UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended
June 30, 2011

( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________
to __________________

Commission File number 0-24115

WORLDS ONLINE INC.

(not affiliated with Worldcom, Inc.)
(Exact Name of Registrant as Specified in Its Charter)

|Delaware                                                       | 27-4672745                          
|-------------------------------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.)
|                                                               |                                     

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

(617) 909-4043(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]



Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes [ ] No [ ]



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

Large accelerated filer [ ] Accelerated
filer [ ]

Non-accelerated filer [ ] Smaller
reporting company [X]

(Do not check if a smaller reporting
company)

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

As of June 30, 2011 and January 23, 2012, 526,315 shares
of the Issuer's Common Stock were outstanding.





Worlds Online Inc.

Table of Contents

|                                                                                                                                      | Page
|------------------------------------------------------------------------------------------------------------------------------------- | ----
|Condensed Balance Sheets as of June 30, 2011 (unaudited) and May 31, 2011 (audited)                                                   | 2   
|Condensed Statements of Operations for the three months ended June 30, 2011 and since inception and ending  June 30, 2011 (unaudited) | 3   
|Condensed Statements of Cash Flows for the period from inception and ending June 30, 2011 (unaudited)                                 | 4   
|Notes to Condensed Financial Statements                                                                                               | 5   
|                                                                                                                                      |     







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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Worlds Online Inc.

Balance Sheets

June 30, 2011 and May 31, 2011

|                                                                                                               |  | Unaudited |           | Audited  
|-------------------------------------------------------------------------------------------------------------- |  | --------- | --------- | ---------
|                                                                                                               |  | 30-Jun-11 |           | 31-May-11
|Current Assets                                                                                                 |  |           |           |          
|Cash and cash equivalents                                                                                      |  | $         | 271,006   |          
|                                                                                                               |  |           |           |          
|Total Current Assets                                                                                           |  |           | 271,006   |          
|                                                                                                               |  |           |           |          
|Total Assets                                                                                                   |  | $         | 271,006   |          
|                                                                                                               |  |           |           |          
|                                                                                                               |  |           |           |          
|                                                                                                               |  |           |           |          
|Current Liabilities                                                                                            |  |           |           |          
|Accrued expenses                                                                                               |  | $         | 75,443    |          
|Account payable related party                                                                                  |  |           | 16,834    |          
|Deferred revenue                                                                                               |  |           | 226,950   |          
|                                                                                                               |  |           |           |          
|Total Current Liabilities                                                                                      |  |           | 319,227   |          
|                                                                                                               |  |           |           |          
|                                                                                                               |  |           |           |          
|Stockholders (Deficit)                                                                                         |  |           |           |          
|                                                                                                               |  |           |           |          
|Common stock (Par value $0.001 authorized 100,000,000 shares, issued and outstanding 526,315 at June 30, 2011) |  | $         | 526       |          
|Common stock warrants                                                                                          |  |           | 1,165,563 |          
|Additional Paid in Capital                                                                                     |  |           | (947,354  | )        
|Accumulated Deficit                                                                                            |  |           | (266,956  | )        
|Total stockholders deficit                                                                                     |  |           | (48,221   | )        
|                                                                                                               |  |           |           |          
|Total Liabilities and stockholders deficit                                                                     |  | $         | 271,006   |          



|                                                                                                       
|-------------------------------------------------------------------------------------------------------
|See Notes to Condensed Financial Statements and Report of Independent Registered Public Accounting Firm







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Worlds Online Inc.

Statement of Operations

From Formation on January 25, 2011 and Three
Months Ended June 30, 2011

|                                                          |  | Unaudited         |          | Unaudited         
|--------------------------------------------------------- |  | ----------------- | -------- | ------------------
|                                                          |  | from formation to |          | Three months ended
|                                                          |  | 30-Jun-11         |          | 30-Jun-11         
|Revenues                                                  |  |                   |          |                   
|Revenue                                                   |  | $                 | 50,310   |                   
|                                                          |  |                   |          |                   
|Total                                                     |  |                   | 50,310   |                   
|                                                          |  |                   |          |                   
|                                                          |  |                   |          |                   
|Cost and Expenses                                         |  |                   |          |                   
|                                                          |  |                   |          |                   
|Cost of Revenue                                           |  |                   | 2,100    |                   
|                                                          |  |                   |          |                   
|Gross Profit                                              |  |                   | 48,210   |                   
|                                                          |  |                   |          |                   
|                                                          |  |                   |          |                   
|Directors fees paid with options                          |  |                   | 195,615  |                   
|Selling, General & Admin                                  |  |                   | 100,628  |                   
|Salaries                                                  |  |                   | 18,923   |                   
|                                                          |  |                   |          |                   
|Operating (loss)                                          |  |                   | (266,956 | )                 
|                                                          |  |                   |          |                   
|                                                          |  |                   |          |                   
|Other Income (Expense)                                    |  |                   |          |                   
|                                                          |  |                   | —        |                   
|                                                          |  |                   |          |                   
|Net (Loss)                                                |  | $                 | (266,956 | )                 
|                                                          |  |                   |          |                   
|Weighted Average Loss per share (basic and fully diluted) |  |                   | (9.21    | )                 
|Weighted Average Common Shares Outstanding                |  |                   | 28,984   |                   



|See Notes to Condensed Financial Statements and Report of Independent Registered Public Accounting Firm
|-------------------------------------------------------------------------------------------------------









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Worlds Online Inc

Statements of Cash Flows

For The Period From formation (January
25, 2011) through June 30, 2011

|                                                  |  | 30-Jun-11
|------------------------------------------------- |  | ---------
|Cash flows from operating activities:             |  |          
|Net (loss)                                        |  | $        
|Adjustments to reconcile net (loss) to net cash   |  |          
|provided by operating activities                  |  |          
|Fair value of stock options issued to Directors   |  |          
|Accrued expenses                                  |  |          
|                                                  |  |          
|Due to related party                              |  |          
|Deferred revenue                                  |  |          
|                                                  |  |          
|Net cash provided by operating activities:        |  |          
|                                                  |  |          
|                                                  |  |          
|Cash flows from investing activities:             |  |          
|                                                  |  |          
|Net cash used in investing activities:            |  |          
|                                                  |  |          
|Cash flows from financing activities:             |  |          
|Proceeds from issuance of common stock            |  |          
|                                                  |  |          
|Net cash provided by financing activities         |  |          
|                                                  |  |          
|Net increase in cash and cash equivalents         |  |          
|                                                  |  |          
|Cash and cash equivalents beginning of period     |  |          
|                                                  |  |          
|Cash and cash equivalents end of period           |  | $        
|                                                  |  |          
|Non-cash financing activities:                    |  |          
|                                                  |  |          
|Stock options issued as part of stock dividend    |  | $        
|                                                  |  |          
|                                                  |  |          
|Supplemental disclosure of cash flow information: |  |          
|Cash paid during the period for:                  |  |          
|Interest                                          |  | $        
|Income taxes                                      |  | $        





|See Notes to Condensed Financial Statements and Report of Independent Registered Public Accounting Firm
|-------------------------------------------------------------------------------------------------------















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Worlds Online Inc.

NOTES TO FINANCIAL STATEMENTS

Since Inception January 25, 2011 and Three Months
Ended June 30, 2011

(Unaudited)



NOTE 1 – DESCRIPTION OF BUSINESS AND
SUMMARY OF ACCOUNTING POLICIES



Description of Business



Worlds Online Inc. (the "Company")
designs and develops software content and related technologies for the creation of interactive, three-dimensional ("3D")
Internet sites on the World Wide Web. Using licensed technology the Company creates its own Internet sites, as well as sites available
through third party on-line service providers.

The Company was formed on January 25,
2011 as a wholly-owned subsidiary of Worlds Inc. (formerly known as Worlds.com Inc.). On May 16, 2011, Worlds Inc. transferred
to the Company the majority of its operations and related operational assets, except for its patent portfolio. Worlds Inc. has
also given to the Company a perpetual world-wide license to its patented technology. Pursuant to the license, the Company has the
right to issue unlimited sublicenses to the licensed technology, subject to World Inc.’s reasonable consent.

The assets transferred to us include:
Worlds Inc.’s technology platform, Worlds Ultimate Chat, Aerosmith World, DMC Worlds, Cinema Virtual, Pearson contracts and
related revenue, the following URLs: Worlds.com, Cybersexworld.com, Hang.com, and Worldsfunds.com, a digital inventory of over
10,000 3D objects, animation sequences, an extensive avatar library, texture maps and virtual world architectures. None of the
transferred assets have any carrying value on the financial statements of the Company.

Basis of Presentation



The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"),
which contemplates continuation of the Company as a going concern. The Company will require substantial additional funds for development
and marketing of its products. There can be no assurance that the Company will be able to obtain the substantial additional capital
resources necessary to pursue its business plan or that any assumptions relating to its business plan will prove to be accurate.
To date, the company has not generated sufficient revenue or obtained sufficient financing to fully implement its business plan.
These factors raise substantial doubt about the Company's ability to continue as a going concern.

Use of Estimates

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

Cash and Cash Equivalents

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

Revenue Recognition

The Company has the following sources
of revenue: (1) consulting/licensing revenue from the performance of development work performed on behalf of the Company, licensing
revenue or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service.   The
Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract,
delivery has occurred, the price is fixed or determinable, and collectibility is reasonable assured.  This will usually
be in the form of a receipt of a customer’s acceptance indicating the product has been completed to their satisfaction except
for development work and service revenue which is recognized when the services have been performed.  Deferred revenue
represents cash payments received in advance to be recorded as revenue when earned.  The corresponding cost associated
with those contracts is also deferred as deferred costs until the revenue is ultimately recognized.

Research and Development Costs

Research and development costs will
be charged to operations as incurred.





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Property and Equipment

Property and equipment will be stated
at cost.   Depreciation will be provided on a straight line basis over the estimated useful lives of the assets
ranging from three to five years.  When assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in income.  Maintenance and repairs will be
charged to expense in the period incurred.

Impairment of Long Lived Assets

The Company evaluates the recoverability
of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures
about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to
fair value, which is determined based on either discounted future cash flows or appraised values.

Stock-Based Compensation

The Company accounts for stock-based
compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification
for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the
requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees
do not render the requisite service.

Income Taxes

The Company accounts for income taxes
under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined
based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the consolidated statements of operations in the period that includes the enactment date.

Deferred Revenue



As part of a debt refinancing in 2000 by Worlds
Inc. (formerly Worlds.com), $631,950 of debt was renegotiated to deferred revenue representing future services to be provided by
Worlds Inc. $355,000 has been amortized into income through December 31, 2010 by Worlds Inc. The balance, $276,950, has been transferred
to the Company. During the period presented herein, $50,000 has been amortized into income.



Related Party Transactions



The Company was formed on January 25,
2011 as a wholly-owned subsidiary of Worlds Inc. (formerly known as Worlds.com Inc.). On May 16, 2011 Worlds Inc. transferred to
the Company the majority of its operations and related operational assets, except for its patent portfolio. Worlds Inc. has also
given to the Company a perpetual world-wide license to its patented technology. Pursuant to the license, the Company has the right
to issue unlimited sublicenses to the licensed technology, subject to World Inc.’s reasonable consent.

The assets
transferred to us include:Worlds Inc.’s technology platform,Worlds Ultimate Chat, Aerosmith World, DMC Worlds, Cinema
Virtual, Pearson contracts and related revenue, the following URLs: Worlds.com,
Cybersexworld.com, Hang.com, and Worldsfunds.com, a digital inventory of over 10,000
3D objects, animation sequences, an extensive avatar library, texture maps and virtual world architectures. None of the transferred
assets have any carrying value on the financial statements of the Company.



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Comprehensive Income (Loss)

The Company reports comprehensive income
and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes
standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There
were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.

Loss Per Share

Net loss per common share is computed
pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net
loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed
by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock
during each period. There were no potentially dilutive shares outstanding as of June 30, 2011.

Risk and Uncertainties

The Company is subject to risks common
to companies in the service and technology industries, including, but not limited to, litigation, development of new technological
innovations and dependence on key personnel.

Recent Accounting Pronouncements

The Company has reviewed all recently
issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may
be expected to cause a material impact on its financial condition or the results of its operations.

FASB Accounting Standards Codification

(Accounting Standards Update (“ASU”)
2009-01)

In June 2009, FASB approved the
FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental US
GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues
Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have
been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification
has become nonauthoritative. The Codification did not change US GAAP, but instead introduced a new structure that combines all
authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or
annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all references to
authoritative accounting literature will be referenced in accordance with the Codification.

Subsequent Events

(Included in Accounting Standards
Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)

SFAS No. 165 established general
standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements
are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which
subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements
are issued. SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other GAAP and did
not result in significant changes in the subsequent events reported by the Company. SFAS No. 165 became effective for interim
or annual periods ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated
for subsequent events through the issuance date of the Company’s financial statements.





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Determination of the Useful
Life of Intangible Assets

(Included in ASC 350 “Intangibles
— Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)

FSP SFAS No. 142-3 amended the
factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency
between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of
the asset under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied
prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively
to all intangible assets recognized as of, and subsequent to, the effective date. FSP SFAS No. 142-3 became effective for
consolidated financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years.

Non-controlling Interests

(Included in ASC 810 “Consolidation”,
previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)

SFAS No. 160 changed the accounting
and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component
of equity. SFAS No. 160 became effective for fiscal years beginning after December 15, 2008 with early application prohibited.
The Company will implement SFAS No. 160 and will not record an intangible asset when the purchase price of a non-controlling
interest exceeds the book value at the time of buyout.

Consolidation of Variable Interest
Entities — Amended

(To be included in ASC 810 “Consolidation”,
SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)

SFAS No. 167 amends FASB Interpretation
No. 46(R) “Consolidation of Variable Interest Entities regarding certain guidance for determining whether an entity
is a variable interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity.
The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach
for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who
should consolidate a variable-interest entity. SFAS No. 167 is effective for the first annual reporting period beginning after
November 15, 2009, with earlier adoption prohibited.





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NOTE 2 - GOING CONCERN



The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. Worlds Online Inc. has had only minimal revenues from
operations, has a negative working capital, has a negative stockholders deficit and negative cash flows from operations. There
can be no assurance that the Company will be able to obtain the substantial additional capital resources necessary to fully implement
its business plan or that any assumptions relating to its business plan will prove to be accurate. The Company is pursuing sources
of additional financing and there can be no assurance that any such financing will be available to the Company on commercially
reasonable terms, or at all. Any inability to obtain additional financing will likely have a material adverse effect on the Company,
including possibly requiring the Company to reduce and/or cease operations.



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





NOTE 3 - PRIVATE PLACEMENTS OF EQUITY

During
May 2011, the Company completed a private placement of 526,315 shares of its common stock at a price per share of $0.57 for aggregate
proceeds of$300,000 from three “accredited” investors.

NOTE 4 – DEFERRED REVENUE

Deferred revenue represents advance
payments for the license, the design and development of the software, content and related technology for the creation of an interactive,
3D entertainment portal on the internet.  During the period herein, $50,000 worth of services was provided leaving a
deferred revenue balance of $226,950.

NOTE 5- PROPERTY AND EQUIPMENT

There is no property and equipment on
the balance sheet at June 30, 2011. The Company does have property and equipment, however, for accounting purposes, the property
and equipment that was transferred was fully depreciated by Worlds Inc. prior to the transfer therefore it has no carrying value
to the Company.





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NOTE 6 – STOCK OPTIONS

During the period, the Company issued
675,000 stock options to various Directors.  The stock options allow the parties to purchase shares of the Company’s
common stock at various prices per share per each individual option agreement.  The options allow the various parties
to purchase one share of its stock for each option.  The options expire at various times through December 31, 2013 per
each individual option agreement. The Company did not grant any registration rights with respect to any shares of common stock
issuable upon exercise of the options. During the period from inception (January 25, 2011) through June 30, 2011, the Company recorded
an expense of $195,615, equal to the estimated fair value of the options at the date of grants. These options were granted to the
Directors for services to be performed.  The fair market value was calculated using the Black-Scholes options pricing
model, assuming approximately 1.8% risk-free interest, 0% dividend yield, 65% volatility, and expected life of two and three quarter
years.

During the period from inception (January
25, 2011) through June 30, 2011 we also issued 5,570,829 stock options exercisable at $0.57 per share to various option holders
of Worlds Inc. The options were issued on the same basis as the stock dividend (i.e. one stock option for every three stock options
held in Worlds Inc.). However, the exercise price of all such options was increased to $0.57 per share.



|Stock Warrants and Options                                                                 |  | 
|------------------------------------------------------------------------------------------ |  | 
|Stock warrants and options outstanding and exercisable as of June 30, 2011 are as follows:
|                                                                                           |  | 
|Exercise Price per Share                                                                   |  | 
|                                                                                           |  | 
|$0.57                                                                                      |  | 
|$0.57                                                                                      |  | 
|$0.57                                                                                      |  | 
|$0.57                                                                                      |  | 
|$0.57                                                                                      |  | 
|$0.57                                                                                      |  | 
|$0.57                                                                                      |  | 
|                                                                                           |  | 
|                                                                                           |  | 







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NOTE 7 - INCOME TAXES

At June 30, 2011, the Company had federal
and state net operating loss carry forwards of approximately $267,000 that expire in 2024.

Due to operating losses, there is no
provision for current federal or state income taxes for the period ended June 30, 2011.

Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.

The Company’s deferred tax asset
at June 30, 2011 consists of a net operating loss calculated using federal and state effective tax rates equating to approximately
$100,000 less a valuation allowance in the amount of approximately $100,000. Because of the Company’s lack of earnings history,
the deferred tax asset has been fully offset by a valuation allowance.

The Company’s total deferred tax
asset as of June 30, 2011 is as follows:

|Net operating loss     |  | $ | 100,000  
|---------------------- |  | - | ---------
|Valuation allowance    |  |   | (100,000)
|Net deferred tax asset |  | $ | —        





The reconciliation of income taxes computed at the
federal and state statutory income tax rate to total income taxes for the period ended June 30, 2011is as follows:

|Income tax computed at the federal statutory rate |  |  | 34%  
|------------------------------------------------- |  |  | -----
|Income tax computed at the state statutory rate   |  |  | 5%   
|Valuation allowance                               |  |  | (39%)
|Total deferred tax asset                          |  |  | 0%   



NOTE 8 – RELATED PARTY TRANSACTIONS

The Company was formed on January 25,
2011 as a wholly-owned subsidiary of Worlds Inc. (formerly known as Worlds.com Inc.). On May 16, 2011 Worlds Inc. transferred to
the Company the majority of its operations and related operational assets, except for its patent portfolio. Worlds Inc. has also
given to the Company a perpetual world-wide license to its patented technology. Pursuant to the license, the Company has the right
to issue unlimited sublicenses to the licensed technology, subject to World Inc.’s reasonable consent.

The assets
transferred to us include:Worlds Inc.’s technology platform,Worlds Ultimate Chat, Aerosmith World, DMC Worlds, Cinema
Virtual, Pearson contracts and related revenue, the following URLs: Worlds.com,
Cybersexworld.com, Hang.com, and Worldsfunds.com, a digital inventory of over 10,000
3D objects, animation sequences, an extensive avatar library, texture maps and virtual world architectures. None of the transferred
assets have any carrying value on the financial statements of the Company.

The bank account for the Company was
opened in May through the borrowing of $500 from Worlds Inc. Since May 16, 2011 when most of the operations were transferred over,
Worlds Inc. has paid expenses on behalf of the Company. The balance outstanding at June 30, 2011 is $16,834 and is recorded as
an account payable related party on the balance sheet.



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

Forward Looking Statements



When used in this form 10-Q and in future filings
by the Company with the Commission, the words or phrases such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "plan," "predict," "project,"
"will" or similar expressions are intended to identify “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking
statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has
no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated
or unanticipated events or circumstances occurring after the date of such statements.



These forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include,
but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that
we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic
conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes in technology
that render our technology relatively inferior, obsolete or more expensive compared to others; foreign currency fluctuations; changes
in the business prospects of our business partners and customers; increased competition, including from our business partners;
delays in the delivery of broadband capacity to the homes and offices of persons who use our services; the availability of Wifi
in more public areas; general disruptions to Internet service; and the loss of customer faith in the Internet as a means of commerce.



The following discussion should be read in
conjunction with the unaudited financial statements and related notes which are included under Item 1.



We do not undertake to update our forward-looking
statements or risk factors to reflect future events or circumstances.



Overview



General



The Company was formed on January 25,
2011 as a wholly-owned subsidiary of Worlds Inc. (formerly known as Worlds.com Inc.). Effective May 16, 2011 Worlds Inc. transferred
to us the majority of its operations and related operational assets, except for its patent portfolio. Worlds Inc. has also given
us a perpetual world-wide license to its patented technology. Pursuant to the license, we have the right to issue unlimited sublicenses
to the licensed technology, subject to Worlds Inc.’s reasonable consent.

The assets
transferred to us include:Worlds Inc.’s technology platform,Worlds Chat, Aerosmith World, DMC Worlds, Cinema Virtual,
Pearson contracts and related revenue, the following URLs: Worlds.com,
Cybersexworld.com, Hang.com, and Worldsfunds.com, a digital inventory of over 10,000
3D objects, animation sequences, an extensive avatar library, texture maps and virtual world architectures.

Revenues



Revenue
that was generated resulted from VIP subscriptions to the Worlds Ultimate 3-D Chat service and software development fees to provide
a site for a 3-D world under a deferred revenue agreement.



Expenses



We classify our expenses into two broad groups:

o cost of revenues; and

o selling, general and administration.



Liquidity and Capital Resources



In May 2011, we raised $300,000 through
the issuance of 526,315 shares of our common stock at a price of $0.57 per share. The funds raised in the financing, have been,
and will be, used to develop new products and services, pay salaries to management and pay professional fees to our attorneys and
auditors to prepare and file reports with the Securities and Exchange Commission and other legal expenses arising from our day-to-day
operations and acquisitions, if any. We hope to raise additional funds to be used for advertising our existing products and services
and to fund the development of additional products and services. No assurances can be given that we will be able to raise any additional
funds. As described above, we are currently negotiating with various musical artists, educational companies and other entities
to develop worlds for them. While no assurance can be given that any of these deals will be concluded, if successful they would
likely generate additional cash flows.





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RESULTS OF OPERATIONS



Our net revenues for the three months ended
June 30, 2011 was $50,310. Our net revenue for the period from formation, January 25, 2011, through June 30, 2011 was $50,310.
Operations began in May so there is no difference in results for the two periods.



Three months and the for the period from
formation (January 25, 2011) ending June 30, 2011



Revenue was $50,310 for the three months ended
June 30, 2011. For the period from formation (January 25, 2011) through June 30, 2011 revenue was $50,310. The Company’s
revenue was from software development fees to provide a site for a 3-D world under a deferred revenue agreement and VIP subscriptions.
We need to raise a sufficient amount of capital to provide the resources required that would enable us to continue running the
business.



Cost of revenues for the three months ended
June 30, 2011 was $2,100. This includes software development and hosting fees. Cost of revenue from the period of formation through
June 30, 2011 was also $2,100.



Selling general and administrative (SG&A)
was $100,628 for the three months ended June 30, 2011. For the period from formation through June 30, 2011 SG&A costs were
$100,628. Salaries were $18,923 for the three months ended June 30, 2011 and for the period from formation through June 30, 2011.

Other expenses for the three months
ended June 30, 2011 were $195,615 and include options expense. Other expenses for the period from formation through June 30, 2011
include options expense of $195,615.

As a result of the foregoing, for the
three months ended June 30, 2011, we realized a net loss of $266,956. For the period from January 25, 2011 through June 30, 2011
we had a loss of $266,956.

For comparative purposes, while we will
be almost seamlessly continuing the business and operations of Worlds Inc., we will not have any of the expenses relating to enforcement
of the patents or increasing the patent portfolio.

Liquidity and Capital Resources



Our unrestricted cash and cash equivalents
was $271,006 at June 30, 2011. There were no capital expenditures in the period from formation through June 30, 2011.



In May 2011, we raised $300,000 through the
issuance of 526,315 shares of our common stock at a price of $0.57 per share.



The funds raised in the May financing have
been, and are being, used to develop new products and services, pay salaries to management and pay professional fees to our attorneys
and auditors to prepare and file reports with the Securities and Exchange Commission and other legal expenses arising from our
day-to-day operations and acquisitions, if any. We hope to raise additional funds to be used for advertising our existing products
and services and to fund the development of additional products and services. No assurances can be given that we will be able to
raise any additional funds. As described above, we are currently negotiating with various musical artists, educational companies
and other entities to develop worlds for them. While no assurance can be given that any of these deals will be concluded, if successful
they would likely generate additional cash flows.



Item 4. Controls And Procedures

As of June 30, 2011, we carried out an
evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
June 30, 2011. The above statement notwithstanding, you are cautioned that no system is foolproof.

Changes in Internal Control Over Financial
Reporting



During the quarter covered by this report there
were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.



This quarterly report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only management’s reports in this quarterly report.







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PART II OTHER INFORMATION

Item 1. Legal Proceedings.



None



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



In May 2011, we completed a private
placement of an aggregate of 526,315 shares of our common stock at a price per share of $0.57 for aggregate proceeds of $300,000. 
This issuance was exempt pursuant to Rule 506 inasmuch as the shares were sold to a total of only three persons, each of whom was
an “accredited investor” in a private placement without advertising or the payment of any commissions.

Item 3. Defaults Upon Senior Securities



None.



Item 4. Reserved by the SEC.



Item 5. Other Information



None.



Item
6. Exhibits



|31.1          |  | Certification of Chief Executive Officer                                                                           
|------------- |  | -------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                    
|31.2          |  | Certification of Chief Financial Officer                                                                           
|              |  |                                                                                                                    
|32.1          |  | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|              |  |                                                                                                                    
|32.2          |  | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|              |  |                                                                                                                    
|101.INS* XBRL |  | Instance Document                                                                                                  
|              |  |                                                                                                                    
|101.SCH* XBRL |  | Taxonomy Extension Schema                                                                                          
|              |  |                                                                                                                    
|101.CAL* XBRL |  | Taxonomy Extension Calculation Linkbase                                                                            
|              |  |                                                                                                                    
|101.DEF* XBRL |  | Taxonomy Extension Definition Linkbase                                                                             
|              |  |                                                                                                                    
|101.LAB* XBRL |  | Taxonomy Extension Label Linkbase                                                                                  
|              |  |                                                                                                                    
|101.PRE* XBRL |  | Taxonomy Extension Presentation Linkbase                                                                           





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Table of Contents










SIGNATURES

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

Date: January 23, 2012

WORLDS ONLINE INC.

|By: /s/ Thomas KidrinThomas Kidrin
President and CEO 
By: /s/ Christopher RyanChristopher Ryan
Chief Financial Officer
|----------------------------------------------------------------------------------------------------------------------
|                                                                                                                      





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INDEX
TO EXHIBITS

|Exhibit No.   |  | Description                                                                                                        
|------------- |  | -------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                    
|31.1          |  | Certification of Chief Executive Officer                                                                           
|              |  |                                                                                                                    
|31.2          |  | Certification of Chief Financial Officer                                                                           
|              |  |                                                                                                                    
|32.1          |  | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|              |  |                                                                                                                    
|32.2          |  | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|              |  |                                                                                                                    
|101.INS* XBRL |  | Instance Document                                                                                                  
|              |  |                                                                                                                    
|101.SCH* XBRL |  | Taxonomy Extension Schema                                                                                          
|              |  |                                                                                                                    
|101.CAL* XBRL |  | Taxonomy Extension Calculation Linkbase                                                                            
|              |  |                                                                                                                    
|101.DEF* XBRL |  | Taxonomy Extension Definition Linkbase                                                                             
|              |  |                                                                                                                    
|101.LAB* XBRL |  | Taxonomy Extension Label Linkbase                                                                                  
|              |  |                                                                                                                    
|101.PRE* XBRL |  | Taxonomy Extension Presentation Linkbase                                                                           





* Pursuant to Rule 406T of Regulation S-T, these interactive
data files are deemed not filed or part of a registration statement or prospectus for purposes of





Sections 11 or 12 of the Securities Act of 1933 or Section 18
of the Securities Exchange Act of 1934 and otherwise are not subject to liability.