the Company markets Worlds Ultimate 3D Chat, a 3D
chat site on the Internet, to consumers on the Internet.

         Prior to the Mergers,  Predecessor  marketed Worlds Chat, developed and
marketed  3D  toolsets  and servers and  performed  contract  development  work.
However, the Company has changed its focus and while it has introduced a new and
improved upgraded version of Worlds Chat and intends to use its Gamma technology
as a base vehicle for developing 3D corporate  intranet sites,  the Company does
not  anticipate  that,  over time,  they will generate the bulk of the Company's
revenues.

         The  Company's  primary  objective  is to create 3D music web sites and
other 3D  internet  entertainment,  and to  develop  intranet  applications  for
businesses.  These  applications  may be created  directly by the Company or the
Company may  license its  technology  for  creation by third  parties or the end
user.

         The  Company's   primary  focus  is  upon  marketing  its  3D  Internet
technology to record companies to produce  music-oriented web sites. The Company
intends to produce  interactive,  3D,  music  related  web sites 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 companies and/or their related record labels.

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         With  respect to the  development  of  music-oriented  web  sites,  the
Company is currently  developing the  combination of its 3D Internet  technology
with the extra available capacity on the CD to create an interactive  experience
for the CD purchaser. By utilizing the Company's technology distributed on a CD+
(a standard CD with its excess memory carrying a "bonus" as an  enhancement),  a
consumer using the CD ROM drive of the consumer's  computer with Internet access
or services  provider  could enter into the  interactive 3D world or site of the
recording  artist,  be able to interact with other fans utilizing  voice or text
chat via the PC, visit the artist's merchandise shops, visit secret rooms of the
artist,  see and hear advance  videos and record clips of the artist,  and enter
special VIP areas that would offer free concert tickets, among other things. The
Company intends to enter into revenue sharing with recording labels and artists,
from selling VIP on-line subscriber memberships, advertising and database sales.
In addition, the Company anticipates the possibility of additional revenues from
the sale of merchandise of the artist on the site.

PREDECESSOR'S HISTORY

         Predecessor  was formed with the  intention of selling or licensing its
3D servers,  3D browsers,  and 3D toolsets to aid programmers in the creation of
unique 3D user  experiences  on the  Internet  that  would be sold or offered as
turnkey solutions, such as custom production of 3D environments on the Internet.
Predecessor expected that it would host newly created 3D environments on its own
servers  and charge  license  fees to the owners of such 3D  environments.  This
market  did not  develop  as  rapidly  as  Predecessor  had  anticipated.  Until
meaningful  3D Internet  license  fees could be  developed  using  Predecessor's
technology,  Predecessor  entered the custom production business to showcase its
3D Internet technology,  hiring as many as 60 full- time artists and independent
contractors,  integrators,  and  producers  to help  create 3D virtual  Internet
environments for companies such as, among others, Steven Spielberg's  Starbright
Foundation,  IBM, Visa  International,  MGM,  Disney,  and Tandem Computers Inc.
("Tandem").

         By  January  1997,  after  almost all of  Predecessor's  funds had been
depleted,  including approximately $17 million in equity financing, Pearson Inc.
and Tandem loaned Predecessor $1.5 million to continue Predecessor's  operations
until such time as new capital could be invested in  Predecessor  or Predecessor
could be acquired.

         Recognizing the extent of its poor and rapidly deteriorating  financial
condition, in early 1997, Predecessor began substantial layoffs to reduce costs.

         In March 1997,  Predecessor's  Board of Directors  decided to retain an
outside crisis management  organization as Predecessor's general manager, which,
after Board approval, determined to proceed with the Merger Agreement.

         From  inception in April 1994 through  1997,  Predecessor's  operations
were  limited  and  consisted  primarily  of  start-up   activities,   including
recruiting personnel,  raising capital,  custom production work 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.  These sales were very
nominal. In October of 1996, Predecessor introduced its first commercial toolset
for developing 3D multi-user  applications.  From inception  through the date of
the Mergers, Predecessor generated revenues of only approximately $6 million and
had an accumulated deficit of approximately $21 million.

         While the Company has  successfully  completed  development  and market
testing of Worlds  Platinum  (also known as  "Gamma,"  the  Company's  newest 3D

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toolset,  as further  described  below) and its 3D  Internet  music  sites,  the
Company will not generate any  meaningful  revenues  until after it attracts and
retains a significant  number of subscribers.  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  number of  subscribers to generate  meaningful  revenues or
achieve profitable operations or that its products and services will prove to be
commercially viable.

THE MARKET

         Currently,  the  World  Wide Web is  almost  entirely  two  dimensional
("2D"), in part, because the high speed data transmission technology required to
receive  detailed 3D images is not yet available to the average  Internet  user.
However,  much of the data  required  for  interactive  3D images is template or
dynamic  toolkit data that is reasonably  constant and can be  distributed  to a
user off-line on a CD,  allowing the  transmission  of data on-line  through the
Internet to provide the updatable,  interactive,  variable portion of the user's
3D experience.

         The CD+ appears to be an optimal  medium to distribute the Company's 3D
data.  The  traditional  audio  CD sold at  record  stores  has  excess  storage
capacity.  Since the  audio CD is the same  medium as the CD that runs on the CD
ROM drive of a personal  computer  ("PC"),  the CD+ can be used to run  computer
programs  on the  user's  PC.  Many  recently  manufactured  PCs also have sound
production  capability that allows the user to play the audio portion on the CD+
on the PC.

By utilizing the Company's  technology  distributed  on a CD+, a consumer  could
enter into the interactive 3D world or site of the recording  artist, be able to
interact  with other  fans  utilizing  voice or text chat via the PC,  visit the
artist's  merchandise  shops,  visit  secret  rooms of the artist,  see and hear
advance videos and record clips of the artist,  and enter special VIP areas that
would give away free concert tickets,  among other things.  The Company believes
these services could generate revenues from consumer subscriptions,  merchandise
purchases,  and advertising.  While a number of recording  artists have released
CD+s for use  exclusively  on PCs, to the best of the  Company's  knowledge,  no
record  company  or  artist  has  yet  released  a CD+,  with a  high  level  of
interactive entertainment and on-line extension capability.

MARKET ENTRY STRATEGY

         The Company plans to enter the market in two phases. First, the Company
plans  to  develop  proprietary  3D  music  sites  in  conjunction  with  record
companies,  record labels,  and recording  artists designed to generate revenues
from  advertising,  merchandise  sales and VIP Tier  Level  subscription  sales.
Second,   the  Company  plans  to  seek   strategic   alliances   with  computer
manufacturers, and telecommunication,  video game and merchandise sale companies
through  contracts,  joint ventures,  business  combinations  and/or  technology
licensing structured to generate fee and royalty revenue.

         In order for the  Company  to  develop  sales,  it is  imperative  that
relationships  be  developed  between the Company and record  companies,  record
labels  (which are either owned and/or  distributed  by the record  companies or
independently  owned),  and the recording  artist or group and their  management
companies.

         In addition to numerous  independent  record companies,  there are five
major record companies that operate  worldwide:  Warner Bros. Music, Sony Music,
BMG Entertainment,  Universal/Polygram  Music Group, and EMI. These companies in

<PAGE>

the  aggregate  sold  approximately  800  million  CD units in the U.S.  and 2.5
billion CD units worldwide in 1997. The record  companies  typically  create and
finance  new  labels  which  might be  owned,  in  whole  or in  part,  by them,
manufacture and distribute recorded music for company and/or independently owned
labels,  and provide  marketing and  technical  assistance to their owned and/or
distributed  labels. The individual record label's primary  responsibility is to
sign,  develop,  and create records by the recording  artist or group,  which is
then turned over to the record company for manufacture and distribution.

         While it is best to have the full  commitment and support of the record
companies,  labels and  artists in  implementing  the  Company's  3D artist site
program on an  enhanced  CD or CD+,  the Company  believes  that record  company
support is the most  important  because  with their  commitment  to a particular
effort or format,  the record  company can give the Company  access to labels it
either owns and/or distributes and the hundreds of artists that record for these
labels.  Toward this end, during the second and third quarters of 1997 and prior
to and after the Mergers,  management had numerous conversations and/or meetings
with representatives  and/or high level management and/or executives from all of
the major  record  companies.  The Company  believes it has  received a positive
response to its concept and online artist's prototype from each of the companies
and intends to continue discussions with each of them.

         The Company also created  BowieWorld  for David Bowie's  BowieNet,  the
first artist created ISP (Internet  Service Provider) which has been released by
UltraStar Internet Services LLP in the US and UK. The Company has also signed an
agreement  with one of the major  record  companies to have its  technology  and
content encoded on mutually agreed upon CDs of select recording  artists of that
company  subject to the artist's  approval.  The Company is also in  discussions
with a number of other corporate entities about other projects, including all of
the major record  companies  and/or one or more of their related  record labels;
several of the major search  engines;  and others with whom World is desirous of
entering into a long term relationship or strategic alliance.  In September 1998
the Company  created and released  under  contract with  Universal/Hyundai  a 3D
world titled AnimalHouse.com as an internet destination directed towards college
students.  Under the  agreement,  a total of 1,000,000  enhanced CD's were to be
distributed by Universal/Hyundai.

3D INTERNET ENVIRONMENTS; VIRTUAL REALITY MODELING LANGUAGE ("VRML")

         The  technology to deliver  Internet-based  3D  experiences to a user's
desktop has only been  developed  over the past five years.  This new technology
received a boost from an early  standardization  effort called  Virtual  Reality
Modeling Language ("VRML") which increased  consumer and developer  awareness of
the medium.  The VRML effort  evolved  into a  consortium  of  approximately  55
companies (including  Predecessor),  all with competing interests and underlying
technologies.

         VRML is supposed to deliver  rich and dynamic 3D  experiences  over the
Internet,  viewable through the most commonly used Web browsers.  However,  VRML
based  Internet  experiences  and  the  companies  developing  these  tools  and
technologies have not yet achieved  significant  market  penetration for several
reasons. To date, the user's experience with VRML has been unsatisfactory.  VRML
is slow in rendering images, has a long download time, confusing user interfaces
and scene description  language that is difficult to manipulate,  and because it
lacks  standards  for  support  of  other  media  within  the  scene,  the  user
experiences are less dynamic.  Adequate VRML performance also requires  high-end
PCs, precluding effective use by average consumers with less advanced PCs. A new
version of VRML,  VRML 2.0 was just  released  at the end of 1997 with  enhanced
performance  characteristics  addressing some of VRML's performance problems. If
and when VRML appears to be on the verge of overcoming its current  limitations,
the Company believes that its proprietary technology can be made VRML compliant.
The  Company  believes  that the VRML  standard  will  ultimately  overcome  its
limitations  but the current  problems make a  proprietary  solution such as the

<PAGE>

Company's  technology  attractive for the Company's  intended use of 3D Internet
technology.

         Predecessor  spent  its  last two  years  attempting  to  solve  VRML's
performance and production  quality  problems and has, in management's  opinion,
reduced,  at least for the  intended  use of the  Company,  the  barriers to the
adoption of 3D multi-user environments on the Internet.  Predecessor's technical
solutions  deliver user experiences that are rendered  considerably  faster than
equivalent VRML browsers.  Typical Predecessor environments are highly textured,
object and behavior rich with a multi-user  component that the Company  believes
delivers user experiences far more interesting than what many VRML  environments
provide today.

THE COMPANY'S TECHNOLOGY

         The  following is a summary of the Company's  technologies,  which were
initially developed by Predecessor. During 1998 the Company directed its efforts
toward  completing  development of its Gamma development tool kit. The Company's
development  efforts  are now  focused on  adapting  World  Platinum  to produce
music-oriented websites.

         The Worlds Platinum  Development  Kit, or Gamma, is the Company's third
generation and newest 3D toolset,  and was completed in the second half of 1998.
The Company believes that Worlds Platinum  delivers a considerably  faster frame
rate for user experiences and, in some cases, a meaningful productivity increase
in art production and integration over its previous generation production tools.
The Company has  successfully  utilized the Gamma tool kit in the development of
3D content for David Bowie's 3D on-line environment,  BowieWorld, as well as the
Company's  recently  released Worlds Ultimate 3D Chat which has been marketed to
the Company's  proprietary e-mail list of over 200,000 users that had previously
downloaded  the Company's free version of Worlds Chat. A major part of the Gamma
platform  was also  utilized  in the 3D  AnimalHouse  project  which the Company
created  for   Universal/Hyundai   and  in  the   Company's   e-commerce   site,
WorldsStore.com. See "The Company's Products."

         The Worlds Platinum Development Kit has substantial elements written in
Sun  Microsystem's  programming  language,  Java,  including  the  WorldsBrowser
Platinum  and the  WorldsShaper  Platinum so the Company  expects that it can be
made  portable  across  Windows and UNIX  Platforms  because of Java's  platform
independence.

- - WorldsShaper  Platinum: The WorldsShaper Platinum is an advanced compositing
3D building tool that  integrates  pre-existing  or custom  content,  such as 3D
models  created in  Kinetix' 3D Studio,  textures  or images  created in Adobe's
Photoshop,  or .midi or .wave sound files,  with foundation world  architectural
geometry  and   interactive   behaviors  and  actions   written  in  Java.   The
architectural  building blocks for creating 3D worlds, the flexibility and power
of integrating  professional  modeling and imaging tools, and the  extensibility
via Java make the  WorldsShaper  Platinum  a tool  well-suited  for rapid  world
creation.  Additional Application Programming Interfaces for more sophisticated,
programmatic  control  of the  spaces  will  also be  included.  Initially,  the
WorldsShaper Platinum will only output in the Company's proprietary file format.
If demand and market needs warrant,  WorldsShaper Platinum's extensibility might
be expanded to include support for ActiveX enabled scripting languages.

- - WorldsServer Platinum: The WorldsServer Platinum is the server software that
the Company  anticipates  will be used to control and operate its future on-line
virtual community,  Worlds of Worlds,  that is currently in development.  If the
Company is successful in developing this concept,  the WorldsServer  Platinum is
being  designed to manage the  registration  and  authentication  of users,  the

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locations of users within the 3D environment,  the physical  structure of the 3D
environment,  all  information  regarding  objects  that  are  "shared"  by  the
participants and any of the interactions  between the users,  such as text chat.
It is  currently  proposed  that the  server  will come in  configurations  that
support 5, 20, 50, 100, 500, 1,000, and 1,000+  simultaneous  users and is hoped
to be available with a variety of add-on modules  which,  among other  features,
are  intended  to  include,  user  tracking,  encryption,  person-to-person  and
multi-person  voice   conversations,   streaming  audio,   electronic   commerce
transactions,  and custom avatars.  Additionally, the WorldsServer Platinum will
include  generalization  of  a  "Bot"  API  to  enable  the  use  of  Artificial
Intelligence inference engines.

- - WorldsBrowser  Platinum: The WorldsBrowser Platinum is used to access the 3D
environments  created with the Worlds Platinum  Development  Kit. The browser is
optimized  for  speed,  delivering  10 - 20 frame  rates  per  second  in highly
textured virtual 3D worlds. After its initial introduction, the Company may make
the browser an ActiveX control for Microsoft's  Internet  Explorer and a plug-in
for the Netscape Navigator.

- - Worlds Platinum  Libraries:  The Worlds  Platinum  Libraries are composed of
sample worlds,  textures,  models,  avatars,  actions,  sensors,  sounds, motion
sequences,  and other  behaviors.  The Worlds  Platinum  Libraries  will be made
available as part of the  WorldsShaper  Platinum and can easily be customized by
the user or extended by adding new library elements.

         The markets for the  Company's  products are  characterized  by rapidly
changing technology and evolving industry standards,  often resulting in product
obsolescence  or short  product  life  cycles.  Accordingly,  the ability of the
Company  to compete  will be  dependent  on the  Company's  ability to  complete
development  of Worlds  Platinum in a timely  manner.  There can be no assurance
that  competitors  will not develop  technologies  or  products  that render the
Company's  products obsolete or less marketable or that the Company will be able
to successfully enhance its products or develop new products.

THE COMPANY'S PRODUCTS

Worlds Ultimate 3D Chat

         The Company owns its own proprietary online 3D Internet chat site known
as  Worlds  Ultimate  3D Chat.  Originally  launched  as  Worlds  Chat,  another
proprietary  3D chat site still  operated by Worlds,  it is an upgraded  version
using the Company's newest technology. The 3D environment was originally created
by Predecessor and launched in 1996 to test its  technologies and to learn about
user behaviors and preferences in 3D  environments.  The Company's 3D technology
enhances users' chat  experiences by allowing users to see a  representation  of
each other in the form of highly textured  characters,  known as avatars, and to
explore a 3D environment  together.  Avatars can be created by the individual or
chosen  from  pre-defined  figures  chosen  from the  Company's  library.  Users
communicate  with each other  through text chat.  The client  interface  for the
Worlds Chat environment was originally  distributed  through a free download and
later was sold on a CD which  has a greater  selection  of  avatars,  persistent
users names,  and access to six virtual worlds (over 500 rooms,  compared to 100
available in the free demo version).

         The Company  believes that the user base to the Worlds Ultimate 3D Chat
site will  develop into a valuable  asset.  Although the Company has no plans to
build  advertising or  subscription  revenues  through the original  Worlds Chat
site,  such  revenues may be possible in the future as the Company  released the
updated version of this product in December,  1998 and is attempting to market a
customized version of

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this product for intranet applications by corporations.  Currently,  the Company
collects a name and an e-mail address from its Worlds Ultimate 3D Chat users and
a complete name, address, and credit card information from its direct customers.
Worlds Ultimate 3D Chat also contains an e-commerce component, which the Company
believes is the first  commercial  real 3D virtual store  online,  selling music
merchandise of major recording artists  including Elto John, David Bowie,  Spice
Girls, U2, Hanson, John Mellencamp, Shania Twain and others.

         In order to rapidly increase the number of potential subscribers of its
3D music sites, the Company will be offering its Worlds Ultimate 3D Chat product
as a free download in the future.  The objective in this  marketing  approach is
that by reducing the price barrier,  the Company may generate new members to its
Chat service.  These new members may be  matriculated to the 3D music sites when
launched and to the Company's  e-commerce  website.  The proliferation of Worlds
Ultimate 3D Chat may increase corporate brand identity that could translate into
valuable consumer data and related advertising potential. The strategy of a free
distribution  model is  comparable  to the  marketing  strategy  implemented  by
Netscape,  Hotmail,  Geocities and Tripod. The strategic objective is to rapidly
establish market segment dominance in order to upsell to a large user base.

         The Company  believes that there is an opportunity  to further  exploit
the  Worlds  Ultimate  3D Chat  product in  modified  form.  The  Company is now
exploring the  modification of Worlds  Ultimate 3D Chat as a corporate  intranet
chat and information service for corporate clients.  The modified application of
Worlds  Ultimate 3D Chat,  if  successfully  modified and then  marketed,  could
provide the company with an ongoing  revenue  stream based on the licensing fees
for Worlds' server  technology,  as well as a per employee  annual  subscription
fee.

David Bowie

         The company has  entered  into an  agreement  with  UltraStar  Internet
Services  LLP to  create  the  official  3D  David  Bowie  environment  entitled
BowieWorld. The development of BowieWorld has been completed and was released in
January 1999. As part of the agreement  Worlds has received the exclusive rights
to create the 3D DavidBowieStore.com which sells selected Bowie merchandise.

Universal/Hyundai - Animal House.com

         The company  has  entered  into a contract  with  Universal  Studios in
partnership with Hyundai to create a 3D Animal House site which has been encoded
on a music CD containing songs from 10 Universal  recording artists.  As part of
the launch of Animal  House.com,  Universal was to  distribute  1,000,000 of the
enhanced CD's targeted to college students.

Polygram Merchandising

         The company has entered into an agreement  with Polygram  merchandising
to develop and maintain  the  SuperStarSuperstore.com  employing  an  e-commerce
engine to sell music  merchandise of major  recording  artists  including  Elton
John, David Bowie, Hanson, U2, Spice Girls, Shania Twain and others.  Worlds has
developed  the 3D stores  for these  artists  and these are  included  in Worlds
Ultimate  3D Chat.  In  conjunction  with  this 3D  site,  Worlds  has  launched
WorldsStore.com,  an HTML ("2D") commerce site that offers the same  merchandise
as the 3D store  sites to  consumers  who wish to access  these  artists  stores
through traditional HTML ("2D") pages on the Internet.

<PAGE>


COMPETITION

         The markets in which the Company is  currently  operating  and those it
intends to enter are  characterized  by intense  competition  and an  increasing
number of new market entrants which have developed or are developing competitive
products.  The Company will face  competition from numerous  sources,  including
prospective  customers  which may  develop  and  market  their  own  competitive
products and  services,  software  companies,  and online and  Internet  service
providers. The Company believes that competition will be based primarily on ease
of use, features (including communications capabilities and content) and price.

         In addition,  certain  companies  have  developed or may be expected to
develop  technologies or products in related market segments which could compete
with certain  technologies  or products  being  developed  by the  Company.  The
Company  expects  that such  companies,  as well as other  companies  (including
established  and newly  formed  companies),  may  attempt  to  develop  products
directly  competitive  with Worlds  Platinum.  Certain of such  competitors have
substantially greater financial,  technical,  marketing,  distribution personnel
and other  resources  than the Company,  permitting  such companies to implement
extensive marketing campaigns.

         Technologically,  the market targeted by the Company is sought after by
a combination  of numerous  recent  start-ups and well  established  3D graphics
companies.  Each  company  has a  slightly  different  focus  and each  claims a
different  combination  of product  offerings.  The Company's  product  solution
includes  three  major  components:  tools  for  building  3D  worlds  (known as
shapers),  servers  for  distributing  those  worlds  and  making  those  worlds
multi-user,  and browsers that enable  end-users to enter and  experience  those
worlds.  Many of the  competitors  in this market have adopted the VRML and VRML
2.0 scene  description  language  as their file  format and have  limited  their
expertise and scope to only one of the above categories.

         Many  companies  now compete with the Company in one way or another and
new ones may  emerge in the future  that might  compete  with the  company.  The
competition  may be through  entry  into the same  markets  as the  Company,  or
through  technology that either obviates the Company's  advantages or lowers the
barrier to entry in one of the Company's markets.


<PAGE>
                                                                               
         Besides technological  competition,  the Company will be competing with
established  online music retailers with  substantial  resources and established
user bases.  Among the leaders in non-3D  online music web sites are  Amazon.com
and CDNow. Each of these companies, as well as others that are currently selling
on-line  music  related  products,  including  CDs and other  merchandise,  have
financial and  management  resources  significantly  in excess of the Company's.
These companies have established  themselves with consumers as music merchandise
and music review  destinations;  they all sell  music-related  products and have
generated revenues in online sales.

         Notwithstanding the foregoing,  to the best of the Company's knowledge,
no other  company is currently  offering a product that  integrates  3D internet
technology with a music industry content  application  similar to that which the
Company is now offering.

EMPLOYEES

         The Company  currently has nine full time employees,  of which four are
engaged in product development,  one is engaged in financial activities and four
are  engaged  in  marketing  activities.  The  Company  has also  re-established
relationships     with     seven     independent      contractors      (software
developers/programmers)  who  until  early  1997 were  performing  technological
development work on its Worlds Platinum platform.

         The Company,  additional  financing  permitting,  intends to hire up to
twelve  additional  employees,  at  least  two of whom  will  be in the  area of
artist/integration production of music sites, and up to three of whom will be in
artist relations and/or  administration.  It is possible that one or more of the
people who might be hired for one or more of these positions will be retained as
independent consultants.

                   The Company's employees are not represented by a labor union.
The Company believes that its relations with its employees are good.

ITEM 2. PROPERTIES

         The Company's facilities are located in approximately 2,500 square feet
of leased  office space in San  Francisco,  California  and 2,500 square feet of
leased office space in Boston, Massachusetts. The lease in San Francisco is on a
month by month  basis at $4,700  per month and in Boston  the lease  expires  in
September 2000 and provides for an annual rental of approximately  $50,000.  The
Company has only negligible costs relating to environmental compliance laws.

ITEM 3. LEGAL PROCEEDINGS

         The  Company  is  not   currently   involved  in  any  material   legal
proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

                                     PART II

ITEM 5.  MARKET PRICE OF REGISTRANT'S COMMON EQUITY
         AND RELATED STOCKHOLDER MATTERS

<PAGE>

         The  Company's  common stock  started  being quoted on the OTC Bulletin
Board on October 20, 1998, under the symbol WLDI. The high and low closing price
from the  inception of quotation  through  December 31, 1998 was $2.00 and $.25,
respectively.

         As of March 19, 1999, there were 596 record holders of the Registrant's
common stock.

         Since its  inception,  the Registrant has not paid any dividends on its
common stock and has no current intention to do so in the foreseeable future.

ITEM 6.           SELECTED FINANCIAL DATA

The following  selected  financial data for the year ended December 31, 1998 and
for the period April 8, 1997  (inception)  through  December 31, 1997 is derived
from the Company's audited financial  statements included elsewhere herein. Such
data includes the operations of Academic Computer Systems,  Inc. and Predecessor
from December 4, 1997. The selected statement of operations data for Predecessor
and for the year ended  December 31, 1996, for the period ended December 3, 1997
is derived from audited financial  statements  included  elsewhere  herein.  

         The  following  data should be read in  conjunction  with the financial
statements of the Company and Predecessor.

<PAGE>
<TABLE>


Statement of Operations Data

------------------------------ ------------------------------------------      -----------------------------------------
                                           Worlds Inc.                                        Predecessor
------------------------------ ----------------- ------------------------      -------------------- --------------------
                               Year Ended 12/31/98  From 4/8/97                  For the Period       For the Year Ended
                                                    (inception) to               Ended 12/3/97        12/31/96
                                                    12/31/97 
------------------------------ ----------------- ------------------------      -------------------- --------------------
<S>                           <C>               <C>                            <C>                  <C>    
Net Revenues                   $ 29,110               $ 1,420                           $80,720           $  3,784,019
------------------------------ ----------------- ------------------------      -------------------- --------------------
Total Cost and Expenses        $ 3,672,914            $ 6,810,568(b)                 $2,885,088           $ 13,871,984
------------------------------ ----------------- ------------------------      -------------------- --------------------
Operating Loss                 $ 3,643,804            $ 6,809,148                  $ (2,804,368)          $(10,087,965)
------------------------------ ----------------- ------------------------      -------------------- --------------------
Other Income and (Expenses)    $ 822,576(a)           $    (3,099)                 $    134,863           $     16,011
------------------------------ ----------------- ------------------------      -------------------- --------------------
Net Loss Before Taxes and      $ 2,821,228            $ 6,812,247                  $ (2,669,505)          $(10,071,954)
Extraordinary Item
------------------------------ ----------------- ------------------------      -------------------- --------------------
Income Taxes                   -0-                       -0-                       $     (5,000)          $   (115,000)
------------------------------ ----------------- ------------------------      -------------------- --------------------
Net Loss Before                 $ 2,821,228           $ 6,812,247                  $ (2,674,505)          $(10,186,954)
Extraordinary Item
------------------------------ ----------------- ------------------------      -------------------- --------------------
Extraordinary Item - Gain on    $ 172,547             $   125,776                  $    389,285                    -0-
Debt Settlement
------------------------------ ----------------- ------------------------      -------------------- --------------------
Net Loss                        $ 2,648,681           $ 6,686,471                  $ (2,285,220)          $(10,186,954)
------------------------------ ----------------- ------------------------      -------------------- --------------------
Loss Per Share - Before         $ (.16)               $     (.73)           
Extraordinary Item (Basic
and Diluted)
------------------------------ ----------------- ------------------------      
Loss Per Share (Basic and      $ (.15)                $     (.72)           
Diluted)
------------------------------ ----------------- ------------------------      

</TABLE>

Balance Sheet Data
                                    December 31, 1998

Working Capital                 $        680,879
Total Assets                           1,908,012
Total Liabilities                      2,887,905
Stockholders' Deficit           $       (979,893)

(a)  Includes  $810,140  gain  resulting  from  reversal of certain  Predecessor
liabilities.
(b) Includes  $6,135,538 of acquired  research and  development  costs resulting
from the merger with Predecessor.

<PAGE>

ITEM 7.  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  and
competitive factors.

         The  Company  was  originally  formed on May 20,  1968.  Since 1975 the
Company has been inactive  with no operations  and its only income has come from
interest,  gain on the sale of securities and dividends.  Following the Mergers,
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  importance 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 the financial condition and results of the operations
of Predecessor's pre-Mergers operations.

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,  custom  production  work, 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.  These  sales  were very  nominal.  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 did not generate  significant  revenues.  While the Company
has  completed  development  and market  testing of Worlds  Platinum  and its 3D
Internet music sites,  the Company will not generate  significant  revenues,  if
ever, until after it successfully  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  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 administration.  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)

<PAGE>

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.  The Company began to capitalize  its software in
the 4th quarter with the  commercial  release of three  products,  Animal House,
BowieWorld  and Worlds  Ultimate 3D Chat.  $160,000  has been  allocated  toward
capitalization.

Plan of Operation

         In December  1998,  Worlds  Ultimate 3D Chat (WU3D) was released,  as a
successor to Worlds Chat Gold. The product has been  primarily  marketed via the
company's   web   site,   Worlds.com   and  the   Company's   e-commerce   site,
WorldsStore.com.  WU3D is built on the Company's Gamma platform and incorporates
e-commerce, voice to voice chat, articulated, customizable avatars and video and
audio streaming.

         The Company has completed 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 in  discussions  with several major record labels and
companies for them to distribute  Worlds Platinum,  along with music related web
site  access.  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 three agreements.

         During the fourth  quarter,  the  Company  successfully  completed  the
development of the Gamma  development tool kit and  commercially  released three
products utilizing the Company's 3D Internet technology. The first product to be
released  was  AnimalHouse.com,  a 3D  environment  created by the  Company  for
Universal/Hyundai targeting the college market. Worlds 3D technology was encoded
on an  enhanced  CD with  audio  tracks  of 10  Universal  musical  artists  and
distributed  to college  students  through a variety of  Universal  distribution
outlets. The agreement entered into by the Company with Universal called for the
manufacture  and  distribution  by Universal of up to 1,000,000 CD's. The second
product to be released was for David Bowie's BowieNet,  the first artist created
ISP  (Internet  Service  Provider).  The  product  created  by  Worlds  is named
BowieWorlds  and has  been  released  in the US as  well as the UK by  UltraStar
Internet Services LLP, the owners of Bowie Net. The third product to be released
was Worlds Ultimate 3D Chat which has been primarily  marketed via the Company's
web site, Worlds.com and the Company's e-commerce site, WorldsStore.com. WU3D is
built on the Company's  Gamma  platform and  incorporates  e-commerce,  voice to
voice chat, articulated, customizable avatars and video and audio streaming. The
Company also reached an agreement with UltraStar  Internet  Services LLP, owners
of BowieNet, to have WU3D released as a bonus to BowieNet members.

         The Company  has been  actively  pursuing  strategic  alliances  with a
number of companies that can provide  exposure and distribution of the Company's
products and technology.  The Company has recently entered into two confidential
agreements  with two major  companies in the internet  arena.  The first is with
Excite, the number 3 portal site on the internet, which calls for the Company to
provide select e-commerce  content to Excite.  The second agreement is with Road
Runner Broadband Service Company, owned by Time Warner, Media One and Microsoft.
The  agreement  calls for the Company to develop and operate a custom 3D site on
the Road Runner  Service.  The site will be targeted to music consumers and will
provide for a download of the Company's  software at a high bandwidth,  which is
the essential  technology  offered by Road Runner.  As part of the agreement the
Company can offer Road Runner users access to the Company's other 3D products as
well as the  Company's  e-commerce  site.  The  agreement  is a showcase  to the
Company's technology and a strategic alliance for its distribution.

<PAGE>

         The Company's  present cash resources are  insufficient  to meet all of
its requirements over the next twelve months.  However, by limiting the scope of
its business plan and cutting back on its  development,  the Company can stretch
its current  cash  resources  for at least the next twelve  months.  The Company
currently has nine  full-time  employees  and is working with seven  independent
software  contractors who were former employees of the Company. The Company does
not anticipate  hiring  additional  employees or purchasing  additional plant or
equipment  other than that  needed on a  day-to-day  basis until  product  sales
increase significantly and/or additional financing is obtained.

Results of Operations of the Company

Fiscal  Year Ended  December  31, 1998  Compared  With Period from April 8, 1997
through December 31, 1997.

         The  Company's  primary  activities  during  1998  were  signing  three
contracts  to produce  content for music  related web sites,  completing a small
financing  and  attempting  a  merger  for  additional   financing,   completing
development  of Worlds  Platinum,  releasing  a new  version of Worlds  Chat and
developing  and operating a web site for the sale of music related  merchandise.
The Company's  primary  activities  during the period from April 8, 1997 through
December 31, 1997 were the formation of WAC,  negotiating and  consummating  the
Mergers,   attending  to  post-Merger  administrative  and  legal  matters,  the
completion of a private  placement,  and the negotiation and compromise of debts
of Predecessor.

         Revenues  were nominal at $29,110  during 1998 as compared to $1,420 in
1997 due to almost total lack of sales  directly  attributable  to the fact that
its WorldsStore.com web site was not operational until November.

         Selling,  general and  administrative  expenses were $2,650,703  during
1998 as compared to  $675,030 in 1997 for this period and  consisted  largely of
overhead,  expenses  relating to development of its web site and content for the
contracts  within  the music  industry,  professional  fees and  other  expenses
incurred in  connection  with the Mergers  and the  attempted  merger with Unity
First Acquisition Corp., representing an increase of $1,975,673.

         An expense of $6,135,538 was incurred  during 1997 for the  acquisition
of research and development from Predecessor,  being the sum of the negative net
worth of  Predecessor,  plus the value of the 1,999,996  shares of the Company's
common stock given in exchange for all the  outstanding  stock of Predecessor at
the time of the Mergers.  The Company invested  $992,932 during 1998 in research
and development as it completed development of its Gamma technology.

         The Company had net interest  income during 1998 of $12,436 as compared
to net interest expense of $3,099 in 1997, primarily attributable to more earned
on  the  funds  raised  in  the  Company's   financings   than   accumulated  on
Predecessor's notes payable.

         The Company also realized an extraordinary gain of $172,547 during 1998
as compared to $125,776  during 1997,  by settling  debts of the Company at less
than face value.

         As a result of the above,  plus a recorded  gain of $810,140  resulting
from the  reversal  of certain  items  previously  recorded  as  liabilities  of
Predecessor,  the Company's net loss for 1998 (including the extraordinary  gain
on debt  settlement  of $172,547)  was  $2,648,681  as compared to a net loss of
$6,686,471 during 1997.

<PAGE>

Liquidity and Capital Resources of the Company

         Net cash used by the  Company's  operating  activities  during 1998 was
$3,333,035.  At December 31, 1998, the Company had a working capital of $680,879
and cash and cash equivalents in the amount of $1,581,764.

         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   $560,000  of  net  assets,   primarily  cash.
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.  In June 1998,  the  Company  closed on a  secondary
offering of $1,832,000 gross proceeds,  of which it netted $1,715,800 by selling
1,832,000 shares at $1.00 per share.

         The Company's capital requirements relating to the commercialization of
Worlds  Platinum  and  development  of web site access and content for the music
industry have been and will continue to be significant. The Company is dependent
on the  proceeds of 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 it has 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 those currently available to the Company.  However, by limiting the
scope of its  business  plan and cutting  back on its  development  budget,  the
Company  can stretch its  current  cash  resources  for at least the next twelve
months.  The  Company is  continuing  to  explore  financing  opportunities.  In
addition,  as a result of the Mergers by operation  of law, the Company  assumed
Predecessor's  then  liabilities  of  approximately  $4.6 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.   At  December  31,  1998,  the  Company's  total   liabilities  are
approximately $2.9 million.

         There can be no  assurance  that the Company  will be able to raise any
proceeds from an offering of its securities or otherwise  obtain the substantial
additional  capital  necessary  to permit the  Company  to attract  and retain a
sufficient  number  of  subscribers  or that  any  assumptions  relating  to its
business  plans  will prove to be  accurate.  While the  Company  hopes to raise
additional  financing,  the Company has no current arrangements with respect to,
or sources of, additional  financing and there can be no assurance that any such
financing,  particularly  the  significant  amounts of  financing  that would be
required,  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.  Based upon its current projections,
the Company  believes it currently has sufficient  funds to operate for at least
the next twelve months.

<PAGE>

Results of Operations of Predecessor

Year Ended  December 31, 1996 Compared with the Eleven Months Ended  December 3,
1997.

         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. In March, the board of directors appointed Regent Pacific, a firm with
experience in crisis management,  as acting general manager of Predecessor.  The
Seattle network  operations center and Active Worlds,  an earlier  generation of
Predecessor's technology, were both sold, resulting in net proceeds of $260,100.

         Revenue  decreased by $3,703,299 to $80,720 for the eleven months ended
December 3, 1997 from  $3,784,019  for the fiscal year ended  December 31, 1996.
The decrease was caused  primarily by the lack of any production  revenue during
the period.  The nominal  revenue for the period was derived from Worlds Chat CD
sales and web site hosting at the Company's Seattle operations.

         Costs of revenue  decreased  by  $5,982,128  to $32,304  for the eleven
months ended December 3, 1997 from $6,014,432 for the fiscal year ended December
31,  1996.  The decrease was  directly  attributable  to the lack of  operations
during the period.

         Research and development  costs decreased by $1,993,827 to $452,897 for
the eleven  months ended  December 3, 1997 from  $2,446,724  for the fiscal year
ended  December  31,  1996.  This was a result  of a  significant  reduction  in
research and development effort and personnel.

         Selling, general and administrative expenses decreased by $2,501,741 to
$2,399,887 for the eleven months ended December 3, 1997 from  $4,901,628 for the
fiscal year ended  December  31,  1996.  This  decrease  was due to reduction in
personnel as Predecessor ceased normal operations.

         Predecessor's  interest  expense  increased by $122,900 to $139,650 for
the eleven months ended  December 3, 1997 from $16,750 for the fiscal year ended
December 31, 1996. This was attributable  primarily to interest on $1,685,000 in
loans received by Predecessor.

         In 1997,  Predecessor recognized an extraordinary gain of $389,285 upon
the partial forgiveness of debt owed in connection with technology purchases.

         As a  result  of the  foregoing,  Predecessor  incurred  a net  loss of
$2,285,220,  inclusive of the $389,285 extraordinary gain, for the eleven months
ended  December  3, 1997,  compared  to  $10,186,954  for the fiscal  year ended
December 31, 1996.

Effect of Recent Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments and Hedging  Activities." ("SFAS No. 133"), which requires companies
to recognize all derivatives as either assets or liabilities in the statement of
financial  position and measure those instruments at fair value. SFAS No. 133 is
effective for fiscal years  beginning  after June 15, 1999. The Company does not
presently enter into any transactions involving derivative financial instruments
and,  accordingly,  does not anticipate the new standard will have any effect on
its financial statements.

<PAGE>

Year 2000 disclosure

         The Company  itself is Year 2000  compliant and does not anticipate any
internal problems.  In the event any internal problems should arise, the Company
has many expert computer technicians on its payroll and believes that it will be
able to  satisfactorily  address  any such  problems.  However,  the  Company is
dependent on the  integrity of the Internet  being  maintained  for it to derive
income from the sale of merchandise on its own e-commerce site and through links
to the products it created.  The Company has  employed a redundancy  system as a
safeguard to protect the  viability of its site by having its site hosted by two
of the larger Internet  Service  Providers.  Thus, in the event one of its hosts
should fail,  the Company  could  continue  uninterrupted  on the other ISP. The
Company has been advised that its hosts are  addressing  the Year 2000 issue and
hope to be  compliant.  The  Company  uses  Wells  Fargo to  process  its e-mail
transactions.  Wells  Fargo  processes  a  significant  portion of all  Internet
e-commerce  transactions  and if it fails due to year 2000  problems the Company
will be impacted,  but not likely more than many other  e-commerce  vendors.  In
summary,  the  Company is totally  dependent  upon 3rd  parties  for hosting and
processing  its  e-commerce  activities and while the Company cannot control the
actions of these 3rd  parties,  the Company  believes  that given its  redundant
safeguard,  the  availability  of other hosts and processors to switch to in the
event the Company's current hosts and/or processor crashes and the fact that the
Company only sees nominal  revenue from its e-commerce at this time, the Company
does not  believe  that  its  profitability  or  operations  will be  materially
affected by the Year 2000 problem.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial  statements are included  herein  commencing on page F-1.
The Company is not required to provide supplementary financial information.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE

         On January 31, 1998 the Company dismissed  Lipner,  Gordon & Co. LLP as
its  independent  accountants  ("LG&C").  This  action had been  approved by the
Company's  Board of Directors.  During the past three years LG&C did not issue a
report on the Company's  financial  statements that either  contained an adverse
opinion  or a  disclaimer  of  opinion,  or  was  qualified  or  modified  as to
uncertainty, audit scope or accounting principles.

         During the period of its engagement there were no disagreements between
the  Company  and LG&C on any  matter of  accounting  principles  or  practices,
financial   statement   disclosure,   or  audit  scope  and   procedure,   which
disagreement,  if not resolved to the  satisfaction  of LG&C,  would have caused
them to make reference to the subject matter of the  disagreement  in connection
with its opinion.

         On January 31, 1998 the Board of Directors of the Company appointed BDO
Seidman, LLP ("BDO") as its independent  accountants.  Prior to such engagement,
BDO was the independent auditor of Worlds Inc. and Worlds Acquisition Corp., two
Delaware  corporations  which  merged into the  Company.  BDO  provided  written
reports of these two corporations which was included in offering materials for a
private  financing  continued  by the Company  after the  Mergers.  BDO was also
consulted regarding the filing obligations of the Company pursuant to the change

<PAGE>

in its fiscal  year.  Finally,  BDO was  consulted  regarding  the nature of the
financial  statements  required to be included by the Company in its filing of a
Registration  Statement on Form SB-2, in which BDO also provided written reports
regarding the two merged corporations.

         Other than as  disclosed  above,  the Company did not consult  with BDO
regarding the application of accounting  principles to a specified  transaction,
or the type of audit  opinion that may be rendered with respect to the Company's
financial statements.

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS, EXECUTIVE OFFICERS AND CONSULTANT

The directors and executive officers of the Company are as follows:

Name                          Age       Position
-----                         ---       --------

Michael J. Scharf             56        Chairman of the Board
Thomas Kidrin                 46        President, Chief Executive Officer,
                                        Secretary, Treasurer and Director
Kenneth  A. Locker            50        Director

MICHAEL J. SCHARF has been Chairman of the Board since  December 3, 1997.  Prior
to the Mergers,  Mr.  Scharf was Chairman  and  Secretary of Worlds  Acquisition
Corp. ("WAC") since June 4, 1997, and a Director since inception.  Since 1993 he
as been Chairman and President of Niagara Corporation,  a company engaged in the
manufacturing  and  distribution of steel bars. From 1983 until 1989, Mr. Scharf
was Chairman and Chief  Executive  Officer of Edgcomb  Corporation,  the largest
independent  distributor of steel in the United States.  Mr. Scharf  received an
A.B.  degree from  Princeton  University  and an M. B. A. from Harvard  Business
School.  From 1989 (when Edgcomb was sold) until 1993 (when Niagara was founded)
Mr. Scharf managed his personal investments.

THOMAS  KIDRIN  has been  President,  Chief  Executive  Officer,  Secretary  and
Treasurer since December 3, 1997. Prior to the Mergers, Mr. Kidrin was President
of WAC since its  inception,  Treasurer  since June 4, 1997 and a Director since
inception. From 1991 to 1996, Mr. Kidrin was a founder,  director, and President
of UC Television  Network Corp., a company engaged in the design and manufacture
of  interactive  entertainment/advertising  networks in the college market under
the brand name College Television  Network,  (TM) the largest private network on
college campuses in the United States.

KENNETH A.  LOCKER has been a Director  since  December 3, 1997 and prior to the
Mergers  was a  Director  of WAC  since  June 4,  1997.  Since  1996 he has been
Executive  Producer for MGM Interactive where he is responsible for creating and
implementing the MGM Interactive  online business  strategy.  From 1994 to 1996,
Mr. Locker was a founder and Vice President of  Predecessor.  From 1993 to 1994,
Mr. Locker was Senior  Program  Consultant for Ziff Davis  Communications.  From
1990 to 1993, Mr. Locker was Executive Vice President and Head of Production for
RHI Entertainment which at the time was 50% owned by New Line Cinema. Mr. Locker
is also on the Board of  Directors  of  Softbank  Forums,  Inc.,  a division  of
Softbank Corp.

<PAGE>

STEVEN A. GREENBERG was a founder of WAC and was  substantially  involved in the
implementation  of  the  early  and  current  stages  of  its  business.  It  is
anticipated  that  Mr.  Greenberg  will  remain  involved  in the  Company  as a
consultant.  From 1991 until the  present,  Mr.  Greenberg  has been a financial
consultant and private  investor.  In June 1994, Mr.  Greenberg  settled a civil
proceeding  instituted against him by the SEC. Mr. Greenberg,  without admitting
or denying the  allegations  of the SEC  complaint,  consented to an  injunction
against  future  violations  of the insider  trading  provisions  of the federal
securities  laws  and  paid a  civil  penalty.  The  action  had  absolutely  no
relationship  to Mr.  Greenberg's  affiliation  with the Company and the Company
does not  anticipate  incurring  any costs or liability in  connection  with the
matter. The Company's Board of Directors is aware of the SEC's civil lawsuit and
Mr.  Greenberg's  settlement  thereof and understands  that several factors come
into play in  settling  a pending  legal  action,  not the least of which is the
curtailment of ongoing litigation costs.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

         The Company's By-Laws includes certain provisions permitted pursuant to
the  New  Jersey  Business  Corporation  Act  ("NJBCA"),  whereby  officers  and
directors  of the Company are to be  indemnified  against  certain  liabilities.
These provisions of the By-Laws have no effect on any director's liability under
Federal  securities  laws or the  availability  of equitable  remedies,  such as
injunction or recession, for breach of fiduciary duty. The Company believes that
these  provisions will  facilitate the Company's  ability to continue to attract
and retain  qualified  individuals  to serve as  directors  and  officers of the
Company.

         At present,  there is no pending litigation or proceeding involving any
director,  officer, employee or agent of the Company where indemnification might
be required or permitted.  The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.

COMPENSATION OF DIRECTORS

         Non-employee  directors of the Company,  excluding Mr. Scharf,  will be
reimbursed  for  reasonable  travel and lodging  expenses  incurred in attending
meetings of the Board of Directors and any committee on which they may serve, as
well as $2,000  per Board  meeting.  Total  Board  related  expenses,  including
travel, lodging, and director's fees, is approximately$40,000 per year.

ITEM 11.          EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

         Prior to the Mergers,  the Company had not paid any compensation to its
executive  officers or directors during the prior three years.  From December 3,
1997 (effective date of the Mergers) through December 31, 1997, the Company paid
$21,903  in  compensation  to its  President  and Chief  Executive  Officer  and
$175,000 during 1998. The Company intends to enter into an employment  agreement
with  its  President,  Thomas  Kidrin,  that  will  expire  December  2000.  The
agreement, among other things, will provide for base compensation payable to Mr.
Kidrin  of  $175,000  in the first  year,  and  bonuses  to be  determined.  The
agreement  will also provide for  employment on a full-time  basis and contain a
provision  that Mr. Kidrin will not compete or engage in a business  competitive
with the Company for a period of one year after termination.

1997 STOCK OPTION PLAN

         The Board of Directors and  stockholders  of the Company have adopted a
Stock  Option Plan (the  "Option  Plan") as an  incentive  for, and to encourage

<PAGE>

share  ownership by, the Company's  officers,  directors and other key employees
and/or  consultants  and  potential   management  of  possible  future  acquired
companies.  The Option  Plan  provides  that  options  to  purchase a maximum of
1,000,000   shares  of  Common   Stock   (subject  to   adjustment   in  certain
circumstances) may be granted under the Option Plan. The Option Plan also allows
for the  granting  of stock  appreciation  rights  ("SARs") in tandem  with,  or
independently  of, stock options.  Any SARs granted will not be counted  against
the 1,000,000 limit.

         The  purpose of the Option  Plan is to make  options  (both  "incentive
stock options"  within the meaning of Section 422A of the Internal  Revenue Code
of 1986,  as  amended  (the  "Code"),  and  non-qualified  options)  and  "stock
appreciation  rights" (with non-qualified  options only, if in tandem) available
to officers, directors and other key employees and/or consultants of the Company
in order to give such individuals a greater personal  interest in the success of
the Company and, in the case of  employees,  an added  incentive to continue and
advance in their employment.

         The Option Plan is currently  administered  by the  majority  vote of a
Committee (the "Committee") appointed by the Board of Directors and comprised of
at least two "independent" members of the Board, or alternatively, by the entire
Board,  who are not  eligible  to  receive  options,  other than  pursuant  to a
formula,  it being  intended  that such plan shall  qualify  under Rule 16b-3 as
promulgated  pursuant to the Securities  Exchange Act of 1934, as amended.  With
specified limitations, the Committee may amend the terms of the Option Plan.

         The Committee will designate  those persons to receive grants under the
Option Plan and determine the number of options and/or SARs, as the case may be,
to be granted and the price  payable for the shares of Common Stock  thereunder.
The price payable for the shares of Common Stock under each option will be fixed
by the  Committee at the time of the grant,  but, for incentive  stock  options,
must be not less than 100% (110% if the person  granted  such  option  owns more
than 10% of the outstanding  shares of Common Stock) of the fair market value of
Common  Stock at the  time the  option  is  granted.  The  Committee  will  also
determine  the  term and  vesting  schedule  of all  options  and SARs  granted,
provided that no option may be  exercisable  later than ten years after the date
of grant (or five years in the case of a 10%  stockholder).  The  Committee  may
also institute divesting schedules. All options are payable in cash or check, by
delivery of a secured  personal  interest bearing note, or by delivery of shares
of Common Stock equal in value to the cost of the options.

         There are currently  105,000 stock options  outstanding  at an exercise
price of $.50 and 60,000 to one of the Company's outside  directors  exercisable
at $.60 that were granted in 1997,  and 629,000  options at an exercise price of
$1.00  including  40,000 to one of the Company's  outside  directors,  that were
granted during 1998. All outstanding  options vest in equal amounts over a three
year period.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's officers and directors, and persons who own more than ten percent of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership and changes in ownership with the Securities and Exchange  Commission.
Officers,  directors and  greater-than-ten-percent  shareholders are required by
SEC  regulation  to furnish the Company  with copies of all Section  16(a) forms
they file. During fiscal 1998, Mr. Locker,  an outside director,  did not file a
Form 4 reflecting the receipt of 40,000 stock options.


<PAGE>

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table sets  forth,  as of March 19,  1999,  information
regarding the beneficial  ownership of the Company's Common Stock based upon the
most recent  information  available  to the Company for (i) each person known by
the Company to own  beneficially  more than five (5%) percent of its outstanding
Common  Stock,  (ii) each of its  officers and  directors,  and (iii) all of its
officers  and  directors  as a  group.  Each  stockholder's  address  is c/o the
Company, 15 Union Wharf, Boston, MA 02109.

                            Shares Owned Beneficially
                                  and of Record

Name                     No. of Shares                 % of Total
----                     -------------                 ----------
Michael J. Scharf (1)    1,900,000                     10.60%
Thomas Kidrin (2)        1,600,000                      8.93%
Kenneth A. Locker (3)       20,000(4)                     *
Steven A. Greenberg      4,500,000                     25.11%
All Officers and Directors
  as a Group (3 persons) 3,500,000                     19.53%
----------------
* less than 1/10 of 1%

(1) Chairman.
(2) President, Chief Executive Officer, Secretary, Treasurer and a
Director.
(3) Director.
(4) Consists of currently exercisable stock options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company  intends to enter into a  month-to-month  consulting  agreement with
Steven A.  Greenberg,  a founder of WAC. The agreement  will provide for monthly
compensation  of $15,000 plus  reimbursement  of  reasonable  expenses  actually
incurred. In addition to providing consulting services,  Mr. Greenberg will also
make his offices and support staff available to Company employees.  During 1997,
Mr.  Greenberg  loaned $77,000 to WAC of which $73,000 was repaid as of December
31, 1998. Also, during 1998, Mr. Greenberg received $180,000 in consulting fees.


          PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND
         REPORTS ON FORM 8-K

(a)  1.  Financial Statements

         The  financial   statements  are  listed  in  the  Index  to  Financial
Statements on page F-1 and are filed as part of this annual report.

     2.  Not Applicable.

     3.  Exhibits

         27 - Financial Data Schedule.

(b)      Reports on Form 8-K

         None.

<PAGE>

                  Worlds Inc. (a development stage enterprise)
                              Financial Statements
           Period from April 8, 1997 (Inception) to December 31, 1997
                        and Year Ended December 31, 1998

                                       F-1


<PAGE>


                  Worlds Inc. (a development stage enterprise)
                              Financial Statements
           Period from April 8, 1997 (Inception) to December 31, 1997
                        and Year Ended December 31, 1998


   

<PAGE>




                  Worlds Inc. (a development stage enterprise)

           Period from April 8, 1997 (Inception) to December 31, 1997
                        and Year Ended December 31, 1998


<PAGE>
                                  Worlds Inc.
                        (a development stage enterprise)

                                    Contents

          Report of independent certified public accountants        F-3

          Financial statements:
             Balance sheets                                         F-4
             Statements of operations                               F-5
             Statements of stockholders' deficit                    F-6
             Statements of cash flows                               F-7
             Summary of accounting policies                         F-8 - F-11
             Notes to financial statements                          F-12 - F-23

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

          Report of independent certified public accountants        F-26

          Financial statements:
             Balance sheet                                          F-27
             Statements of operations                               F-28
             Statements of stockholders' deficit                    F-29
             Statements of cash flows                               F-30
             Summary of accounting policies                         F-31 - F-33
             Notes to financial statements                          F-34 - F-45


<PAGE>



Report of Independent Certified Public Accountants


Worlds Inc.
Boston, Massachusetts

We have audited the  accompanying  balance sheets of Worlds Inc. (the "Company")
(a  development  stage  enterprise)  as of December  31, 1997 and 1998,  and the
related statements of operations,  stockholders'  deficit and cash flows for the
period  from April 8, 1997  (inception)  to  December  31, 1997 and for the year
ended December 31, 1998. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Worlds Inc. at December 31,
1997 and 1998 and the  results  of its  operations  and its cash  flows  for the
period  from April 8, 1997  (inception)  to  December  31, 1997 and for the year
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.

As discussed in Note 1, the accompanying financial statements have been prepared
assuming  Worlds Inc.  will continue as a going  concern.  The Company is in the
development  stage, has a stockholders'  deficit,  has had minimal revenues from
operations and will require  substantial  additional  funds for  development and
marketing of its  products.  These  matters  raise  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.




BDO Seidman, LLP



New York, New York

March 26, 1999

                                      F-3

<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                                                                Balance Sheets

<TABLE>

<S>                                                                      <C>                    <C>    

   December 31,                                                                          1997                   1998
   --------------------------------------------------------------------- ---------------------- ----------------------
   Assets
   Current:
      Cash and cash equivalents                                                   $ 3,541,829            $ 1,581,764
      Prepaid expenses and other current assets                                        74,713                 53,486
      Inventory                                                                             -                 58,516
   --------------------------------------------------------------------- ---------------------- ----------------------
           Total current assets                                                     3,616,542              1,693,766
   Property, equipment and software development, net of accumulated                   209,452                214,246
      depreciation and amortization (Note 5)
   --------------------------------------------------------------------- ---------------------- ----------------------
                                                                                  $ 3,825,994            $ 1,908,012
   --------------------------------------------------------------------- ---------------------- ----------------------
   Liabilities and Stockholders' Deficit
   Current:
      Accounts payable (Note 11)                                                 $    568,707           $    319,906
      Accrued expenses (Note 11)                                                      592,250                446,333
      Advanced customer billings (Note 11)                                            436,140                      -
      Current maturities of notes payable (Note 6)                                    269,333                246,648
   --------------------------------------------------------------------- ---------------------- ----------------------
           Total current liabilities                                                1,866,430              1,012,887
   Long-term portion, notes payable (Note 6)                                        1,968,333              1,875,018
   --------------------------------------------------------------------- ---------------------- ----------------------
           Total liabilities                                                        3,834,763              2,887,905
   --------------------------------------------------------------------- ---------------------- ----------------------
   Commitments (Note 7)
   Stockholders' deficit (Notes 2, 3 and 8):
      Common stock, $.001 par value - shares authorized 30,000,000;                    16,120                 18,032
         issued 16,119,996 and 18,031,996
      Additional paid-in capital                                                    6,661,582              8,401,970
      Deficit accumulated during the development stage                             (6,686,471)            (9,335,152)
   --------------------------------------------------------------------- ---------------------- ----------------------
                                                                                       (8,769)              (915,150)
      Treasury stock, at cost, 113,465 shares (Note 2)                                      -                (64,743)
   --------------------------------------------------------------------- ---------------------- ----------------------
           Total stockholders' deficit                                                 (8,769)              (979,893)
   --------------------------------------------------------------------- ---------------------- ----------------------
                                                                                  $ 3,825,994            $ 1,908,012
   --------------------------------------------------------------------- ---------------------- ----------------------

</TABLE>

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


                                      F-4

<PAGE>


                                   Worlds Inc.
                        (a development stage enterprise)

                                                      Statements of Operations

<TABLE>



                                                          Period from          Year ended          Cumulative,
                                                         April 8, 1997      December 31, 1998      period from
                                                         (inception) to                           April 8, 1997
                                                          December 31,                            (inception) to
                                                            1997(a)                                December 31,
                                                                                                     1998(a)
------------------------------------------------------ ------------------- -------------------- -------------------
<S>                                                    <C>                 <C>                  <C>                  
Net revenues                                            $        1,420         $      29,110       $       30,530
Costs and expenses:
   Cost of revenues                                                  -               (29,279)             (29,279)
   Selling, general and administrative                        (675,030)           (2,650,703)          (3,325,733)
   Research and development                                          -              (992,932)            (992,932)
   Acquired research and development (Note 1)               (6,135,538)                    -           (6,135,538)
------------------------------------------------------ ------------------- -------------------- -------------------
        Operating loss                                      (6,809,148)           (3,643,804)         (10,452,952)
Other income (expenses):
   Gain resulting from reversal of certain                           -               810,140              810,140
      predecessor liabilities (Note 11)
   Interest income                                              13,593               124,006              137,599
   Interest expense                                            (16,692)             (111,570)      (128,262)
------------------------------------------------------ ------------------- -------------------- -------------------
        Loss before extraordinary item                      (6,812,247)           (2,821,228)          (9,633,475)
Extraordinary item - gain on debt settlement                   125,776               172,547              298,323
   (Note 10)
------------------------------------------------------ ------------------- -------------------- -------------------
Net loss                                                   $(6,686,471)          $(2,648,681)        $ (9,335,152)
------------------------------------------------------ ------------------- -------------------- -------------------
Loss per share (basic and diluted) (Note 12):
      Loss before extraordinary item                   $          (.73)      $          (.16)
      Extraordinary item                                           .01                   .01
------------------------------------------------------ ------------------- --------------------
        Net loss per share (basic and diluted)         $          (.72)      $          (.15)
------------------------------------------------------ ------------------- --------------------
Weighted average common shares outstanding:
      Basic and diluted                                      9,336,569            17,170,288
------------------------------------------------------ ------------------- --------------------

</TABLE>

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

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

                                      F-5

<PAGE>


                                   Worlds Inc.
                        (a development stage enterprise)


                                            Statements of Stockholders' Deficit
                                                                       (Note 8)

  Period from April 8, 1997 (inception) to December 31, 1998
  
<TABLE>
                                   Common stock            Additional  Deficit        Treasury stock     Total
                              -------------------------     paid-in    accumulated                     stockholders'
                              Shares           Amount       capital    during the                      deficit
                                                                       development
                                                                       stage
--------------------------------------------------------------------------------------------------------------------
<S>                           <C>              <C>         <C>         <C>            <C>              <C>
Issuance of common stock       8,400,000       $  8,400    $   195,600 $              $           -    $   204,000
   to founding
   stockholders
Sale of shares in private      4,810,000          4,810      3,689,866             -              -      3,694,676
   offering memorandum
   and shares issued to
   placement agent, net
   (Note 3)
Issuance of shares to            910,000            910        557,116             -              -        558,026
   Academic Computer
   Systems, Inc. (Note 2)
Issuance of shares             1,999,996          2,000      1,998,000             -              -      2,000,000
   pursuant to merger
   with predecessor
   (Note 2)
Capital contribution                   -              -        221,000             -              -        221,000
   resulting from
   forgiveness of debt to
   shareholders of
   predecessor (Note 6)
Net loss for the period                -              -              -    (6,686,471)             -     (6,686,471)
   April 8 to
   December 31, 1997
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997    16,119,996         16,120      6,661,582    (6,686,471)             -         (8,769)
Sale of shares in private         30,000             30         26,470             -              -         26,500
   offering memorandum
   (January 1998) (Note 3)
Sale of shares in public       1,832,000          1,832      1,713,968             -              -      1,715,800
   offering of common
   stock, net (June 1998)
   (Note 3)
Conversion of 113,465                  -              -              -             -        (64,743)       (64,743)
   shares to certain
   stockholders
   (June 1998) (Note 2)
Conversion of employee            50,000             50            (50)            -              -              -
   stock options into
   shares (October 1998)
   (Note 8)
Net loss for the year                  -              -              -    (2,648,681)             -     (2,648,681)
   ended December 31, 1998
--------------------------------------------------------------------------------------------------------------------
Balance, December 31,         18,031,996        $18,032     $8,401,970   $(9,335,152)      $(64,743)   $  (979,893)
   1998
--------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      F-6
<PAGE>

                                   Worlds Inc.
                        (a development stage enterprise)

                                                     Statements of Cash Flows
                                                                    (Note 13)


<TABLE>
                                                             Period from         Year ended         Cumulative,
                                                            April 8, 1997    December 31, 1998      period from
                                                           (inception) to                          April 8, 1997
                                                          December 31, 1997                       (inception) to
                                                                                                 December 31, 1998
--------------------------------------------------------- ------------------ ------------------- ------------------
<S>                                                       <C>                <C>                 <C>                      
Cash flows from operating activities:
   Net loss                                                    $(6,686,471)       $(2,648,681)        $(9,335,152)
--------------------------------------------------------- ------------------ ------------------- ------------------
   Adjustments to reconcile net loss to net cash used in
      operating activities:
        Loss on disposal of fixed assets                                 -             54,041              54,041
        Depreciation and amortization                               16,323            129,752             146,075
        Gain resulting from reversal of certain                          -           (810,140)           (810,140)
           predecessor liabilities
        Gain on debt settlement                                   (125,776)          (172,547)           (298,323)
        Acquired research and development                        6,135,538                  -           6,135,538
        Allowance for doubtful accounts                               (538)               538                   -
        Changes in operating assets and liabilities, net
           of effects from merger with Predecessor and
           Academic:
              Inventory                                                  -            (58,516)            (58,516)
              Prepaid expenses and other assets                     93,716             20,689             114,405
              Accounts payable and accrued expenses                214,361            151,829             366,190
--------------------------------------------------------- ------------------ ------------------- ------------------
                Total adjustments                                6,333,624           (684,354)          5,649,270
--------------------------------------------------------- ------------------ ------------------- ------------------
--------------------------------------------------------- ------------------ ------------------- ------------------
                Net cash used in operating activities             (352,847)        (3,333,035)         (3,685,882)
--------------------------------------------------------- ------------------ ------------------- ------------------
--------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from investing activities:
   Acquisition of property and equipment                                 -            (28,587)            (28,587)
   Additions to software development costs                               -           (160,000)           (160,000)
--------------------------------------------------------- ------------------ ------------------- ------------------
                Net cash used in investing activities                    -           (188,587)           (188,587)
--------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from financing activities:
   Proceeds from sale of common stock to founding                  204,000                  -             204,000
      stockholders
   Proceeds from sale of common stock in private                 3,694,676             26,500           3,721,176
      offering memorandum
   Proceeds from sale of common stock in public offering                 -          1,715,800           1,715,800
   Payment of conversion price of shares to certain                      -            (64,743)            (64,743)
      stockholders
   Payments on note payable                                         (4,000)          (116,000)           (120,000)
--------------------------------------------------------- ------------------ ------------------- ------------------
                Net cash provided by financing                   3,894,676          1,561,557           5,456,233
                   activities
--------------------------------------------------------- ------------------ ------------------- ------------------
Net increase (decrease) in cash and cash equivalents             3,541,829         (1,960,065)          1,581,764
Cash and cash equivalents, beginning of period                           -          3,541,829                   -
--------------------------------------------------------- ------------------ ------------------- ------------------
Cash and cash equivalents, end of period                       $ 3,541,829        $ 1,581,764        $  1,581,764
--------------------------------------------------------- ------------------ ------------------- ------------------
</TABLE>

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


                                      F-7
<PAGE>


                                   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 financial  statements include the results of Predecessor
                    and Academic from December 3, 1997,  the date of the Mergers
                    (the "Merger Date").

                    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-8

<PAGE>

   Fair  Value of  Financial  Instruments

                    The  carrying  amounts of financial  instruments,  including
                    cash and  short-term  Instruments  debt,  approximated  fair
                    value as of  December  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 December 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.


   Inventory                          

                    Inventory  consists  of  merchandise  held for resale and is
                    valued  at the  lower  of  cost  or  market  or a  first-in,
                    first-out (FIFO) basis.

                                      F-9

<PAGE>

   Software Development Costs
                          

                    In accordance  with the provisions of Statement of Financial
                    Accounting Standards (SFAS) No. 86 "Accounting for the Costs
                    of  Computer  Software  to be  Sold,  Leased,  or  Otherwise
                    Marketed",   software  development  costs  incurred  by  the
                    Company subsequent to establishing technological feasibility
                    of the  resulting  product  or  enhancement  and  until  the
                    product is available  for general  release to customers  are
                    capitalized and carried at the lower of unamortized  cost or
                    net realizable  value.  Net  realizable  value is determined
                    based on estimates of future revenues to be derived from the
                    sale  of  the  software  product  reduced  by the  costs  of
                    completion  and disposing of the product.  During the fourth
                    quarter of 1998  technological  feasibility of the company's
                    software  was  established.  In  this  regard  $160,000  was
                    capitalized and included in property, equipment and software
                    development  as of December  31, 1998.  Amortization  of the
                    costs capitalized will commence in 1999 and will be based on
                    current and anticipated  future revenues for each product or
                    enhancement  with an annual  minimum equal to  straight-line
                    amortization over the remaining  estimated  economic life of
                    the product or enhancement.


   Research and Development Costs 

                    Research and development costs are 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.


                                      F-10


<PAGE>

   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.


   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 since there were no items of
                    comprehensive income during the periods presented.



                                      F-11

<PAGE>

                                   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,  consummated
                    a merger  agreement  with a  development  stage  enterprise,
                    Predecessor,  and  completed a public  offering in June 1998
                    raising gross  proceeds of $1,832,000.  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-12

    
<PAGE>

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.
                    During  June  1998,  113,465  shares  of common  stock  were
                    converted  at $0.57  per  share  ($64,743)  as a  result  of
                    certain   stockholders   dissenting   with  respect  to  the
                    Academic/WAC  capital  transaction of December 3, 1997. Such
                    reacquired  shares have been classified as treasury stock in
                    the accompanying balance sheets.

                    While  no  trading  market  existed  for the  securities  of
                    Academic,  the  Company's  common  stock  is  traded  on the
                    Bulletin Board.


                                      F-13

<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements


3.     Private Placement 
       and Public 
       Offering

                    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 on May 1,
                    1998.  During  June  1998,  WAC sold  1,832,000  shares in a
                    public  offering of its stock and received gross proceeds of
                    $1,832,000.   Net  proceeds,   after   commissions  of  this
                    offering, aggregated $1,715,800.


4.     Agreement and Plan of Merger

                    On June 25, 1998, the Company  entered into an agreement and
                    plan of merger and  reorganization  (the  "Agreement")  with
                    Unity  First  Acquisition  Corp.,  a  Delaware   corporation
                    ("Unity"),   whereby   Unity   would   acquire  all  of  the
                    outstanding  shares of the Company in exchange for shares of
                    its own common stock. The acquisition  called 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 Agreement was, among other  conditions,
                    subject  to  approval  by  both  Unity  and  the   Company's
                    stockholders.

                                      F-14

<PAGE>


                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements

                    On October 29, 1998,  the  Company's  stockholders  voted in
                    favor of the  Agreement,  however,  Unity did not obtain the
                    super majority of 80% required by Unity's  Charter,  thereby
                    canceling the proposed plan of merger and reorganization.


5.     Property,  
       Equipment  and  
       Software Development

                    A summary of property, equipment and software development at
                    December  31,  Software  Development  1997  and  1998  is as
                    follows:

                    December 31,                        1997       1998
---------------------------------------------------   --------   --------
                   Computers, software and            $650,557   $426,796
                     equipment
                   Software development costs             --      160,000
---------------------------------------------------   --------   --------
                              Total                    650,557    586,796
                   Less:  Accumulated                  441,105    372,550
                             depreciation and
                             amortization
---------------------------------------------------   --------   --------
                                                      $209,452   $214,246
---------------------------------------------------   --------   --------

                                      F-15

<PAGE>

6.     Notes Payable                  Long-term  debt at  December  31, 1997 and
                                      1998 consists of the following:

<TABLE>
                                                       December 31,
                                                   1997             1998
-------------------------------------------- --------------- -----------------
<S>                                          <C>             <C>
Convertible promissory notes payable -           $1,685,000       $1,685,000
  stockholders, maturing December 3,
  2000, plus interest at 7.5% compounded
  annually. The notes are convertible
  into shares of the Company's common
  stock as follows: from December 4, 1998
  to December 3, 1999 at $5.00 per share
  and after December 4, 1999 at $5.625
  per share. (Stockholders granted
  forgiveness of accrued interest of
  $106,000 on this debt which had
  previously been assumed as an accrued
  expense in the merger - see (a) below).
Note payable - technology obligation                186,666          186,666
  (noninterest bearing), payable in
  monthly installments of $3,333 until
  November 2001
Note payable - stockholder, payable in              250,000          250,000
  monthly installments of $6,944 until
  December  2000,  plus  interest  at 8%.
  (Stockholder   granted  forgiveness  of
  $115,000  which  had  previously   been
  assumed  as an  account  payable in the
  merger - see (a) below).
Note payable - investment banker, payable           116,000                -
  in monthly installments of $2,000 until
  September 1998, with a final payment of
  $100,000, plus interest at 8%.
------------------------------------------- ---------------- -----------------
                                                  2,237,666        2,121,666
Less:  Current maturities                           269,333          246,648
------------------------------------------- ---------------- -----------------
       Long-term portion                         $1,968,333       $1,875,018
------------------------------------------- ---------------- -----------------

</TABLE>

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

(a)     As  a   result   of  the   mergers
        discussed  in Note 2, the  Company
        was granted forgiveness of debt by
        certain       stockholders      of
        Predecessor.   Such   forgiveness,
        aggregating     $221,000,      was
        accounted for as a contribution of
        capital  to the  Company  for  the
        period ended December 31, 1997.

                                      F-16

<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements

                Approximate  maturities of long-term  debt
                over the next four years are as follows:


Year ended December 31,
-------------------------------------------------------   ----------
1999                                                      $  246,648
2000                                                       1,808,340
2001                                                          39,996
2002                                                          26,682
-------------------------------------------------------   ----------

7.     Commitments  (a) During September 1997, the Company  commenced leasing of
                    office  space in  Boston  under a  noncancellable  operating
                    lease expiring in September 2000. Minimum rentals under this
                    lease are approximately as follows:


Year ending December 31,
----------------------------------------------------   -------
1999                                                   $50,000
2000                                                    34,400
----------------------------------------------------   -------
Total minimum payments                                 $84,400
----------------------------------------------------   -------

                    Rent expense for the period ended  December 31, 1997 and the
                    year ended December 31, 1998 was  approximately  $21,000 and
                    $112,000, respectively.

                    (b) The  Company  anticipates  entering  into an  employment
                    agreement  with its president  that calls for minimum annual
                    compensation of $175,000.  Bonuses will be determined at the
                    discretion  of the  Board of  Directors.  The  agreement  is
                    anticipated to expire in December 2000.

                                      F-17
<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements

8.   Stockholders' Deficit

                                      Common Stock Split

                                      On September 15, 1997, the Company's Board
                                      of Directors  approved a two-for-one split
                                      of the common stock. The additional shares
                                      resulting   from  the  stock   split  were
                                      distributed  on September  15, 1997 to all
                                      stockholders  of  record  at the  close of
                                      business  on  September   15,  1997.   The
                                      balance sheets as of December 31, 1997 and
                                      1998 and the  statement  of  stockholders'
                                      equity for the  period  from April 8, 1997
                                      to   December   31,   1998   reflect   the
                                      retroactive  recording  of the stock split
                                      as if it had  occurred  on April 8,  1997.
                                      Further,  all  references in the financial
                                      statements  to  average  number  of shares
                                      outstanding and related prices,  per share
                                      amounts  and stock  option  data have been
                                      restated  for all  periods to reflect  the
                                      stock split.

                                      Stock Option Plan

                                      During   September   1997,  the  Board  of
                                      Directors and  stockholders of the Company
                                      adopted a stock  option plan (the  "Option
                                      Plan")  as  an   incentive   for,  and  to
                                      encourage    share   ownership   by,   the
                                      Company's  officers,  directors  and other
                                      key  employees   and/or   consultants  and
                                      potential  management  of possible  future
                                      acquired   companies.   The  Option   Plan
                                      provides   that   options  to  purchase  a
                                      maximum  of  1,000,000  shares  of  common
                                      stock  (subject to  adjustment  in certain
                                      circumstances)  may be  granted  under the
                                      Option  Plan.  The Option Plan also allows
                                      for the  granting  of  stock  appreciation
                                      rights   ("SAR's")  in  tandem  with,   or
                                      independent  of, stock options.  Any SAR's
                                      granted  will not be counted  against  the
                                      1,000,000 limit.

                                      The  Company  applies  APB Opinion No. 25,
                                      "Accounting    for    Stock    Issued   to
                                      Employees", and related Interpretations in
                                      accounting for the Option Plan.  Under APB
                                      Opinion No. 25, no  compensation  cost was
                                      recognized  because the exercise  price of
                                      Worlds' employee stock options equaled the
                                      market  price of the  underlying  stock on
                                      the date of grant.


                                      F-18
<PAGE>
 
                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements

                                      FASB  Statement No. 123,  "Accounting  for
                                      Stock-Based  Compensation",  requires  the
                                      Company to provide  pro forma  information
                                      regarding net loss as if compensation cost
                                      for the  Company's  stock option plans had
                                      been  determined  in  accordance  with the
                                      fair value based method prescribed in FASB
                                      Statement  No. 123. The Company  estimates
                                      the fair value of each stock option at the
                                      grant  date  by  using  the  Black-Scholes
                                      option-pricing  model  with the  following
                                      weighted-average   assumptions   used  for
                                      grants  in  1997  and  1998,  no  dividend
                                      yield;  expected volatility of 30% in 1997
                                      and 46.1% in 1998; risk-free interest rate
                                      of 5.6%  in 1997  and  4.3% in  1998;  and
                                      expected life of 10 years.

                                      Under the  accounting  provisions  of FASB
                                      Statement  No. 123, the Company's net loss
                                      and net loss per  share  would  have  been
                                      adjusted   to  the   pro   forma   amounts
                                      indicated below:

               
                                          Period from          Year ended
                                          inception to         December 31, 1998
                                          December 31, 1997
                                          -----------------    -----------------
Net loss:
  As reported                               $   (6,686,471)    $  (2,648,681)
  Pro forma                                     (6,751,856)       (2,654,185)

Net loss per share (basic and diluted):
     As reported                            $         (.72)    $        (.15)
     Pro forma                                        (.72)             (.15)
                                          -----------------    -----------------

                                      F-19

<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements

                                      A summary of the  status of the  Company's
                                      stock  option plan as of December 31, 1997
                                      and 1998,  and  changes  during  the years
                                      ending on those dates, is presented below:

                              December 31, 1997       December 31, 1998

                                           Weighted                 Weighted
                                           average                  average
                                           exercise                 exercise
                                 Shares    price        Shares      price
----------------------------- ------------ ------------ ----------- ------------
Outstanding at beginning of            
year                                   -      $  -      165,000        $   .50
Granted                          165,000        .50     664,000           1.00
Exercised                              -         -            -            -
Cancelled                              -         -      (35,000)         (1.00)
----------------------------- ------------ ------------ ----------- ------------
Outstanding at end of year       165,000       $.50     794,000        $   .90
----------------------------- ------------ ------------ ----------- ------------
Options exercisable at            13,750       $.50     153,805        $   .78
year-end
----------------------------- ------------ ------------ ----------- ------------
Weighted average fair value                   $  -                     $   -
of options granted during
the year
----------------------------- ------------ ------------ ----------- ------------

                    The  following  table  summarizes  information  about  stock
                    options outstanding at December 31, 1998.

                         Options outstanding                Options exercisable
               -------------------------------------    ------------------------
                                 Weighted 
                  Number of      average     Weighted  Number          Weighted
                  oustanding at  remaining   average   exercisable at  average
    Range of      December 31,   contractual exercise  December 31,    exercise
exercise prices   1998           life        price     1998            price
---------------  -------------- ------------ --------- -------------- ---------
$.50 to $1.00     794,000        9.1         $.90      153,805         $.78

9.     Income Taxes              

                    The use of the  Predecessor's  net operating loss ("NOL") is
                    subject to annual limits due to the ownership change for the
                    Mergers.  In general,  an ownership change occurs if, during
                    any three-year  test period,  the aggregate of all increases
                    in percentage  ownership by  stockholders  is more than 50%.
                    Upon completion of the Mergers  discussed in Note 2, such an
                    ownership change occurred.

                                      F-20

<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements


                    At December 31, 1998,  after  accounting  for the  estimated
                    limitation   of   the    Predecessor's    NOL   carryforward
                    (approximately $100,000 per year over 15 years), the Company
                    has a NOL aggregating approximately $6 million to be used to
                    offset future Federal  income taxes.  A deferred  income tax
                    asset for the Company's NOL has been completely  offset by a
                    valuation   allowance   due  to  the   uncertainty   of  its
                    realization.


10.      Extraordinary Item

                    Extraordinary   Item  During   December  1997,  the  Company
                    negotiated  settlement of certain trade payables  assumed in
                    the Merger with Predecessor. Such payables which amounted to
                    $193,501 were reduced to $67,725 resulting in a gain on debt
                    forgiveness  of  $125,776.  During  1998,  additional  trade
                    payables  amounting to $172,547 were forgiven resulting in a
                    total gain on debt forgiveness since inception of $298,323.


11.     Gain Resulting 
        from Reversal of
        Certain
        Predecessor
        Liabilities

                    During  December 1998,  management  determined  that certain
                    predecessor  Reversal of Certain  liabilities assumed at the
                    date  of  the  Merger  with   Predecessor   were  no  longer
                    Predecessor  Liabilities  owed. During the fourth quarter of
                    1998,   accounts   payable   ($220,000),   accrued  expenses
                    ($154,000) and advanced customer billings ($436,140),  which
                    aggregated  $810,140,  were  reversed and  accounted  for as
                    other income in the accompanying statement of operations for
                    the year ended December 31, 1998.


                                      F-21

<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements

                    The following  table sets forth the computation of basic and
                    diluted loss per share:

<TABLE>



                                             Period from       Year ended
                                             April 8, 1997     December 31, 1998
                                             (inception) to  
                                             December 31, 1997
------------------------------------------   ----------------- ------------
<S>                                          <C>               <C>
 Numerator:
    Loss before extraordinary item           $(6,812,247)      $ (2,821,228)
    Extraordinary item                           125,776            172,547
------------------------------------------   -----------       ------------
         Net loss, numerator for basic        (6,686,471)        (2,648,681)
            loss per share
    Effect of dilutive securities:
       Convertible debt                             --              --
------------------------------------------   -----------       ------------
         Net loss, numerator for             $(6,686,471)      $ (2,648,681)
            diluted loss per share
------------------------------------------   -----------       ------------
 Denominator:
    Denominator for basic loss per             9,336,569         17,170,288
       share - weighted average common
       shares
------------------------------------------   -----------       ------------
    Effect of dilutive securities:
       Convertible debt                             --              --
       Stock options and warrants                 33,343             79,724
------------------------------------------   -----------       ------------
         Dilutive potential common                33,343             79,724
            shares
------------------------------------------   -----------       ------------
    Denominator for diluted loss per           9,369,912         17,250,012
       share - adjusted weighted
       average common shares and
       assumed conversions
------------------------------------------   -----------       ------------
 Basic loss per share                        $      (.72)      $       (.15)
------------------------------------------   -----------       ------------
 Diluted loss per share - as calculated      $      (.71)      $       (.15)
------------------------------------------   -----------       ------------
 Diluted loss per share - as disclosed       $      (.72)      $       (.15)
   due to anti-dilutive effect of
   stock options
------------------------------------------   -----------       ------------

</TABLE>

                                      F-22

<PAGE>

                                  Worlds Inc.
                        (a development stage enterprise)

                         Notes to Financial Statements

                                      For additional  disclosure regarding stock
                                      options,  warrants and  convertible  debt,
                                      see Notes 8, 3 and 6, respectively.

                                      Options  to  purchase   50,000  shares  of
                                      common   stock  at  $5  per   share   were
                                      outstanding  during 1997 and 1998 but were
                                      not included in the computation of diluted
                                      loss per share because the option exercise
                                      price was  greater  than the fair value of
                                      common shares and,  therefore,  the effect
                                      would be anti-dilutive.


13.     Supplemental  
        Cash Flow 
        Information

                    Interest  paid was  approximately  $1,600 and $1,000 for the
                    period  ended  Information  December  31,  1997 and the year
                    ended December 31, 1998, respectively.

                    Noncash investing and financing activities during the period
                    ended  December  31, 1997 and year ended  December  31, 1998
                    included the following:

                    (a)  As  discussed  in  Note  2,  WAC  exchanged  all of the
                    outstanding common and preferred stock of the Predecessor in
                    exchange  for  1,999,996  shares  of  WAC.  Also,   Academic
                    exchanged  all of their  outstanding  common  and  preferred
                    stock  for  910,000  shares of WAC and WAC was  merged  into
                    Academic.

                    (b)  The  Company   recognized  a  gain  of  $221,000   from
                    forgiveness of debt to shareholders of Predecessor  that was
                    recorded as a capital contribution (see Note 6).

                    (c) The Company converted  accounts payable of $250,000 into
                    a note payable (see Note 6).


                                      F-23


<PAGE>

           Worlds Inc. - Predecessor (a development stage enterprise)
                              Financial Statements
                         Period Ended December 3, 1997,
                        Year Ended December 31, 1996 and
           Period from April 26, 1994 (Inception) to December 3, 1997



<PAGE>

           Worlds Inc. - Predecessor (a development stage enterprise)
                              Financial Statements
                         Period Ended December 3, 1997,
                        Year Ended December 31, 1996 and
           Period from April 26, 1994 (Inception) to December 3, 1997

                                      F-24


<PAGE>

                           Worlds Inc. - Predecessor
                        (a devlepment 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.

          Report of independent certified public accountants        F-26

          Financial statements:
             Balance sheet                                          F-27
             Statements of operations                               F-28
             Statements of stockholders' deficit                    F-29
             Statements of cash flows                               F-30
             Summary of accounting policies                         F-31 - F-33
             Notes to financial statements                          F-34 - F-45

                                      F-25

<PAGE>


Report of Independent Certified Public Accountants

The Board of Directors
   and Stockholders of
   Worlds Inc. - Predecessor

We have audited the  accompanying  balance sheet of Worlds Inc. - Predecessor (a
development  stage  enterprise) (the  "Predecessor") as of December 3, 1997, and
the related statements of operations,  stockholders'  deficit and cash flows for
the period  ended  December 3, 1997,  the year ended  December  31, 1996 and the
period from April 26, 1994  (inception)  to  December 3, 1997.  These  financial
statements  are  the  responsibility  of  the  Predecessor's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Worlds Inc. - Predecessor as of
December 3, 1997,  and the results of its  operations and its cash flows for the
period ended  December 3, 1997,  the year ended December 31, 1996 and the period
from April 26,  1994  (inception)  to  December  3,  1997,  in  conformity  with
generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Predecessor  will  continue as a going  concern.  As discussed in the summary of
accounting  policies,  the  Predecessor  is in the  development  stage  and  has
suffered  recurring losses from operations,  has a working capital deficit,  and
has a stockholders'  deficit since inception that raise  substantial doubt about
its  ability to  continue as a going  concern.  Management's  plans in regard to
these  matters are  described  in Note 1  (Development  Stage Risks) and Note 10
(Merger) to the financial  statements.  The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.



BDO Seidman, LLP


San Francisco, California

March 25, 1998

                                      F-26

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                              Balance Sheet

<TABLE>

December 3, 1997(a)
--------------------------------------------------------------------------------------------   ------------
<S>                                                                                            <C>          
Assets
Current:
   Cash and cash equivalents                                                                   $     56,345
   Prepaid expenses and other current assets                                                        167,891
--------------------------------------------------------------------------------------------   ------------
        Total current assets                                                                        224,236
Property and equipment, net (Note 2)                                                                225,775
--------------------------------------------------------------------------------------------   ------------
                                                                                               $    450,011
--------------------------------------------------------------------------------------------   ------------
Liabilities and Stockholders' Deficit
Current liabilities:
   Accounts payable                                                                            $  1,082,236
   Accrued expenses (Note 9)                                                                        669,109
   Advanced customer billings                                                                       436,140
   Advance from Worlds Inc. (formerly Worlds Acquisition Corp.) (Note 10)                           561,397
   Current maturities of notes payable (Note 3)                                                      70,000
--------------------------------------------------------------------------------------------   ------------
        Total current liabilities                                                                 2,818,882
Long-term portion, notes payable (Note 3)                                                         1,766,667
--------------------------------------------------------------------------------------------   ------------
        Total liabilities                                                                         4,585,549
--------------------------------------------------------------------------------------------   ------------
Commitments and contingencies  (Notes 1, 4, 9 and 10)  Stockholders'  deficit
(Note 5):
   Preferred stock, $.0001 par value; designated as Series A; 2,000,000 shares authorized,              180
      1,801,533 shares issued and outstanding
   Preferred stock, $.0001 par value; designated as Series B; 2,300,000 shares authorized,              102
      1,022,726 shares issued and outstanding
   Common stock, $.0001 par value; 15,000,000 shares authorized; 5,535,646 shares issued                553
      and outstanding
   Deferred compensation related to stock options                                                    (5,337)
   Additional paid-in capital                                                                    17,105,103
   Deficit accumulated during development stage                                                 (21,236,139)
--------------------------------------------------------------------------------------------   ------------
        Total stockholders' deficit                                                              (4,135,538)
--------------------------------------------------------------------------------------------   ------------
                                                                                               $    450,011
--------------------------------------------------------------------------------------------   ------------

</TABLE>

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

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


                                      F-27

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                       Statements of Operations


<TABLE>




                                                            Year ended          Period ended          Period from
                                                         December 31, 1996   December 3, 1997(a)    April 26, 1994
                                                                                                    (inception) to
                                                                                                  December 3, 1997(a)
   ---------------------------------------------------- -------------------- -------------------- --------------------
<S>                                                     <C>                  <C>                  <C>                 
   Net revenues (Note 6)                                   $   3,784,019       $       80,720        $   6,026,691
   ---------------------------------------------------- -------------------- -------------------- --------------------
   Costs and expenses:
      Cost of revenues                                         6,014,432               32,304           11,279,348
      Research and development                                 2,446,724              452,897            5,388,340
      Selling, general and administrative                      4,901,628            2,399,887           10,602,749
      Lawsuit settlements (Note 9)                               509,200                    -              509,200
   ---------------------------------------------------- -------------------- -------------------- --------------------
           Total costs and expenses                           13,871,984            2,885,088           27,779,637
   ---------------------------------------------------- -------------------- -------------------- --------------------
           Operating loss                                    (10,087,965)          (2,804,368)         (21,752,946)
   Other income and (expenses):
      Interest income                                            115,956               10,343              237,629
      Interest expense                                           (16,750)            (139,650)            (171,082)
      Gain (loss) on disposal of property and                    (83,195)               4,070              (79,125)
         equipment
      Income from sale of technology (Note 7)                          -              260,100              260,100
   ---------------------------------------------------- -------------------- -------------------- --------------------
           Loss before income taxes and extraordinary        (10,071,954)          (2,669,505)         (21,505,424)
              item
   Income taxes (Note 8)                                        (115,000)              (5,000)            (120,000)
   ---------------------------------------------------- -------------------- -------------------- --------------------
           Loss before extraordinary item                    (10,186,954)          (2,674,505)         (21,625,424)
   Extraordinary item - gain on debt settlement                        -              389,285              389,285
      (Note 3)
   ---------------------------------------------------- -------------------- -------------------- --------------------
   Net loss                                                 $(10,186,954)         $(2,285,220)        $(21,236,139)
   ---------------------------------------------------- -------------------- -------------------- --------------------

</TABLE>

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

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

                                      F-28


<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)


                                             Statements of Stockholders'Deficit

<TABLE>

                             Common stock            Preferred stock          Deferred                                    
                                                                              compen-   Additional   Accumulated    Total
                                                                              sation    paid-in      deficit        stockholders'
                                                                              on stock  capital                     deficit
                                                                              options
                                                Series A          Series B
                           --------- ------ ---------------- ----------------
                             Shares  Amount   Shares  Amount   Shares  Amount
                           --------- ------ --------- ------ --------- ------ --------- ------------ ------------- ------------
<S>                        <C>       <C>    <C>       <C>    <C>       <C>    <C>       <C>          <C>           <C>
Balance, January 1, 1996   5,274,260  $527  1,801,533  $180          -  $  -  $(45,647) $ 8,385,184  $ (8,763,965) $  (423,721)
Issuance of common stock     261,386    26          -     -          -     -         -      112,795             -      112,821
Issuance of Series B               -     -          -     -  1,022,726   102         -    8,618,887             -    8,618,989
   preferred stock at
   $8.80 per share, net
   of issuance costs of
   $381,000
Compensation related to            -     -          -     -          -     -    24,202       (9,394)            -       14,808
   stock options
Net loss for the year              -     -          -     -          -     -         -            -   (10,186,954) (10,186,954)
-------------------------- --------- ------ --------- ------ --------- ------ --------- ------------ ------------- ------------
Balance, December 31, 1996 5,535,646   553  1,801,533   180  1,022,726   102   (21,445)  17,107,472   (18,950,919)  (1,864,057)
Compensation related to            -     -                -          -     -    16,108       (2,369)            -       13,739
   stock options
Net loss for the period            -     -                -          -     -        -             -    (2,285,220)  (2,285,220)
   ended December 3, 1997
-------------------------- --------- ------ --------- ------ --------- ------ --------- ------------ ------------- ------------
Balance, December 3, 1997  5,535,646  $553  1,801,533  $180  1,022,726  $102  $ (5,337) $17,105,103  $(21,236,139) $(4,135,538)
-------------------------- --------- ------ --------- ------ --------- ------ --------- ------------ ------------- ------------

</TABLE>

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


                                      F-29

<PAGE>


                            Worlds Inc. - Predecessor
                        (a development stage enterprise)


                                                       Statements of Cash Flows

<TABLE>
                                                                  Year ended      Period ended      Period from
                                                                 December 31,      December 3,     April 26, 1994
                                                                     1996            1997(a)       (inception) to
                                                                                                    December 3,
                                                                                                      1997(a)
-------------------------------------------------------------- ----------------- ---------------- -----------------
<S>                                                            <C>               <C>              <C>                     
Cash flows from operating activities:
   Net loss                                                     $(10,186,954)      $(2,285,220)    $(21,236,139)
   Adjustments to reconcile net loss to net cash used in
      operating activities:
        Depreciation and amortization                                344,345           213,434          721,097
        (Gain) loss on disposal of property and equipment             83,195            (4,070)          79,125
        Gain on debt settlement                                            -          (389,284)        (389,284)
        Compensation related to stock options                         14,808            13,739          761,453
        Compensation related to common stock issuance                 58,525                 -           58,525
        Licensed technology expense                                        -                 -          750,000
        Changes in operating assets and liabilities:
           Trade receivables                                         342,294           489,050                -
           Prepaid expenses and other assets                         266,057           (42,575)        (167,891)
           Accounts payable and accrued liabilities                  226,212            (2,755)       1,856,619
           Advanced customer billings and deferred revenue          (396,667)                -          436,140
-------------------------------------------------------------- ----------------- ---------------- -----------------
              Net cash used in operating activities               (9,248,185)       (2,007,681)     (17,130,355)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Cash flows used in investing activities:
   Acquisition of property and equipment                            (476,966)           (2,063)        (999,302)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Cash flows from financing activities:
   Proceeds from issuance of common stock                             54,296                 -          116,857
   Proceeds from issuance of preferred stock, net of               8,618,989                 -       16,163,766
      issuance costs
   Advance from Worlds Inc. (formerly Worlds Acquisition                   -           561,397          561,397
      Corp.)
   Payments on capital lease                                         (56,724)                -         (116,018)
   Payments on note payable                                         (110,000)          (40,000)        (190,000)
   Proceeds from note payable                                      1,000,000           650,000        1,650,000
-------------------------------------------------------------- ----------------- ---------------- -----------------
              Net cash provided by financing activities            9,506,561         1,171,397       18,186,002
-------------------------------------------------------------- ----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents                (218,590)         (838,347)          56,345
Cash and cash equivalents, beginning of period                     1,113,282           894,692                -
-------------------------------------------------------------- ----------------- ---------------- -----------------
Cash and cash equivalents, end of period                       $     894,692     $      56,345    $      56,345
-------------------------------------------------------------- ----------------- ---------------- -----------------
Supplemental disclosures of cash flow information:
   Interest paid                                               $       9,234     $           -    $      23,916
   Income taxes paid                                                   5,064               556            5,620
-------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
Disclosures of noncash financing and investing  activities:
In 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.

                                      F-30

<PAGE>


                            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  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 10, 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.


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. The Predecessor decided in December 1996 to close
                    its Seattle  operations  resulting  in a $110,000  charge to
                    operations for the year ended December 31, 1996.

                                      F-31

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)
     
                                               Summary of Accounting Policies

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.  Maintenance and repairs are expensed as incurred and
                    improvements are capitalized.


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-32

<PAGE>

                           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 year ended  December  31,
                    1996, five customers  accounted for 74% of the Predecessor's
                    revenues.   For  the  period  ended  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 (see Note 5).


                                      F-33

<PAGE>

                            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 had a
                    working  capital  deficit of $2,368,871 and a  stockholders'
                    deficit of $4,135,538.  As discussed in Note 10, on December
                    3, 1997, the Predecessor consummated a merger agreement with
                    WAC,  a company  which  had  completed  a private  placement
                    offering of securities  whereby $4,385,000 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-34

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                             Notes to Financial Statements

2.    Property and
      Equipment

                    A summary of property  and  equipment as of December 3, 1997
                    is as follows:

December 3, 1997
-------------------------------------------------------   --------
Computers, software and equipment                         $650,557
Less:  Accumulated depreciation and amortization           424,782
-------------------------------------------------------   --------
                                                          $225,775
-------------------------------------------------------   --------


3.     Notes Payable              December 3, 1997
                          ------------------------------------------------------
                          Bridge loan payable to stockholders        $1,650,000
                          Technology obligation                         186,667
                          ------------------------------------------------------
                                                                      1,836,667
                          Less:  Current portion                         70,000
                          ------------------------------------------------------
                                                                     $1,766,667
                          ------------------------------------------------------

                    On December 13, 1996, the Predecessor received a Bridge Loan
                    totaling   $1,000,000   from  two  preferred   stockholders.
                    Additional  advances of $650,000  were made under the Bridge
                    Loan during the  eleven-month  period ended December 3, 1997
                    ($500,000  in  January  1997 and  $50,000  in June 1997 were
                    received from the same preferred stockholders;  and $100,000
                    was  received  in May 1997  from an  affiliated  person of a
                    stockholder).  These  advances  under the  Bridge  Loan were
                    granted  in  return  for  convertible  promissory  notes and
                    options  at  $0.88  per  share   (Predecessor   management's
                    estimate of fair value of common stock as of December  1996)
                    on 500,000 shares of the Predecessor's  common stock held by
                    a founder and officer of the  Predecessor as of December 31,
                    1996  (825,000  shares at December 3,  1997).  Such  options
                    (which  had a  nominal  value  at date of  issuance)  remain
                    exercisable for 36 months,  but terminate  immediately  upon
                    the  consummation  of an  initial  public  offering  of  the
                    Predecessor's  capital stock or any  consolidation or merger
                    by the Predecessor or any sale, conveyance or disposition of
                    all or  substantially  all of the assets of the Predecessor;
                    such  an  event  occurred  on  December  3,  1997  when  the
                    Predecessor  consummated a merger (Note 10). The noteholders
                    had the option to convert the outstanding  principal balance
                    and  unpaid  accrued  interest  into  Predecessor's   equity
                    securities  at the  closing of  Predecessor's  next round of
                    equity  financing,  at the price  per  share of such  equity
                    securities. The loan bears interest at a rate of 9% from the
                    date of the  advances.  Accrued  interest  is  approximately
                    $141,000 at December 3, 1997.



                                      F-35

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    In June 1997, the Predecessor  renegotiated the terms of the
                    Bridge  Loan to  convert  it to a three  year  loan  bearing
                    interest at 7.5% and the option to convert into common stock
                    based on the conversion price of $4.375, $5.00 and $5.625 in
                    each of the three years following consummation of the merger
                    of  the  Predecessor  into  Worlds  Inc.   (formerly  Worlds
                    Acquisition  Corp)  (see  Note  10).  The  loan  will not be
                    payable  until the earlier of maturity  or  conversion.  The
                    holders of the loan will also receive warrants to acquire an
                    aggregate  of 100,000  shares of common stock at an exercise
                    price  equal to $5.00 per  share.  There  was no  conversion
                    benefit associated with the convertible  promissory notes at
                    date of issuance nor at the date of renegotiation.

                    On January 3, 1995, the Predecessor purchased technology for
                    $750,000  under a license  agreement  with Kinetic  Effects,
                    Inc.  ("Kinetic")  and Simon  Fraser  University  of British
                    Columbia ("SFU").  At December 31, 1996, the Predecessor had
                    an obligation to make monthly payments of $10,000 ($6,667 to
                    SFU and  $3,333  to  Kinetic)  through  November  2000.  The
                    purchased technology was charged to research and development
                    expense in 1995. This obligation was  renegotiated  downward
                    in August 1997 to $186,667, with monthly payments to Kinetic
                    of $3,333  over 56 months.  Kinetic is an entity  affiliated
                    with  a  prior  officer  and  current   shareholder  of  the
                    Predecessor. In September 1997, the Predecessor renegotiated
                    the  terms  with  SFU.  In  exchange   for  the  removal  of
                    exclusivity  rights on the technology,  $373,333 of the debt
                    was forgiven and has been included within the  extraordinary
                    item of  $389,285 in the  statement  of  operations  for the
                    period ended December 3, 1997.


                                      F-36

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    Approximate  maturities of long-term debt over the next four
                    years are as follows:

                    -----------------------------------   ----------
                    1998                                  $   70,000
                    1999                                      40,000
                    2000                                   1,690,000
                    2001                                      36,667
                    -----------------------------------   ----------

4.  Lease  Commitments  

                    The Predecessor  has no lease  commitments as of December 3,
                    1997.

                    Rent  expense  for  office   space,   computers  and  office
                    equipment  was  approximately  $312,000 for the period ended
                    December 3, 1997 and  $1,487,000 for the year ended December
                    31, 1996.

5.  Stockholders' 
    Deficit     

                    Preferred Stock

                    Each  share of  Series A and  Series  B  preferred  stock is
                    convertible,  at the option of the  holder,  into fully paid
                    shares of common stock.  The  conversion  rate is based upon
                    the original  purchase  price,  subject to  adjustments  for
                    stock dividends,  stock splits, and capital  reorganizations
                    and price based anti-dilution, currently one-to-one.

                    Each  share  of  Series  A  and  Series  B  preferred  stock
                    automatically  converts to common stock upon the affirmative
                    vote of the majority of the  outstanding  preferred stock or
                    the closing of an underwritten  public offering of shares of
                    the  Predecessor's  common stock resulting in total proceeds
                    of at least $15,000,000.  The holders of the preferred stock
                    are entitled to one vote on an "as if converted" basis.


                                      F-37

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    Holders  of  Series  A and  Series  B  preferred  stock  are
                    entitled to receive  dividends,  prior and in  preference to
                    any declaration or payment of any dividends on common stock,
                    at the rate of $0.39 for Series A and $0.79 for Series B per
                    share per annum.  Such dividends are not cumulative,  except
                    in the event  that the  Predecessor  does not enter  into an
                    initial public offering of at least  $15,000,000 in proceeds
                    to the  Predecessor on or before May 31, 1998, in which case
                    the dividends are cumulative effective May 31, 1998, and are
                    payable when and if declared by the  Predecessor's  Board of
                    Directors in cash legally available for distribution,  or in
                    stock,  if no cash is legally  payable.  As of  December  3,
                    1997, no dividends have been declared.

                    In the  event  of  liquidation,  consolidation,  merger,  or
                    winding up of the Predecessor  prior to conversion,  holders
                    of preferred stock are entitled to receive, in preference to
                    the  holders  of  common  stock,  an  amount  equal to their
                    liquidation  amount  or a pro rata  share  of the  remaining
                    assets,  based on their ownership of the Predecessor.  As of
                    December 3, 1997, the aggregate  liquidation  preference was
                    approximately $16,657,000.

                    A Series A preferred stock investor also has a stock warrant
                    which  provides  the  right to  purchase  shares of Series A
                    preferred stock  sufficient to bring its holdings on a fully
                    diluted  basis  to  21%  of the  Predecessor's  shares.  The
                    warrant expires in the event of a qualified  public offering
                    or when the holder of preferred  stock no longer  chooses to
                    exercise its existing  anti-dilution  rights. The warrant is
                    exercisable  at fair market value at date of exercise.  As a
                    result of the merger  described  in Note 10,  such  warrants
                    were  extinguished  and the preferred  stock described above
                    (as well as the  Predecessor's  common  stock) was exchanged
                    for 1,999,996 shares of WAC.

                                      F-38

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements


                    Stock Option Plan

                    Prior to the mergers  described in Note 10, the  Predecessor
                    had reserved  4,500,000  shares of common stock for issuance
                    under the 1994 Amended and  Restated  Stock Option Plan (the
                    "Plan"),  which  authorized  the granting of  incentive  and
                    nonstatutory  stock options to employees and  consultants of
                    the Predecessor. Under this Plan, the Predecessor's Board of
                    Directors  would grant stock options at prices not less than
                    85%  of  fair  value.   The  options  were  all  immediately
                    exercisable  and were  subject  to  vesting  at times and in
                    increments  as  specified  by  the  Predecessor's  Board  of
                    Directors.  Options  generally  vested  over three years and
                    expired 10 years from date of grant.

                    The Predecessor  applies APB Opinion No. 25, "Accounting for
                    Stock Issued to Employees",  and related  Interpretations in
                    accounting  for the Plan.  Under APB Opinion No. 25, because
                    the exercise price of the Predecessor's stock options equals
                    or exceeds the market price of the  underlying  stock on the
                    date  of  grant,   no   compensation   cost  is  recognized.
                    Compensation or other expense is recorded based on intrinsic
                    value (excess of current  price over exercise  price on date
                    of grant) for employees, and fair value of the option awards
                    for others.

                    FASB  Statement  No.  123,   "Accounting   for   Stock-Based
                    Compensation", requires the Predecessor to provide pro forma
                    information  regarding net loss as if compensation  cost for
                    the Predecessor's  stock option plans had been determined in
                    accordance  with the fair value based method  prescribed  in
                    FASB Statement No. 123. The  Predecessor  estimates the fair
                    value of each  stock  option at the grant  date by using the
                    minimum value  approach with the following  weighted-average
                    assumptions used for grants in 1996 and 1997,  respectively;
                    no dividend  yield for any year;  near-zero  volatility  for
                    both years; risk-free interest rates of 6.6% for both years;
                    and expected lives ranging from 1 month to 3 years.


                                      F-39

<PAGE>
                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    Under the  accounting  provisions of FASB Statement No. 123,
                    the  Predecessor's  net loss would have been adjusted to the
                    pro forma amounts indicated below:


                                            Year ended        Period ended
                                         December 31,1996   December 3, 1997
                    ------------------   ----------------   ----------------
                    Net loss:
                       As reported          $(10,186,952)   $(2,265,776)
                       Pro forma             (10,242,063)    (2,328,421)
                    ------------------   ----------------   ----------------

                    The fair  value of  options  granted  in 1996 was  $133,245;
                    there were no options granted in 1997.

                    The following table summarizes the stock option activity:

                            Options        Options outstanding       Weighted
                            available                                average
                            for grant                                price per
                                                                     share
                                         ------------- ------------
                                            Shares      Price per
                                                          share
-------------------------- ------------- ------------- ------------ -----------
Balance, January 1, 1996       668,245       969,902     $.01-.43      $.379
Options authorized           1,000,000             -            -          -
Options granted             (1,171,000)    1,171,000      .43-.88        .82
Option exercised                     -      (261,386)     .20-.88        .43
Options canceled               489,704      (489,704)     .20-.88        .55
-------------------------- ------------- ------------- ------------ -----------
Balance, December 31, 1996     986,949     1,389,812      .20-.88        .68
Options granted                      -             -            -          -
Option exercised                     -             -            -          -
Options canceled                     -             -            -          -
-------------------------- ------------- ------------- ------------ -----------
Balance, December 31, 1997     986,949     1,389,812     $.20-.88      $ .68
-------------------------- ------------- ------------- ------------ -----------

                    As a result of the  mergers  described  in Note 10, the Plan
                    and all options  thereunder  were terminated and a new stock
                    option plan, as described in Note 10, was adopted.


                                      F-40

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)
     
                                                  Notes to Financial Statements

6.  Related  Party  
    Revenue 

                    For the year ended December 31, 1996, $1,276,780 of revenues
                    from technology  development  contracts were attributable to
                    three preferred  stockholders  of Predecessor.  There was no
                    related party revenue for the period ended December 3, 1997.

                                      
7.     Income from Sale of       
       Technology

                    In March 1997,  Predecessor  sold certain of its  internally
                    developed  computer  software  programs  for net proceeds of
                    $260,100.

8.     Income Taxes              

                    From its inception, the Predecessor has generated losses for
                    both financial reporting and tax purposes. As of December 3,
                    1997,  the  Predecessor's  net operating  losses for Federal
                    income tax purposes  were  approximately  $19  million,  and
                    expire between the years 2009 and 2012. For state income tax
                    purposes,  as of December 3, 1997, the  Predecessor  had net
                    operating loss carryforwards of approximately  $14.8 million
                    for the State of  California  which will expire 2002.  As of
                    December 3, 1997, the combined Federal and state tax benefit
                    of the net operating  loss  carryforwards  is  approximately
                    $7.3  million  and  the  deferred  tax  asset   relating  to
                    accounting  differences  for  depreciation,  certain accrued
                    expenses and technology  costs was  approximately  $300,000.
                    This  deferred  tax asset  totaling  $7.6  million  has been
                    completely offset by a valuation  allowance since management
                    cannot  determine  that it is more  likely than not that the
                    deferred  tax  asset  can be  realized.  The use of such net
                    operating  loss  carryforwards  will be  subject  to  annual
                    limits  if  the   Predecessor  has  incurred  an  "ownership
                    change".  In general,  an ownership change occurs if, during
                    any three-year  test period,  the aggregate of all increases
                    in percentage  ownership by  stockholders  is more than 50%.
                    Upon completion of the merger  discussed in Note 10, such an
                    "ownership change" occurred.

                                      F-41

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    The provision  for income taxes for the year ended  December
                    31, 1996 and the period ended December 3, 1997 consists of:


                                            Year ended       Period ended
                                         December 31,1996   December 3, 1997
-------------------------------------   -----------------   -----------------
Foreign income taxes withheld (a)             $105,000        $ --
State income taxes - current                    10,000         5,000
---------------------------------------------------------   --------  
                                              $115,000        $5,000
---------------------------------------------------------   --------            

                    (a) Foreign income taxes  withheld  relates to two preferred
                    stockholders located in Japan.

                    The Predecessor has $156,000 in research  credits  available
                    to reduce future  Federal  income taxes which expire between
                    the  years  2009  and  2011.   Due  to  the   merger,   this
                    carryforward will be substantially reduced.


9.     Contingencies             

                    In  1996,  the  Predecessor   incurred  lawsuit   settlement
                    expenses totaling $509,200, of which $154,000 is included in
                    accrued  liabilities at December 3, 1997.  These  settlement
                    expenses  relate  principally to claims by former  employees
                    and are  exclusive  of legal fees  included  in general  and
                    administrative   expenses  in  the  accompanying   financial
                    statements.

                    The  Predecessor  is  currently a defendant  in two lawsuits
                    filed  by  a  former  employee  of  Predecessor:  Fraser  v.
                    Knowledge  Adventure Worlds, Inc. d/b/a Worlds Inc., et al.,
                    San  Francisco  Superior  Court  No.  974470  ("State  Court
                    Action");  and Fraser v. Worlds Inc.,  U.S.  District Court,
                    Northern  District of California  No.  C97-0277 CW ("Federal
                    Action").


                                      F-42

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    In the State Court  Action  filed in December  1995,  Fraser
                    alleged  various  contract  and  tort  claims  for  wrongful
                    termination  and sought  damages  ranging  from  $500,000 to
                    $2,000,000.  Pursuant to mediation in July 1996, the parties
                    reached a tentative  settlement.  In February 1997,  parties
                    again   reached  a  tentative   settlement,   this  time  in
                    connection  with both the State Court and  Federal  Actions.
                    Pursuant to terms of the stipulated settlement, Fraser filed
                    a motion for entry of judgment.  The  Predecessor  filed its
                    opposition  to this  motion and, at a hearing on December 4,
                    1997, the Court again ruled in favor of the  Predecessor and
                    approved   the   Predecessor's   proposed   version  of  the
                    settlement   agreement  which,  among  other  things,  would
                    terminate  both the State  Court  and  Federal  Actions.  On
                    December 18, 1997, Fraser filed a motion for reconsideration
                    and a motion to take  discovery.  The Court  again  ruled in
                    favor of the Predecessor  and denied  Fraser's  motions at a
                    hearing on January 22, 1998.

                    In  the  Federal  Action,  filed  in  January  1997,  Fraser
                    asserted  claims for damages of $200,000 in connection  with
                    the use of "Worlds" name on the World Wide Web. On September
                    26, 1997,  Fraser filed a motion  requesting  enforcement of
                    his  version  of the terms of the  tentative  settlement  of
                    February 1997. On October 23, 1997,  Fraser also moved for a
                    temporary  restraining  order and a preliminary  injunction.
                    The  Predecessor  opposed  both of Fraser's  motions and, on
                    October  31,  the Court  denied the  October  23 motion.  On
                    November 7, 1997, the Court also denied  Fraser's  motion of
                    September  26, and ordered the parties to  participate  in a
                    settlement  conference,  scheduled for January 5, 1998. That
                    conference has now been continued to April 13, 1998.

                    Predecessor  management and counsel believe that the maximum
                    additional  liability  for  resolution of these two lawsuits
                    would  be  approximately  $150,000,  which  amount  has been
                    included in accrued expenses at December 3, 1997.

                                      F-43

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    During  February  1998,  the  Predecessor  was  named  as  a
                    defendant  in a  lawsuit  filed  by  a  former  employee  of
                    Predecessor  seeking damages of approximately  $70,000 (plus
                    interest and fees)  relating to termination of an employment
                    contract.   The  lawsuit  is  in  the  pre-discovery  phase.
                    Management believes that settlement,  if any, would not have
                    a  material  adverse  effect  on   Predecessor's   financial
                    position or results of operations.

10.  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.  During  the  period  ended
                    December 3, 1997, WAC advanced the Predecessor  $561,397 for
                    working capital. Such advance is noninterest bearing with no
                    fixed repayment terms. 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-44

<PAGE>

                           Worlds Inc. - Predecessor
                        (a development stage enterprise)

                                                  Notes to Financial Statements

                    As a result of the Mergers,  the  Combined  Entity now has a
                    Stock Option Plan (the "Option  Plan") as an incentive  for,
                    and to encourage share ownership by, its officers, directors
                    and other key  employees  and/or  consultants  and potential
                    management of possible future acquired companies. The Option
                    Plan   provides  that  options  to  purchase  a  maximum  of
                    1,000,000  shares of common stock  (subject to adjustment in
                    certain circumstances) may be granted under the Option Plan.
                    The  Option  Plan  also  allows  for the  granting  of stock
                    appreciation    rights   ("SARs")   in   tandem   with,   or
                    independently  of, stock options.  Any SARs granted will not
                    be counted against the 1,000,000  limit. WAC granted 165,000
                    options to a director and employees during 1997.

                                      F-45

<PAGE>


                                   SIGNATURES

                  Pursuant  to the  requirements  of  Section 13 or 15(d) of the
Securities  Exchange Act of 1934,  Registrant  has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

                                    WORLDS INC.


                                    By:  /s/                                
                                        Thomas Kidrin
                                        President and CEO

Dated: 30th day of March, 1999

                  Pursuant to the requirements of the Securities Exchange Act of
1934,  this Report has been signed below by the  following  persons on behalf of
Registrant and in the capacities indicated.


/s/                                 Date: March 30, 1999

Thomas Kidrin
President, CEO and Director
(Chief Financial/Accounting Officer)


/s/                                 Date: March 30, 1999
Michael J. Scharf
Chairman


/s/                                 Date: March 30, 1999
Kenneth A. Locker
Director