UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549







Form 10-K





(Mark One)

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



For the fiscal year ended December 31,
2011



|o | 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 INC.

(Exact Name of Registrant as Specified
in Its Charter)





|                                                                       |  |                                             
|---------------------------------------------------------------------- |  | --------------------------------------------
|Delaware                                                               |  | 22-1848316                                  
|(State or Other Jurisdiction of
        Incorporation or Organization) |  | (I.R.S. Employer
        Identification No.)



11 Royal Road, Brookline, MA  02445

(Address of Principal Executive Offices)



(617) 725-8900

(Registrant’s Telephone Number,
Including Area Code)





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



|Title of Each Class |  | Name Of Each Exchange
        On Which Registered
|------------------- |  | -------------------------------------------------
|                    |  |                                                  
|None                |  | Not Applicable                                   



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



Common Stock, $.001 par value

(Title of Class)



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesoNox



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YesoNox



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.     YesxNoo



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).   YesxNo ̈



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 best of registrant’s 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.o



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
FilerxSmaller
reporting company

(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 Act.):    YesoNox



The aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked closing price of such common equity, as of April 13, 2012 (closing price was $0.17) was
approximately $12,726,564.



At April 13, 2012, the issuer had outstanding
74,862,146 shares of par value $.001 Common Stock, of which 62,981,487.











TABLE OF CONTENTS









|Part I :   |                                                                                                              |   
|---------- | ------------------------------------------------------------------------------------------------------------ | --
|Item 1     | Business                                                                                                     | 2 
|Item 1A    | Risk Factors                                                                                                 | 5 
|Item 1B    | Unresolved Staff Comments                                                                                    |   
|Item 2     | Properties                                                                                                   | 8 
|Item 3     | Legal Proceedings                                                                                            | 8 
|Item 4     | Mine Safety Disclosures                                                                                      | 8 
|           |                                                                                                              |   
|Part II :  |                                                                                                              |   
|Item 5     | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 9 
|Item 6     | Selected Financial Data                                                                                      |   
|Item 7     | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 10
|Item 7A    | Quantitative and Qualitative Disclosures About Market Risk                                                   |   
|Item 8     | Financial Statements                                                                                         | 15
|Item 9     | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         | 26
|Item 9A    | Controls and Procedures                                                                                      | 26
|Item 9B    | Other Information                                                                                            | 26
|           |                                                                                                              |   
|Part III : |                                                                                                              |   
|Item 10    | Directors, Executive Officers and Corporate Governance                                                       | 27
|Item 11    | Executive Compensation                                                                                       | 29
|Item 12    | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 31
|Item 13    | Certain Relationships and Related Transactions, and Director Independence                                    | 31
|Item 14    | Principal Accountant Fees and Services                                                                       | 32
|Item 15    | Exhibits                                                                                                     | 33





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(1)










CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION



This
report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These statements involve risks and uncertainties and our actual results could differ significantly
from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future,
which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "believe," and similar language, including those set forth in the discussion under "Description
of Business," "Risk Factors" and "Management's Discussion and Analysis or Plan of Operation" as well
as those discussed elsewhere in this Form 10-K. We base our forward-looking statements on information currently available to us,
and we believe that the assumption and expectations reflected in such forward-looking statements are reasonable, and we assume
no obligation to update them. Statements contained in this Form 10-K that are not historical facts are forward-looking statements
that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.







Table of Contents


(2)






PART
I



ITEM
1. BUSINESS.



General



On May
16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of
its operations and related operational assets. The Company retained its patent portfolio which it intends to continue to increase
and to more aggressively enforce against alleged infringers. The Company also entered into a License Agreement with Worlds Online
Inc. to sublicense its patented technologies.



Before
the spin-off, Worlds was a leading 3D entertainment portal which leveraged its proprietary technology, which we retained through
our patent portfolio, to offer visitors a network of virtual, multi-user environments which we call "worlds". These
worlds are visually engaging online environments featuring animation, motion and content where people can come together and, by
navigating through the website, shop, interact with others, attend events and be entertained. In support of this portal and the
overall business strategy, we design and develop software, content and related technology for the creation of interactive, three-dimensional
("3D") Internet web sites. Using our technology, we created our own Internet sites, as well as sites available through
third-party online service providers.



Sites
using our technology allow numerous, simultaneous visitors to enter, navigate and share interactive "worlds". Our 3D
Internet sites are designed to promote frequent, repeat and prolonged visitation by users by providing them with unique online
communities featuring dynamic graphics, highly useful and entertaining information content, and interactive capabilities. We believe
that sites are highly attractive to advertisers because they offer access to demographic-specific user bases comprised of people
that visit the site frequently and stay for relatively long periods of time.



Recent
developments



During
the second quarter of 2007, management began to explore the possibility of becoming more active operationally.  As detailed
below, beginning during the third quarter of 2007 and continuing through 2010 we, among other things, expanded our Board, completed
some small financings, began upgrading our technology and more actively sought business opportunities.



In 2008
we completed a restructuring and restart of the Company’s operations. As a result, we are now current with our SEC periodic
reporting obligations.



In February
2010, the Company completed a private placement of 1,454,590 shares of its common stock at a price per share of $0.10 for aggregate
proceeds of $145,459.  The five investors also received an aggregate of 975,338 warrants as part of the equity investment
exercisable at $0.15 per share.  The Company also converted the $175,000 in notes payable from the 2009 financing into
1,750,000 shares of its common stock. In December 2010, the Company completed a private placement to five investors of 3,333,331
shares of its common stock at a price per share of $0.12 for aggregate proceeds of $400,000.



On December
24, 2008 we filed a patent infringement suit against NCSoft Corp in the United States District Court, Eastern District of Texas
in order to enforce our intellectual property rights under our patents. In April 2010, the parties agreed to settle the matter,
the terms of which the parties have contractually agreed to keep confidential.



We upgraded
our 3D platform making it competitive with, and even exceeding, current industry standards.  We also developed a micro-economy
system which is tied into a Visa debit card platform for online and off line usage.



On
March 31, 2011, it was announced that our board had determined it would be in the best interest of our shareholders totransfer all of our online and operational technologies into our subsidiary, Worlds Online Inc. The assets were transfered as
of May 16, 2011 and include:Worlds’ technology platform,Worlds Ultimate Chat, Aerosmith World, DMC Worlds, Cinema
Virtual, Pearson contracts and related revenue, 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.

Worlds
Inc. has retained all of the related Intellectual  Property ( IP) consisting of the six existing patents, 6,219,045
- 7,181,690 - 7,493,558 – 7,945,856, 8,082,501 and 8,145,998 and one Notice of Allowance for our patent application
numbered 13/083,504 and 12/406/970, both titled “System and Method for Enabling Users to Interact in Virtual
Space”, and all continuance claims currently before the USPTO including any to be filed going forward.

We intend
to endeavor to prosecute our issued patents and any future issued patents against all parties that the company and our legal counsel
believe to be infringing on said patents.



Enforcement
actions are subject to the analysis of all relevant prior art and the costs associated with litigation.



We may
also seek to acquire additional patents we believe will enhance our portfolio position in the markets within which our existing
patents cover.



There
can be no assurance that we will be successful in our ability to prosecute our IP portfolio or that we will be able to acquire
additional patents.



We
have maintained an approximately 19.7% equity interest in Worlds Online and each of our shareholders of record are expected to
be issued a pro rata number of shares in Worlds Online.

On
February 7, 2011 we changed our domicile from New Jersey to Delaware, changed our name to Worlds Inc., increased our authorized
common stock to 100 million shares and added 5 million shares of blank check preferred stock.



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Our
Technology



There
has been a tremendous amount of activity and press with respect to the 3D space on the Internet this past year supporting our
belief that the timing is right for our strategy and it is our intention, as the pioneers in 3D, to position Worlds as a leading
participant in this market.  For example:



The
Gartner Group reports: 80% of Internet Users in Virtual Worlds by 2011



“The
collaborative and community-related aspects of these environments will dominate in the future, and significant transaction-based
commercial opportunities will be limited to niche areas, which have yet to be clearly identified,” said Steve Prentice,
vice president and distinguished analyst at Gartner.



Fleishman
Hillard



“While
everyone was buzzing about Second Life, a lot was happening under the radar regarding avatars and virtual worlds. It's early still,
but it is developing rapidly. If these applications continue to become easier to use and 3D content is further developed, the
opportunity in this area will explode.”



We used
our proprietary technology to produce three-dimensional portals and web sites. We believe that our core technology delivers a
considerably faster frame rate for user experiences and, in some cases, a meaningful productivity increase in art production and
integration over its previous generation production tools. Our technology permits the development of virtual worlds which have
broad applications. These applications include but are not limited to:



o a virtual
meeting place (such as a fan club);



o a 3D
e-commerce store (where merchandise can be viewed in 3D and purchased online); and



o a virtual
classroom (where content can be viewed via video streaming and then discussed in real time).



Our core
technology has substantial elements written in Sun Microsystem's programming language, Java, including WorldsBrowser and WorldsShaper,
so we expect that it can be made portable across Windows and UNIX Platforms because of Java's platform independence.



Our core
technology includes:



|o | WorldsShaper: WorldsShaper is the visual
    authoring component of our platform. It allows for quick assembly of pieces to create multi-user, shared state, virtual worlds.
    The WorldsShaper is an advanced compositing 3D building tool that integrates pre-existing or custom content, such as 3D models,
    textures or images created in Adobe's Photoshop, or midi or wave sound files, with architectural geometry and interactive
    behaviors and actions written in Java. The architectural building blocks for creating 3D worlds, the flexibility and power
    of integrating professional modeling and imaging tools, and the extensibility via Java make the WorldsShaper a tool well-suited
    for rapid creation of 3D environments.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|o | WorldsServer: WorldsServer is the scalable
    software that we use to control and operate our on-line virtual communities. WorldsServer manages the registration and authentication
    of users, the locations of users within the 3D environment, the physical structure of the 3D environment, all information
    regarding objects that are "shared" by the participants and any of the interactions between the users such as text
    chat. This platform also integrates an HTTP server for the delivery of other content such as audio and video streaming and
    secure e-commerce applications.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|o | WorldsBrowser: WorldsBrowser is used to access
    the 3D environments. The browser is optimized for speed, delivering relatively fast frame rates per second in highly textured
    virtual 3D worlds.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|o | WorldsPlayerTM: The WorldsPlayer allows
    users to view and experience our multi-user, interactive technology. Any world created with the WorldsShaper will be viewable
    and navigable with the WorldsPlayer. The WorldsPlayer has a high frame rate for fast, quality graphics, an easy-to-use graphic
    user interface, 2D web browser integration, automatic upgrade capability over the internet and a complete communication tool
    set including text chat, voice-to-voice chat, e-mail and animation.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|o | Worlds Gamma Libraries: The Worlds Gamma
    Libraries are composed of sample worlds, textures, models, avatars, actions, sensors, sounds, motion sequences, and other
    behaviors.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Our
Strategy



Worlds
Inc. will be focused solely on expanding our patent portfolio and to enforce our rights where it believes parties are infringing
on its IP portfolio.



Representative
alliances and customers



We
have contracted to Worlds Online Inc. a perpetual world-wide license to our patented technology. Pursuant to the license, Worlds
Online has the right to issue unlimited sublicenses to the licensed technology, subject to World Inc.’s reasonable consent.
The sublicenses are subject to a revenue share negotiated between the two Companies.



Competition



Since
all operations were transferred to Worlds Online and our business is the expansion of our patented technology, the Company does
not have any direct competition as it did in the past.



Currently,
there are many companies collaborating to establish standardization of 3D usage on the Internet, the adoption of which may require
changes to our technology.



Intellectual
Property



U.S.
Patents: Worlds has been granted U.S patent 6,219,045, 7,181,690, 7,493,558, 7,494,856, 8,082,501 and 8,145,998 for
multi-server technology for 3D applications, which is our core technology.  We are now looking into the
implications and breadth of the patent in order to maximize its benefits.  The description of the initial patent is
as follows:



"The
present invention provides a highly scalable architecture for a three dimensional, multi-user, interactive virtual world system.  In
a preferred embodiment a plurality of users interact in the three-dimensional, computer-generated graphical space where each user
executes a client process to view a virtual world from the perspective of that user.  The virtual world shows Avatars
representing the other users who are neighbors of the user viewing the virtual world.  In order that the view can be
updated to reflect the motion of the remote user's Avatar, motion information is transmitted to a central server process that
provides position updates to client processes for neighbors of the user at that client process.  The client process
also uses an environment database to determine which background objects to render as well as to limit the number of displayable
Avatars to a maximum number of Avatars displayable by that client."



Trademark:
Worldsplayer - The WorldsPlayer is especially designed to allow users to view and experience the multi-user, interactive Worlds
Gamma technology. Any world created with the WorldsShaper will be viewable and navigable with WorldsPlayer.  Utilizing
the WorldsPlayer, a user assumes a persona (via a digital actor, or Avatars), and can then move, view, chat, play, express one's
self via gestures and animations, voice chat, send email, join discussion groups, listen to music, shop at Worlds 3D stores, and
watch videos, all in the company of users from around the world, within the 3D environment.  The WorldsPlayer boasts
high frame rate for fast, high quality graphics, an easy to use graphic user interface, seamless 2D Web browser integration, auto-upgrade
capability over the Internet, and a complete communication tool set including chat, voice-to-voice chat, email and animation.
The WorldsPlayer offers users the unique and creative experience of customizing their Avatars, while maintaining the ability to
animate and activate their Avatars.



In addition
to our patents and trademark, we intend to enter into confidentiality agreements with key employees and consultants to protect
our IP and general know-how. We spent $9,200 on software development in 2011 and $4,000 in 2010.



Employees



As of
December 31, 2011, we had one employee, our president, Thomas Kidrin, who divided his time between us and Worlds Online.



Corporate
History



We were
formed as a result of the contemporaneous mergers on December 3, 1997 of Worlds Inc., a Delaware corporation formed on April 26,
1994 with and into Worlds Acquisition Corp., a Delaware corporation formed on April 8, 1997 and of Worlds Acquisition Corp. with
and into Academic Computer Systems, Inc., a New Jersey corporation formed on May 20, 1968 (the "Mergers"). Academic
Computer Systems changed its name to Worlds Inc. after the Mergers. In December 1999, we changed our name from Worlds Inc. to
Worlds.com Inc. in order to better reflect our business as a consumer Internet web site that offers virtual "worlds"
in which consumers interact, conduct e-commerce and receive entertainment.



The Company
created a wholly-owned subsidiary named Worlds Online Inc. on January 25, 2011. On May 16, 2011, Worlds Inc. transferred to Worlds
Online Inc. the majority of its operations and related operational assets, except for its patent portfolio.





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ITEM
1A. RISK FACTORS



Our business
is subject to numerous risks, including but not limited to those set forth below. Our operations and performance could also be
subject to risks that do not exist as of the date of this report but emerge thereafter as well as risks that we do not currently
deem material.



Risks
related to our operations



Our
auditors have expressed doubt about our ability to continue as a going concern. If we do not generate substantial revenue from
our new relationships and are also unable to obtain capital from other resources, we will significantly curtail our operations
or halt them entirely.



Our capital
requirements have been and will continue to be significant. Historically, we have been dependent on financings to fund our development
and working capital needs. As of December 31, 2011, we had only limited cash or cash equivalents. Accordingly, if we do not develop
sources of revenues from our patent portfolio, we would have to severely diminish our operations or halt them entirely. The opinion
of our auditors contains an explanatory paragraph regarding our ability to continue as a going concern.



We
have experienced relatively large losses during our development and, without significant increases in the market penetration of
our services and improvements to our operating margins, we will not achieve profitability.



Since
inception,we have incurred significant net losses as set forth in the financial information included elsewhere in this report.
We anticipate that we will continue to incur significant losses for at least the short-term. We will not achieve profitable operations
until we successfully developed sources of revenues from our patent portfolio or generate revenues from other sources that are
sufficient to offset our operating costs. We may never be able to accomplish these objectives.



It
will be difficult for you to evaluate us based on our past performance because we have a relatively new business strategy with
a limited operating history.



We have
been actively engaged in the business of being an IP company for a relatively short period of time and, accordingly, have only
limited financial results on which you can evaluate our company and its new operations. We are subject to, and have not been successful
in addressing, the risks typically encountered by new enterprises and companies operating in the rapidly evolving Internet marketplace,
including those risks relating to:



o
the failure to develop brand name recognition and reputation;



o
the failure to achieve market acceptance of our services;



o
a slow down in general consumer acceptance of the Internet as a vehicle for commerce; and



o
an inability to grow and adapt our business and technology to evolving consumer demand.



We
may not be able to successfully compete in our markets, which are characterized by intense competition and the presence of large
competitors and rapidly changing technology.



Given
our relatively limited resources, we have not been able to effectively compete in our target markets. These markets are characterized
by intense competition, rapidly changing technology and increasing numbers of new market entrants who have developed or are developing
potentially competitive products and services, often resulting in product obsolescence or short product life cycles. Our competitors
include other enterprises utilizing 3D-based technology for online entertainment and marketing purposes, online and Internet service
providers, online shopping malls, online direct music retailers, online music and book sites and traditional music retailers.
Most of our competitors have significantly greater financial and operating resources compared to us.



Our
limited resources may restrict our ability to manage any growth we may experience.



Growth
of our business may place a significant strain on our management systems and resources and may require us to implement new operating
and financial systems, procedures and controls. Our failure to manage our growth and expansion could adversely affect our business,
results of operations and financial condition. Failure to implement new systems effectively or within a reasonable period of time
could adversely affect our business, results of operations and financial condition.





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Risks
related to our operations con’t



If
we are unable to protect our intellectual property rights, competitors may be able to use our technology or trademarks, which
could weaken our competitive position.



In addition
to our patents, we rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect
our intellectual property rights. We also intend to enter into confidentiality or license agreements with our employees, consultants
and customers, and control access to and distribution of our software, documentation and other proprietary information. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products
or technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United
States. Although we have never been involved as a defendant in any intellectual property litigation, we could become a party to
litigation as a result of alleged infringement of others' intellectual property. These claims and any resulting lawsuits could
subject us to significant liability for damages and invalidation of our proprietary rights.



If
we lose any of our key personnel or fail to hire and retain other talented employees, our operations could be harmed.



Our success
is currently dependent, in large part, on the personal efforts of Thomas Kidrin, our president and chief executive officer.  The
loss of Mr. Kidrin's services could have a material adverse effect on our business and prospects. Our success is also dependent
upon our ability to hire and retain additional qualified management, marketing, technical, financial, and other personnel, if
and when our business grows. Competition for qualified personnel is intense and we may not be able to hire or retain additional
qualified personnel. Any inability to attract and retain qualified management and other personnel would have a material adverse
effect on our ability to grow our business and operations.



Our
future results depend on continued evolution of the Internet.



Our future
results depend on continued growth in the use of the Internet for information, publication, distribution and commerce. Our growth
is also dependent on increasing availability to residential consumers of broadband Internet access which will allow such persons
to access higher-capacity content through the Internet. Our business could suffer if Internet usage and broadband availability
does not continue to grow and evolve.



In addition,
changes in network infrastructure, transmission and content delivery methods and underlying software platforms, and the emergence
of new Internet access, such as television set-top boxes, could dramatically change the structure and competitive dynamic of the
market for Internet realtime 3D products. We may not be able to adopt our technology and services for use in connection with other
emerging technologies.



We
may not be able to economically comply with any new government regulation that may be adopted with respect to the Internet.



New Internet
legislation or regulation, or the application of existing laws and regulations to the Internet and e-commerce could add additional
costs and risks to doing business on the Internet. We are subject to regulations applicable to businesses generally and laws or
regulations directly applicable to communications over the Internet and access to e-commerce. Although there are currently few
laws and regulations directly applicable to e-commerce, it is possible that a number of laws and regulations may be adopted with
respect to the Internet, covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust, taxation
and characteristics and quality of products and services.





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Risks
related to our common stock



Possible
issuances of our capital stock would cause dilution to our existing shareholders.



While
we currently have approximately 74,862,146 shares of common stock outstanding, we are authorized to issue up to 100,000,000 shares
of common stock. Therefore, we will be able to issue a substantial number of additional shares without obtaining shareholder approval.
In the event we elect to issue additional shares of common stock in connection with any financing, acquisition or otherwise, current
shareholders could find their holdings substantially diluted, which means they will own a smaller percentage of our company. There
are now 5 million shares of blank preferred stock that the board can issue under any terms it wants and without any shareholder
approval.



Certain
shareholders control a substantial portion of our outstanding common stock.



Our chief
executive officer owns a significant portion of the outstanding shares of our common stock and Mr. Kidrin may be issued an additional
15 million shares of our common stock upon the exercise of outstanding stock options. Accordingly, he will be able to influence
the election of our directors and thereby influence or direct our policies.



No
dividends have been paid on our common stock.



To date,
we have not paid any cash dividends on our common stock and we do not expect to declare or pay dividends on the common stock in
the foreseeable future. In addition, the payment of cash dividends may be limited or prohibited by the terms of any future loan
agreements.



We
are subject to "penny stock" regulations which may adversely impact the liquidity and price of our common stock.



Our common
stock is currently deemed a "penny stock." Penny stocks generally are equity securities with a price of less than $5.00
(other than securities registered on certain national securities exchanges). The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that
provides information on penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and
the broker-dealer's presumed control over the market, and monthly account statements showing the market value of each penny stock
held in the customer's account. In addition, broker-dealers who sell such securities to persons other than established customers
and accredited investors (generally, those persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 together with their spouse), the broker-dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to the transaction.



These
requirements could reduce the level of trading activity, if any, in the secondary market for our common stock. As a result of
the foregoing, our shareholders may find it more difficult to sell their shares.



The
exercise or conversion of outstanding options into common stock will dilute the percentage ownership of our other shareholders.
The sale of such common stock or other common stock in the open market could adversely affect the market price of our common stock.



As
of April 13, 2012, there are outstanding options and warrants to purchase an aggregate of approximately
18,262,500shares
of our common stock and more options and warrants will likely be granted in the future to our officers, directors, employees
and consultants. The exercise of outstanding stock options will dilute the percentage ownership of our other shareholders.
Sales, or the expectation of sales, of a substantial number of shares of our common stock in the public market, including
shares of our common stock issuable upon exercise of our stock options, could adversely affect the prevailing market price of
our common stock.







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ITEM
2. DESCRIPTION OF PROPERTIES.



We do
not own any property nor do we have any contracts or options to acquire any property in the future. Presently, we are operating
out of offices in our president's residence at 11 Royal Road, Brookline, Massachusetts 02445, where we occupy approximately 800
square feet.  This space is adequate for our present and our planned future operations. We currently pay no rent to
our president for use of this space, although when funds are available we may do so in the future. In addition we have no written
agreement or formal arrangement with our president pertaining to the use of this space. We have no current plans to occupy other
or additional office space.



ITEM
3. LEGAL PROCEEDINGS.



In
Cosmo Communications v. Worlds Inc. (our former name) in the Superior Court Of New Jersey Law Division, Bergen County, the court
rendered a decision in favor of the plaintiff, Cosmo Communications on February 13, 2001. The judgment amount entered in April
2001, is approximately $205,000, of which the full amount is accrued.  The judgment related to a consulting agreement
for raising capital. The court ruled that the terms of the contract are binding on successors of the company and that Worlds.com
is a successor company.



ITEM
4. MINE SAFETY DISCLOSURES.



N/A





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PART
II



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



Our common
stock began trading on the OTC Bulletin Board on October 20, 1998 under the symbol "WLDI." On February 11, 2000, in
connection with the change in our name from Worlds Inc. to Worlds.com Inc., our symbol was changed to "WDDD." During
2001, our stock was no longer quoted on the OTC Bulletin Board and was quoted on the Pink Sheets, but returned to the Bulletin
Board in the third quarter of 2008. The following table sets forth, for the periods indicated, the high and low bids for our common
stock as reported on the OTC Bulletin Board or the Pink Sheets (representing interdealer quotations, without retail mark-ups,
mark-downs or commissions, and may not necessarily represent actual transactions):



|                                      |      |   |      |  |  |  
|------------------------------------- | ---- | - | ---- |  |  | -
|Year Ended December 31,
        2010: | High |   | Low  | 
|First quarter                         |      | $ | 0.27 |  |  | $
|Second quarter                        |      | $ | 0.12 |  |  | $
|Third
    quarter                     |      | $ | 0.13 |  |  | $
|Fourth
    quarter                    |      | $ | 0.18 |  |  | $
|                                      |      |   |      | 
|Year Ended December 31,
        2011: | High |   | Low  | 
|First quarter                         |      | $ | 0.36 |  |  | $
|Second quarter                        |      | $ | 0.49 |  |  | $
|Third quarter                         |      | $ | 0.31 |  |  | $
|Fourth quarter                        |      | $ | 0.18 |  |  | $



Holders



As of
December 31, 2011, we had 636 shareholders of record of our common stock.



Dividends



We have
never paid a cash dividend on our common stock and do not anticipate paying any dividends in the near future.



Recent
Sales of Unregistered Securities



N/A





Company
Equity Compensation Plans



The
following table sets forth information as of December 31, 2011with respect to compensation plans (including individual compensation
arrangements) under which equity securities of the Company are authorized for issuance.



|Plan Category                                        |  | Number
        of securities to be issued upon exercise of outstanding options, warrants and rights |            | Weighted-average
    exercise price of outstanding options, warrants and rights |  | Number
    of securities remaining available for future issuance under equity compensation plans |      
|---------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ | -----
|Equity compensation plans approved by stockholders   |  |                                                                                                     | 18,062,500 |                                                                                 |  | $                                                                                                | 0.064
|Stock option grants
        approved by stockholders |  |                                                                                                     | 0          |                                                                                 |  | $                                                                                                | N/A  
|Total                                                |  |                                                                                                     | 18,062,500 |                                                                                 |  | $                                                                                                | 0.063











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



Forward
Looking Statements



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



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



The following
discussion should be read in conjunction with the financial statements and related notes which are included in this report under
Item 8.



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



Overview



General



Starting
in mid-2001 we were not able to generate enough revenue to sustain full operations and other sources of capital were not available.
As a result, we have had to significantly curtail our operations since that time and at times almost halt them all together. Since
mid-2007, as more funds became available from our financings, we were able to increase operations and become more active operationally.



On May
16, 2011, we transferred, through a spin-off to our then wholly owned subsidiary, Worlds Online Inc., the majority of our operations
and related operational assets. We retained our patent portfolio which we intend to continue to increase and to more aggressively
enforce against alleged infringers. We also entered into a License Agreement with Worlds Online Inc. to sublicense patented technologies.



The
Company’s sources of revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and
any revenue that may be generated from enforcing its patents in the market.

Revenues



The
Company’s sources of revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and
any revenue that may be generated from enforcing its patents in the market.

Prior
to the spin-off we generated only modest revenue from VIP subscriptions to the Worlds Ultimate 3-D Chat service.



Expenses



We classify
our expenses into two broad groups:



|O | cost of revenues; and
|- | ---------------------



|O | selling, general and administration.
|- | ------------------------------------



Liquidity
and Capital Resources



We have
had to limit our operations since mid 2001 due to a lack of liquidity.  However, we were able to issue equity and convertible
debt in the last few years and raise small amounts of capital from time to time that enabled us to begin upgrading our technology,
develop new products and actively solicit additional business.  We continue to pursue additional sources of capital
though we have no current arrangements with respect to, or sources of, additional financing at this time and there can be no assurance
that any such financing will become available. If we cannot raise additional capital, form an alliance of some nature with another
entity, or start to generate sufficient revenues, we may need to once again scale back operations.





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RESULTS
OF OPERATIONS



Our
net revenues for each of the years ended December 31, 2011 and 2010 were $199 and $415,856, respectively.  We had revenue
from VIP subscriptions to our Worlds 3-D chat service before the spin-off in 2011 and for 2010 from licensing our software, developing
a 3-D world under our deferred revenue agreement and VIP subscriptions to our Worlds 3-D chat service. The Company’s future
sources of revenue after the spin off will be from sublicenses of the patented technology to Worlds Online Inc.’s customers
and any revenue that may be generated from enforcing our patents in the market.



Year
ended December 31, 2011 compared to year ended December 31, 2010



Revenue
decreased by $415,657 to $199 for the year ended December 31, 2011 from $415,856 in the prior year.  The decrease is
due to the spin-off of the operating businesses to Worlds Online Inc.



Cost
of revenues increased by $73,385 to $86,459 in 2011 from $13,074 in 2010. Increase is due to the work involved in preparing the
technical documentation required for the patent infringement cases.



Selling
general and administrative (S, G & A) expenses increased by $74,319, from $258,930 to $333,249 for the years ended December
31, 2010 and 2011, respectively.  Increase is primarily due to the professional fees related to the spin-off. Salaries
decreased by $66,106 to $200,094 from $266,200 for the years ended December 31, 2011 and 2010 respectively. Decrease is due to
an allocation of time for the CEO between Worlds Inc. and the spin-off entity Worlds Online Inc. Common stock issued for services
rendered increased by $641,099 to $1,056,849 in 2011 compared to $415,750 for 2010. The increase is due to the strategic business
consulting and advice agreements signed in 2010 and continued for the full year through 2011.



Other
expenses include warrants expense of $0 and options expense of $18,188 for the year ended December 31, 2011 compared to warrant expense
of $14,922 and options expense of $42,543 the year ended December 31, 2010.



As a
result of the foregoing, we realized a net loss of $1,694,640 for the year ended December 31, 2011 compared to a loss of $595,563
in the year ended December 31, 2010, an increase in net losses of $1,099,077.



Liquidity
and Capital Resources



At December
31, 2011, we had cash and cash equivalents of $152,526.  We raised an aggregate of $150,000 in the third quarter of
2011 from a private placement and in December 2010, we raised an aggregate of $400,000 through a private placement of common stock.

At December
31, 2010, we had cash and of $400,848.  We raised an aggregate of $145,459 in February 2010 from a private placement
and in December 2010 we raised an aggregate of $400,000 through a private placement of common stock.

No capital
expenditures were made in 2011 or 2010.



Historically,
our primary cash requirements have been used to fund the cost of operations, development of our products and patent protection,
with additional funds having been used in promotion and advertising and in connection with the exploration of new business lines.



The funds
raised in our 2010 and 2011  financings were and will be used to develop new products and services, enhance our patent
portfolio, pay salaries to management and pay professional fees to our attorneys and auditors to prepare and file reports with
the Securities and Exchange Commission.  We hope to raise additional funds to be used for further developing our portfolio
of patents and to document our technology in order to enforce our patents where there is infringement.  No assurances
can be given that we will be able to raise any additional funds.





Subsequent
Events



On March
30, 2012, the Company filed a patent infringement lawsuit against Activision Bizzard Inc., Blizzard Entertainment Inc. and Activision
Publishing Inc. in the United States District Court for the District of Massachusetts. Susman Godfrey LLP is lead counsel for
the Company.





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Recent
Accounting Pronouncements



Recently
issued accounting standards



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



In July 2010,
the FASB amended the requirements for Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing
disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The new
disclosures as of the end of the reporting period are effective for the fiscal year ending December 31, 2010, while the disclosures
about activity that occurs during a reporting period are effective for the first fiscal quarter of 2011. The adoption of this
guidance will not impact the Company’s consolidated results of operations or financial position.



In January 2010,
the FASB issued authoritative guidance regarding fair value measures and disclosures. The guidance requires disclosure
of significant transfers between level 1 and level 2 fair value measurements along with the reason for the transfer.
An entity must also separately report purchases, sales, issuances and settlements within the level 3 fair value roll forward.
The guidance further provides clarification of the level of disaggregation to be used within the fair value measurement disclosures
for each class of assets and liabilities and clarified the disclosures required for the valuation techniques and inputs used to
measure level 2 or level 3 fair value measurements. This new authoritative guidance is effective for the Company in
fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance
will not impact the Company’s consolidated results of operations or financial position.



In September
2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether
it is necessary to perform the current two-step test for goodwill impairment.  If an entity believes, as a result of
its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying
amount, the quantitative impairment test is required.  Otherwise, no further testing is required. The revised standard
is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  
The Company does not expect that the adoption of this standard will have a material impact on the Company’s results of operations,
cash flows or financial condition.



In December
2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities”
to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update
requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position
when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements
relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013.
The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will
have a material impact on the Company’s results of operations, cash flows or financial condition.





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|CONTENTS                                               
|-------------------------------------------------------
|                                                       
|                                                       
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|                                                       
|BALANCE SHEETS                                         
|                                                       
|STATEMENTS OF OPERATIONS                               
|                                                       
|STATEMENTS OF CASH FLOWS                               
|                                                       
|STATEMENT OF STOCKHOLDERS’ DEFICIT                     
|                                                       
|NOTES TO FINANCIAL STATEMENTS                          
|                                                       





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FL Office

7951 SW 6th St.,
Suite. 216

Plantation, FL 33324

Tel: 954-424-2345

Fax: 954-424-2230



NC Office

19720 Jetton Road,
3rd Floor

Cornelius, NC 28031

Tel: 704-892-8733

Fax: 704-892-6487











REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and

Stockholders of Worlds Inc.



We have audited
the accompanying balance sheets of Worlds Inc. (the “Company”) as of December 31, 2011 and 2010 and related statements
of operations, stockholders’ deficit, and cash flows for the two years then ending. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our 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. (a
Delaware corporation) as of December 31, 2011 and 2010 and the results of its operations and its cash flows for two years then
ended in conformity with accounting principles generally accepted in the United States of America.



The accompanying
financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring
operating losses, has an accumulated stockholders’ deficit, has negative working capital, has had minimal revenues from
operations, and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





/s/ Bongiovanni & Associates,
CPA'S

Bongiovanni & Associates, CPA'S

Cornelius, North Carolina

April 13, 2012





www.bai-cpa.com





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Item
8 - Financial Statements







|Worlds Inc                              |  |  |  |  |  | 
|--------------------------------------- |  |  |  |  |  | 
|Balance Sheets                          |  |  |  |  |  | 
|December 31, 2011 and December 31, 2010 |  |  |  |  |  | 





|                                                                                                                                                                             |  |                  | As
                                                                                              of |                      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | --------------------------------------------------------------------------------------------------- | ---------------------
|                                                                                                                                                                             |  | Decmber 31, 2011 |                                                                                                     | December
    31, 2010
|Current Assets                                                                                                                                                               |  |                  |                                                                                                     |                      
|Cash and cash equivalents                                                                                                                                                    |  | $                | 152,526                                                                                             |                      
|Due from related party                                                                                                                                                       |  |                  | 43,819                                                                                              |                      
|Prepaid Expense                                                                                                                                                              |  |                  | 82,633                                                                                              |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|Total Current Assets                                                                                                                                                         |  |                  | 278,978                                                                                             |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|Property and equipment, net of accumulated depreciation                                                                                                                      |  |                  | —                                                                                                   |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|TOTAL
    ASSETS                                                                                                                                                             |  | $                | 278,978                                                                                             |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|Current Liabilities                                                                                                                                                          |  |                  |                                                                                                     |                      
|Accounts payable                                                                                                                                                             |  | $                | 798,808                                                                                             |                      
|Accrued expenses                                                                                                                                                             |  |                  | 1,866,172                                                                                           |                      
|Loan payable officer                                                                                                                                                         |  |                  | —                                                                                                   |                      
|Deferred revenue                                                                                                                                                             |  |                  | —                                                                                                   |                      
|Notes payable                                                                                                                                                                |  |                  | 773,279                                                                                             |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|Total
    Current Liabilities                                                                                                                                                |  | $                | 3,438,259                                                                                           |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|Stockholders (Deficit)                                                                                                                                                       |  |                  |                                                                                                     |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|Common stock (Par value $0.001 authorized 100,000,000 shares,
    issued and outstanding 74,862,146 and 62,781,122 at December 31, 2011 and December 31, 2010, respectively) |  | $                | 74,862                                                                                              |                      
|Common stock subscribed but not yet issued (525,000 and 3,358,331
    at December 31, 2011 and December 31, 2010, respectively)                                              |  |                  | 525                                                                                                 |                      
|Additional Paid in Capital                                                                                                                                                   |  |                  | 25,231,804                                                                                          |                      
|Accumulated Deficit                                                                                                                                                          |  |                  | (28,466,471                                                                                         | )                    
|Total stockholders deficit                                                                                                                                                   |  | $                | (3,159,281                                                                                          | )                    
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|                                                                                                                                                                             |  |                  |                                                                                                     |                      
|Total Liabilities and stockholders
    deficit                                                                                                                               |  | $                | 278,978                                                                                             |                      



|See Notes to Financial Statements
|---------------------------------









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|Worlds Inc                                          |  |  |  |  |  | 
|--------------------------------------------------- |  |  |  |  |  | 
|Statement of Operations                             |  |  |  |  |  | 
|Years Ended December 31, 2011 and December 31, 2010 |  |  |  |  |  | 





|                                           |  |                   | For the years ended |                   |  |  
|------------------------------------------ |  | ----------------- | ------------------- | ----------------- |  | -
|                                           |  | December 31, 2011 |                     | December 31, 2010
|Revenues                                   |  |                   |                     |                   |  |  
|Revenue                                    |  | $                 | 199                 |                   |  | $
|                                           |  |                   |                     |                   |  |  
|Total Revenue                              |  |                   | 199                 |                   |  |  
|                                           |  |                   |                     |                   |  |  
|Cost and Expenses                          |  |                   |                     |                   |  |  
|                                           |  |                   |                     |                   |  |  
|Cost of Revenue                            |  |                   | 86,459              |                   |  |  
|                                           |  |                   |                     |                   |  |  
|Gross Profit/(Loss)                        |  |                   | (86,260             | )                 |  |  
|                                           |  |                   |                     |                   |  |  
|Warrant Expense                            |  |                   |                     |                   |  |  
|Option Expense                             |  |                   | 18,188              |                   |  |  
|Common Stock issued for services rendered  |  |                   | 1,056,849           |                   |  |  
|Selling, General and Admin.                |  |                   | 333,249             |                   |  |  
|Salaries                                   |  |                   | 200,094             |                   |  |  
|                                           |  |                   |                     |                   |  |  
|Operating loss                             |  |                   | (1,694,640          | )                 |  |  
|                                           |  |                   |                     |                   |  |  
|Other Income (Expense)                     |  |                   |                     |                   |  |  
|Interest Expense                           |  |                   | —                   |                   |  |  
|                                           |  |                   |                     |                   |  |  
|Net (Loss)                                 |  | $                 | (1,694,640          | )                 |  | $
|                                           |  |                   |                     |                   |  |  
|Weighted Average Net Loss per share        |  |                   | (0.02               | )                 |  |  
|                                           |  |                   |                     |                   |  |  
|Weighted Average Common Shares Outstanding |  |                   | 69,984,791          |                   |  |  





|See Notes to Financial Statements
|---------------------------------







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|Worlds Inc                                          |  |  |  |  |  | 
|--------------------------------------------------- |  |  |  |  |  | 
|Statement of Cash Flows                             |  |  |  |  |  | 
|Years Ended December 31, 2011 and December 31, 2010 |  |  |  |  |  | 







|                                                                           |   |                   |   | For the years ended |   |                   |  
|-------------------------------------------------------------------------- | - | ----------------- | - | ------------------- | - | ----------------- | -
|                                                                           |   | December 31, 2011 |   |                     |   | December 31, 2010 |  
|Cash flows from operating activities:                                      |   |                   |   |                     |   |                   |  
|Net (loss)                                                                 | $ | (1,694,640        | ) |                     | $ | (595,563          | )
|Adjustments to reconcile net loss to net cash used in operating activities |   |                   |   |                     |   |                   |  
|Warrants expense                                                           |   | —                 |   |                     |   | 14,922            |  
|Depreciation                                                               |   | 759               |   |                     |   | 3,124             |  
|Fair value of stock options issued                                         |   | 18,188            |   |                     |   | 42,543            |  
|Common stock issued for services rendered                                  |   | 1,093,982         |   |                     |   | 368,949           |  
|Prepaid expense                                                            |   | (10,258           | ) |                     |   | —                 |  
|Bank Overdraft                                                             |   | —                 |   |                     |   | (1,175            | )
|Accounts payable and accrued expenses                                      |   | 63,420            |   |                     |   | 289,189           |  
|Due from related party                                                     |   | (43,819           | ) |                     |   |                   |  
|Deferred revenue                                                           |   | —                 |   |                     |   | (265,000          | )
|                                                                           |   |                   |   |                     |   |                   |  
|Net cash used in operating activities:                                     |   | (572,368          | ) |                     |   | (143,011          | )
|                                                                           |   |                   |   |                     |   |                   |  
|Cash flows from financing activities                                       |   |                   |   |                     |   |                   |  
|Proceeds from issuance of common stock                                     |   | 150,000           |   |                     |   | 400,000           |  
|Proceeds from exercise of warrants                                         |   | 118,446           |   |                     |   | 145,459           |  
|Proceeds from exercise of options                                          |   | 58,000            |   |                     |   |                   |  
|Repayment of officer loan payable                                          |   | (2,400            | ) |                     |   | (1,600            | )
|                                                                           |   |                   |   |                     |   |                   |  
|Net cash provided by financing activities                                  |   | 324,046           |   |                     |   | 543,859           |  
|                                                                           |   |                   |   |                     |   |                   |  
|Net increase/(decrease) in cash and cash equivalents                       |   | (248,322          | ) |                     |   | 400,848           |  
|                                                                           |   |                   |   |                     |   |                   |  
|Cash and cash equivalents beginning of year                                |   | 400,848           |   |                     |   | 0                 |  
|                                                                           |   |                   |   |                     |   |                   |  
|Cash and cash equivalents end of year                                      | $ | 152,526           |   |                     | $ | 400,848           |  
|                                                                           |   |                   |   |                     |   |                   |  
|Non-cash financing activities:                                             |   |                   |   |                     |   |                   |  
|                                                                           |   |                   |   |                     |   |                   |  
|Common stock issued for acconts payable                                    | $ | 72,375            |   |                     | $ | —                 |  
|Deferred revenue                                                           |   | 276,950           |   |                     |   | —                 |  
|Conversion of debt to equity                                               |   | —                 |   |                     |   | 175,000           |  
|Prepayment of expenses through issuance of common stock                    |   | 82,633            |   |                     |   |                   |  
|                                                                           |   |                   |   |                     |   |                   |  
|Supplemental disclosure of cash flow information:                          |   |                   |   |                     |   |                   |  
|Cash paid during the year for:                                             |   |                   |   |                     |   |                   |  
|Interest                                                                   | $ | —                 |   |                     | $ | —                 |  
|Income taxes                                                               | $ | —                 |   |                     | $ | —                 |  





|See Notes to Financial Statements
|---------------------------------







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|Worlds Inc                                    |  |  |  |  |  | 
|--------------------------------------------- |  |  |  |  |  | 
|Statement of Stockholders Deficit             |  |  |  |  |  | 
|For theYears Ended December 31, 2010 and 2011 |  |  |  |  |  | 









|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  | Common     |   |  |   | Common     |   |  |   |             |   |  |   |               |  
|---------------------------------------------- |  |  | ------------ |  |  | - | ------ |  |  | - | ---------- |  |  |  | ---------- | - |  | - | ---------- | - |  | - | ----------- | - |  | - | ------------- | -
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  | Shares     |   |  |   | Stock      |   |  |   |             |   |  |   | Total         |  
|                                               |  |  |              |  |  |   |        |  |  |   | Additional |  |  |  | Subscribed |   |  |   | Subscribed |   |  |   | Accumulated |   |  |   | stockholders' |  
|                                               |  |  | Common stock |  |  |   |        |  |  |   | Paid-in    |  |  |  | but not    |   |  |   | but not    |   |  |   | Deficit     |   |  |   | equity        |  
|                                               |  |  | Shares       |  |  |   | Amount |  |  |   | capital    |  |  |  | Issued     |   |  |   | Issued     |   |  |   |             |   |  |   | (deficit)     |  
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   |               |  
|Balances, January 1, 2010                      |  |  | 53,663,758   |  |  | $ | 53,663 |  |  | $ | 22,258,713 |  |  |  |            |   |  |   |            |   |  | $ | (26,176,269 | ) |  | $ | (3,863,893    | )
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   |               |  
|Conversion of debt to equity                   |  |  | 1,750,000    |  |  |   | 1,750  |  |  |   | 173,250    |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   | 175,000       |  
|Common stock issued for services rendered      |  |  | 500,000      |  |  |   | 500    |  |  |   | 59,500     |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   | 60,000        |  
|Exercise of warrants                           |  |  | 1,454,590    |  |  |   | 1,455  |  |  |   | 144,004    |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   | 145,459       |  
|Issuance of warrants                           |  |  |              |  |  |   |        |  |  |   | 14,922     |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   | 14,922        |  
|Issuance of common stock for services rendered |  |  | 112,774      |  |  |   | 113    |  |  |   | 13,086     |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   | 13,199        |  
|Issuance of common stock for cash investment   |  |  |              |  |  |   |        |  |  |   | 396,667    |  |  |  | 3,333,331  |   |  |   | 3,333      |   |  |   |             |   |  |   | 400,000       |  
|Common stock issued for services rendered      |  |  | 5,300,000    |  |  |   | 5,300  |  |  |   | 350,425    |  |  |  | 25,000     |   |  |   | 25         |   |  |   |             |   |  |   | 355,750       |  
|Issuance of stock options                      |  |  |              |  |  |   |        |  |  |   | 42,543     |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   | 42,543        |  
|Net Loss for the year ended December 31, 2010  |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   | (595,563    | ) |  |   | (595,563      | )
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   |               |  
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   |               |  
|Balances, December 31, 2010                    |  |  | 62,781,122   |  |  | $ | 62,780 |  |  | $ | 23,453,111 |  |  |  | 3,358,331  |   |  | $ | 3,358      |   |  | $ | (26,771,831 | ) |  | $ | (3,252,582    | )
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   |               |  
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   |               |  
|Conversion of debt to equity                   |  |  | 309,741      |  |  |   | 310    |  |  |   | 72,065     |  |  |  | —          |   |  |   | —          |   |  |   | —           |   |  |   | 72,375        |  
|Issuance of common stock for services rendered |  |  | 5,348,619    |  |  |   | 5,349  |  |  |   | 1,088,133  |  |  |  | 500,000    |   |  |   | 500        |   |  |   | —           |   |  |   | 1,093,982     |  
|Issuance of common stock for cash investment   |  |  | 4,333,331    |  |  |   | 4,333  |  |  |   | 149,000    |  |  |  | (3,333,331 | ) |  |   | (3,333     | ) |  |   | —           |   |  |   | 150,000       |  
|Exercise of warrants                           |  |  | 1,160,804    |  |  |   | 1,161  |  |  |   | 117,285    |  |  |  | —          |   |  |   | 0          |   |  |   | —           |   |  |   | 118,446       |  
|Exercise of stock options                      |  |  | 928,529      |  |  |   | 929    |  |  |   | 57,071     |  |  |  | —          |   |  |   | —          |   |  |   | —           |   |  |   | 58,000        |  
|Deferred revenue                               |  |  | —            |  |  |   | —      |  |  |   | 276,950    |  |  |  | —          |   |  |   | —          |   |  |   | —           |   |  |   | 276,950       |  
|Issuance of stock options                      |  |  |              |  |  |   |        |  |  |   | 18,188     |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   | 18,188        |  
|Net Loss for the year ended December 31, 2011  |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   | (1,694,640  | ) |  |   | (1,694,640    | )
|                                               |  |  |              |  |  |   |        |  |  |   |            |  |  |  |            |   |  |   |            |   |  |   |             |   |  |   |               |  
|Balances, December 31, 2011                    |  |  | 74,862,146   |  |  | $ | 74,862 |  |  | $ | 25,231,804 |  |  |  | 525,000    |   |  |   | 525        |   |  | $ | (28,466,471 | ) |  | $ | (3,159,281    | )







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Worlds
Inc.

NOTES
TO FINANCIAL STATEMENTS

Years
Ended December 31, 2011 and 2010





NOTE
1 – DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES



Description of Business



On May
16, 2011, the Company transferred, through a spin-off to its then wholly owned subsidiary, Worlds Online Inc., the majority of
its operations and related operational assets. The Company retained its patent portfolio which it intends to continue to increase
and to more aggressively enforce against alleged infringers. The Company also entered into a License Agreement with Worlds Online
Inc. to sublicense its patented technologies.



Basis of Presentation



The accompanying
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
("US GAAP"), which contemplates continuation of the Company as a going concern. The Company has always been considered
a developmental stage business, has incurred significant losses since its inception and has had minimal revenues from operations.
The Company will require substantial additional funds for development and enforcement of its patent portfolio. There can be no
assurance that the Company will be able to obtain the substantial additional capital resources to pursue its business plan or
that any assumptions relating to its business plan will prove to be accurate. The Company has not been able to generate sufficient
revenue or obtain sufficient financing which has had a material adverse effect on the Company, including requiring the Company
to reduce operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. For the
past year the Company has been operating at a significantly reduced capacity, with only one full time employee, performing primarily
consulting services and licensing software and using consultants to perform any additional work that may be required.



Use of Estimates



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



Cash and Cash Equivalents



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



Due from Related Party



Due from
related party is comprised of cash payments made by Worlds Inc. on behalf of Worlds Online Inc. for shared operating expenses.



Revenue Recognition



Effective
for the second quarter of 2011, the Company spun off its online businesses to Worlds Online Inc. The Company’s sources of
revenue after the spin off will be from sublicenses of the patented technology by Worlds Online and any revenue that may be generated
from enforcing its patents in the market. The Company had 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 are charged to operations as incurred.



Property and Equipment



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





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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.
The Company adopted the statement on inception. No impairments of these types of assets were recognized during 2011 and 2010.



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.

Notes
Payable



The Company
has $773,279 in short term notes outstanding at December 31, 2011.



Deferred
Revenue



As part
of a debt refinancing in 2000, $631,950 of debt was renegotiated to deferred revenue representing future services to be provided
by the Company. $355,000 has been amortized into income since then. The balance was transferred over to Worlds Online Inc. and
no longer appears on the Company’s balance sheet.



Call Option Agreements



The Company
has entered into call option agreements with 13 of its major shareholders. The call options give the Company the right to purchase
up to 4,150,000 shares of stock back at prices ranging from $0.15 per share up to $0.40 per share. The Company issued an aggregate
of 680,000 shares of stock to these shareholders as an inducement to enter into these call option agreements. The call option
agreements have expiration dates of 1 and 2 years. In 2011, 12 of the call options were extended for 1 year. The Company issued
315,000 additional shares as an inducement to enter into the 1 year extensions.



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 consolidated 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 December 31, 2011 and 2010.



Stockholders
Equity



5,348,619
shares of common stock were issued for services rendered during the year ended December 31, 2011.



Commitments and Contingencies



During
2000 the Company was involved in a lawsuit relating to unpaid consulting services. In April, 2001 a judgment against the Company
was rendered for approximately $205,000. As of December 31, 2011, and 2010 the Company recorded a reserve of $205,000 for this
lawsuit, which is included in accrued expenses in the accompanying balance sheets.



Risk and Uncertainties



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





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Recent Accounting Pronouncements



Recently
issued accounting standards



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



In July 2010,
the FASB amended the requirements for Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing
disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The new
disclosures as of the end of the reporting period are effective for the fiscal year ending December 31, 2010, while the disclosures
about activity that occurs during a reporting period are effective for the first fiscal quarter of 2011. The adoption of this
guidance will not impact the Company’s consolidated results of operations or financial position.



In January 2010,
the FASB issued authoritative guidance regarding fair value measures and disclosures. The guidance requires disclosure
of significant transfers between level 1 and level 2 fair value measurements along with the reason for the transfer.
An entity must also separately report purchases, sales, issuances and settlements within the level 3 fair value roll forward.
The guidance further provides clarification of the level of disaggregation to be used within the fair value measurement disclosures
for each class of assets and liabilities and clarified the disclosures required for the valuation techniques and inputs used to
measure level 2 or level 3 fair value measurements. This new authoritative guidance is effective for the Company in
fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance
will not impact the Company’s consolidated results of operations or financial position.



In September
2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether
it is necessary to perform the current two-step test for goodwill impairment.  If an entity believes, as a result of
its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying
amount, the quantitative impairment test is required.  Otherwise, no further testing is required. The revised standard
is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  
The Company does not expect that the adoption of this standard will have a material impact on the Company’s results of operations,
cash flows or financial condition.



In December
2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities”
to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update
requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position
when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements
relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013.
The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will
have a material impact on the Company’s results of operations, cash flows or financial condition.





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NOTE
2 - GOING CONCERN



From
mid-2001 through most of 2007, the Company had to significantly curtail and at times almost cease operations due to lack of resources.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its
inception, the Company has had periods where it had only minimal revenues from operations. There can be no assurance that the
Company will be able to obtain the additional capital resources 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
2010, the Company completed a private placement of 1,454,590 shares of its common stock at a price per share of $0.10 for aggregate
proceeds of $145,459. The five “accredited” investors also received an aggregate of 975,338 warrants as part of the
equity investment exercisable at $0.15 per share. The Company also converted the $175,000 in notes payable from the 2009 financing
into 1,750,000 shares of its common stock. Also in 2010, the Company completed a private placement of 3,333,331 shares of its
common stock at a price per share of $0.12 for aggregate proceeds of $400,000.



During
2010, the Company issued an aggregate of 5,912,774 shares of common stock as payment for services rendered.





During
the year ended December 31, 2011 the Company issued an aggregate of 5,348,619 shares of common stock as payment for services rendered
with an aggregate value of $1,093,482.



During
the year ended December 31, 2011, the Company raised $118,446 with the exercise of warrants covering 1,160,804 shares of its common
stock at a price per share ranging from $0.01 to $0.15 per share.



During
the year ended December 31, 2011, the Company raised $58,000 with the exercise of options covering 928,529 shares of its common
stock at a price ranging from $0.05 to $0.30 per share. 128,529 of those shares were exercised on a cashless basis by the surrender
to the Company of an aggregate of 131,747 options with a value of $38,558 being equal to the difference in price between the exercise
price and the market price on the date of exercise.



During the year ended December
31, 2011, the Company issued 4,333,331 common shares for a cash investment of $150,000. Included in these shares were
3,333,331 in shares from the prior year that were issued for $400,000.



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. As part of a debt refinancing in 2000, $631,950 of
debt was renegotiated to deferred revenue representing future services to be provided by the Company. During 2010, $265,000 worth
of services was provided leaving a balance of $276,950 at December 31, 2010. As part of the spin off, the deferred revenue agreement
was transferred to Worlds Online Inc. As of December 31, 2011 the balance is $0.





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NOTE
5 - NOTES PAYABLE

|Short
        term notes payable at December 31, 2011 consist of the following: |  |  
|------------------------------------------------------------------------------- |  | -
|                                                                                |  |  
|Unsecured note payable to a shareholder
    bearing 8% interest.               
|Entire balance of principal and unpaid
    interest due on demand               |  | $
|                                                                                |  |  
|Unsecured note payable to a shareholder bearing
    10% interest                |  |  
|Entire balance of principal and unpaid interest
    due on demand               |  | $
|                                                                                |  |  
|Total current                                                                   |  | $
|                                                                                |  |  
|2012                                                                            |  | $
|2013                                                                            |  | $
|2014                                                                            |  | $
|2015                                                                            |  | $
|2016                                                                            |  | $
|                                                                                |  | $



NOTE 6- PROPERTY AND EQUIPMENT



The detail composition of
property and equipment at December 31, 2011 and December 31, 2010 is as follows:

|                               |  |   | 31-Dec |  |  |   | 31-Dec | 
|------------------------------ |  | - | ------ |  |  | - | ------ | 
|                               |  |   | 2011   |  |  |   | 2010   | 
|Computer equipment             |  | $ | 10,891 |  |  | $ | 10,891 | 
|Less: accumulated depreciation |  |   | 10,891 |  |  |   | 10,132 | 
|Net book value                 |  | $ | -0-    |  |  | $ | 759    | 



Depreciation expense recorded
for the years ended December 31, 2011 and 2010 was $759 and $3,124, respectively.





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NOTE 7 – STOCK OPTIONS



During
the year ended December 31,2011, the Company recorded an expense of $18,188, equal to the estimated fair value of the options
that are to be issued to the directors for serving on the board in 2011 at the date of grants. The fair market value was
calculated using the Black-Scholes options pricing model, assuming approximately 5.0% risk-free interest, 0% dividend yield,
60% volatility, and expected life of three years.



During
2010 the Company issued stock options to various parties. 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 October 28, 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. There were no forfeited options during 2010. During the year ended December 31, 2010, the Company recorded an
expense of $42,543, equal to the estimated fair value of the options at the date of grants. The fair market value was calculated
using the Black-Scholes options pricing model, assuming approximately 5.0% risk-free interest, 0% dividend yield, 60% volatility,
and expected lives ranging from one to three years.



During
2010 we also issued 500,000 stock options exercisable at $0.05 per share to one person, who is not an officer or a director. No
stock options have been issued in the year ended December 31, 2011.



During
the year ended December 31, 2011, 1,160,804 warrants were exercised and 928,529 stock options were exercised for cash
proceeds of $118,446 and $58,000, respectively. There are no outstanding warrants as of December 31, 2011.



|Stock
        Options                                                             
|----------------------------------------------------------------------------------
|Stock
    options outstanding and exercisable on December 31, 2011 are as follows:
|                                                                                  



|Exercise Price per Share |  | Shares
    Under Option |            | Remaining
    Life in Years
|------------------------ |  | ----------------------- | ---------- | ---------------------------
|                         |  |                         |            |                            
|Outstanding              |  |                         |            |                            
|$0.35                    |  |                         | 212,500    |                            
|$0.30                    |  |                         | 300,000    |                            
|$0.20                    |  |                         | 300,000    |                            
|$0.20                    |  |                         | 300,000    |                            
|$0.11                    |  |                         | 150,000    |                            
|$0.11                    |  |                         | 150,000    |                            
|$0.11                    |  |                         | 300,000    |                            
|$0.05                    |  |                         | 15,450,000 |                            
|$0.05                    |  |                         | 600,000    |                            
|                         |  |                         |            |                            
|Exercisable              |  |                         |            |                            
|$0.35                    |  |                         | 212,500    |                            
|$0.30                    |  |                         | 300,000    |                            
|$0.20                    |  |                         | 300,000    |                            
|$0.20                    |  |                         | 300,000    |                            
|$0.11                    |  |                         | 150,000    |                            
|$0.11                    |  |                         | 150,000    |                            
|$0.11                    |  |                         | 300,000    |                            
|$0.05                    |  |                         | 15,450,000 |                            
|$0.05                    |  |                         | 600,000    |                            





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NOTE 8 - INCOME TAXES



At
December 31, 2011, the Company had federal and state net operating loss carry forwards of approximately $40,000,000that expire in various years through the year 2024.



Due to
operating losses, there is no provision for current federal or state income taxes for the year ended December 31, 2011 and 2010.



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 December 31, 2011 consists of net operating loss carry forwards calculated using federal and state effective
tax rates equating to approximately $16,000,000 less a valuation allowance in the amount of approximately $16,000,000. 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 December 31, 2011 is as follows:



|Net operating loss carry forwards |  | $ | 16,000,000   | 
|--------------------------------- |  | - | ------------ | 
|Valuation allowance               |  |   | (16,000,000) | 
|                                  |  |   |              | 
|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 year ended December 31, 2011 is
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 9 - EMPLOYMENT AGREEMENTS
(COMMITMENT)





On
September 4, 2007, our board approved entry into an employment agreement with our president, Thom Kidrin.  The agreement,
dated as of September 1, 2007, is for five years with a one-year renewal option held by Mr. Kidrin.  The agreement provides
for a base salary of $200,000, which increases 10% on January 1 of each year; a monthly car allowance of $1,000; an annual bonus
equal to 2.5% of Pre-Tax Income (as defined in the agreement); an additional bonus as follows: $75,000, if Pre-Tax Income for
the year is between 150% and 200% of the prior fiscal year’s Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year
is between 201% and 250% of the prior fiscal year’s Pre-Tax Income or (C) $200,000, if Pre-Tax Income for the year is 251%
or greater than the prior fiscal year’s Pre-Tax Income, but in no event shall this additional bonus exceed five (5%) percent
of Pre-Tax Income for such year; payment of up to $10,000 in life insurance premiums; options to purchase 15 million shares of
our common stock at an exercise price of  $0.05 per share, of which one-third vested on September 4, 2007, one-third
vest on August 31, 2008 and the balance vested on August 31, 2009; a death benefit equal to one year of the then base salary and
a disability benefit equal to two years of the then base salary; and a payment equal to 2.99 times his base amount (as defined
in the agreement) in the event of a Change of Control (as defined in the agreement).  The agreement also provides that
Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12 months
after termination.





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NOTE
10 – SUBSEQUENT EVENTS

On
April 12, 2012, the company closed a small financing in which it sold 1 million shares of its common stock at a price of $0.25
per share. The purchaser was a non-U.S. entity with a history of investing in companies, like the registrant, with patent portfolios.



Item 8.01. Other Events.





On April 12, 2012, the registrant closed a small financing in which
it sold 1 million shares of its common stock at a price of $0.25 per share. The purchaser was a non-U.S. entity with a history
of investing in companies, like the registrant, with patent portfolios.









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



None.



ITEM 9A.  CONTROLS
AND PROCEDURES.



Conclusion Regarding the
Effectiveness of Disclosure Controls and Procedures



Under
the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits
under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal
financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure.  We
concluded that our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act were effective as of
December 31, 2011 to ensure that information required to be disclosed in reports we file or submit under the Exchange Act
is recorded, processed, and summarized and reported within the time periods specified in SEC rules and forms.



Management’s Annual
Report on Internal Control over Financial Reporting



Our management
is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over financial reporting are designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes
in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those
policies and procedures that:



(i)  pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our
assets;



(ii)  provide
reasonable assurance that transactions are recorded as necessary to permit the preparation of our consolidated financial statements
in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and



(iii)  provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the consolidated financial statements.



Management
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making
this assessment, management used the criteria set forth in Internal Control Over Financial Reporting — Guidance for Smaller
Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission.



Subject
to the inherent limitations described in the following paragraph, our management has concluded that our internal controls over
financial reporting was effective as December 31, 2011 at the reasonable assurance level.



Inherent Limitations Over
Internal Controls



Internal
control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its
inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly,
even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions or that the degree of compliance with the policies or procedures may deteriorate.  Accordingly, our internal
controls and procedures are designed to provide reasonable assurance of achieving their objectives.



Changes in Internal Control
over Financial Reporting



We have
made no change in our internal control over financial reporting during the fourth quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.



Attestation Report of the
Registered Public Accounting Firm



This
annual report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting
firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report on
Form 10-K.



ITEM 9B.  OTHER
INFORMATION.



None.





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PART
III



ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.



The following
table sets forth the name, age and position of our directors and executive officers. Our directors are elected annually and serve
until the next annual meeting of stockholders.  Except for Mr. Kidrin, all of our directors are independent.





|Name                | Age      | Position                                                                    
|------------------- | -------- | ----------------------------------------------------------------------------
|Thomas Kidrin       | 59       | President, Chief Executive Officer, Secretary,
    Treasurer, Director      
|Christopher J. Ryan | 51       | Vice President-Finance, Principal Accounting
    and Chief Financial Officer
|Bernard Stolar      | 65       | Director                                                                    
|Jay Coleman         | Deceased | Director                                                                    
|Robert Fireman      | 63       | Director                                                                    



Thomas
Kidrin has been president, secretary and treasurer from December 1997 through July 2007 then added the title chief executive officer
since August 2007. Mr. Kidrin was also president and a director of Worlds Acquisition Corp. from April 1997 to December 1997.
He has been the chairman and president of Datastream Corporation, a designer and developer of interactive products and services,
since 1993. From December 1991 to June 1996, Mr. Kidrin was a founder, director, and President of UC Television Network Corp.,
a company engaged in the design and manufacture of interactive entertainment/advertising networks in the college market under
the brand name College Television Network, the largest private network on college campuses in the United States sold to MTV in
1996 now operating under MTVU. Mr. Kidrin has attended Drake University and the New School of Social Research.



Christopher
J. Ryan has been Vice President-Finance since May 2000 and principal accounting and finance officer since August 2000. From August
1991 through April 2000, Mr. Ryan held a variety of financial management positions at Reuters America, an information services
company.  From 2001 through 2003, Mr. Ryan was the founder and President of CJR Advisory Services, a personal corporation
through which he provided financial consulting services to various entities.  Since 2004, Mr. Ryan has been the VP Finance
of Peminic, Inc.  Mr. Ryan is an inactive certified public accountant. He is a graduate of Montclair State University
in New Jersey and received an M.B.A. degree from Fordham University in New York.



Bernard
Stolar, noted for his expertise in both identifying and developing market-driving content and forging successful business partnerships,
brings to the board over twenty years of senior-level experience within the interactive entertainment industry in all phases of
company operations, including sales and marketing, product development, licensing, distribution, strategic planning and management.
Mr. Stolar has served in high profile leadership roles at publicly and privately held interactive entertainment companies. Currently,
Mr. Stolar is Dean of Games and Game Evangelist for Google, Inc. From February 2006 until its purchase by Google, Inc. in February
2007, Mr. Stolar was the Chairman of the Board of Adscape Media. Prior to this, he was president and chief operating office of
BAM! Entertainment, where he transformed the company from a hand-held content company to a developer and marketer of interactive
entertainment for next generation video game consoles. In 2000, Mr. Stolar joined Mattel, Inc. as president of Mattel Interactive,
where he was responsible for directing and reorganizing the $1 billion Mattel Interactive division. From 1996 to 1999, Mr. Stolar
served as president and chief operating officer of Sega of America, Inc. where he helped increase sales from $200 million to over
$1 billion in three years, and orchestrated the launch of the Sega Dreamcast(TM), the fastest selling video game console in US
history at that time. Mr. Stolar also served as executive vice president of Sony Computer Entertainment of America, where he was
a key leader of the Sony Playstation® launch team, directing all third-party publishing in the U.S. Prior to that, Mr. Stolar
served as president of Atari America's game division.



Jay Coleman
passed away on November 27, 2011. Mr. Coleman was the founder and CEO, since 1976, of Entertainment Marketing & Communications
International, a leading independent company linking worldwide consumer marketing with the broad spectrum of contemporary music,
entertainment and technology and he brought to the board his experience and expertise in marketing as well as his contacts in
the music industry, the initial area in which we are directing our technology.  Major deals include the Rolling Stones with
American Express; Michael Jackson with Pepsi; and Sponsorship for Live Aid and Live Earth, among other major media events. Mr.
Coleman was best known for pioneering music sponsorship and marketing, creating landmark deals, and expanding his company's marketing
capabilities beyond pop music, creating breakthrough concepts in all areas of entertainment.



Robert
Fireman is a seasoned executive in the building of technology and consumer driven companies. He brings to Worlds vast experience
in the development of real time, loyalty based, stored value products and services.  Mr. Fireman was a founder and former
Director and General Manager of SmartSource Direct, Inc., a subsidiary of News America Marketing (News Corp).  Mr. Fireman
was responsible for the development, marketing and distribution of card-based loyalty, financial, and database products &
services in retail, grocery and drug store chains encompassing over 50,000 stores throughout the U.S.  Mr. Fireman has
been a practicing attorney for over 25 years and is the managing attorney of Fireman & Associates LLP.



The board
of directors did not meet during 2011 but acted by written consent seven times during the year.  The board does not
have any standing committees and when necessary, the entire board acts to perform such functions.





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Family
Relationships



None.



Legal
Proceedings



None.



Audit
Committee



We do
not have a separately designated standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board
of Directors acts as an audit committee for the purpose of overseeing the accounting and financial reporting processes, and audits
of our financial statements. The Commission recently adopted new regulations relating to audit committee composition and functions,
including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit
committee.  We have only recently begun increasing our operations, and we are not in a position at this time to attract,
retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial
expert" or to so designate one of our current directors, but we intend to either retain an additional director who will qualify
as such an expert or designate one of our current directors as such an expert, as soon as reasonably practicable. Our current
directors, by virtue of their past employment experience, have considerable knowledge of financial statements, finance, and accounting,
and have significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current
directors capably fulfill the duties and responsibilities of an audit committee in the absence of such a designated expert at
this time.





Code
of Ethics



We have
adopted a code of ethic (the "Code of Ethics") that applies to our principal chief executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions.  A copy of the Code of
Ethics was filed  as Exhibit 14.1 to a previous annual report. The Code of Ethics is being designed with the intent
to deter wrongdoing, and to promote the following:



|· | Honest and ethical conduct, including
    the ethical handling of actual or apparent conflicts of interest between personal and professional relationships
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|· | Full, fair, accurate, timely
    and understandable disclosure in reports and documents that we file with, or submit to, the Commission and in other public
    communications we make
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | Compliance with applicable governmental
    laws, rules and regulations
|- | -----------------------------------------------------------------------



|· | The prompt internal reporting
    of violations of the code to an appropriate person or persons identified in the code
|- | ----------------------------------------------------------------------------------------------------------------------



|· | Accountability for adherence
    to the code
|- | --------------------------------------------



Section
16(a) Beneficial Ownership Reporting Compliance



Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than
10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the
ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report,
in this Form 10-K, any failure to comply therewith during the fiscal year ended December 31, 2011.  Except as disclosed
below, we believe that all of these filing requirements were satisfied by its executive officers, directors and by the beneficial
owners of more than 10% of our common stock. In making this statement, we have relied solely on copies of any reporting forms
received by us, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes
in Beneficial Ownership) was required to be filed under applicable rules of the Commission.  Each of our directors did
not timely file one Form 4.





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ITEM
11. EXECUTIVE COMPENSATION.



The
following table sets forth the compensation paid by us during the fiscal periods ending December 31, 2011, 2010 and 2009, to our
chief executive officer and to our other most highly compensated executive officers whose compensation exceeded $100,000 for those
fiscal periods.





|SUMMARY
    COMPENSATION TABLE (1)(2)
|-------------------------------------
|Name and principal position (a)      
|Thomas Kidrin President and CEO      
|                                     
|                                     





(1) The
above compensation does not include other personal benefits, the total value of which do not exceed $10,000.



(2) Pursuant
to the regulations promulgated by the SEC, the table omits columns reserved for types of compensation not applicable to us.



(3) Mr.
Kidrin has an employment agreement with a 2011 salary of $292,820.  A portion of his compensation has been paid by Worlds
Online Inc. with the remaining balance deferred due to lack of funds.



Stock
Option Grants



The
following table sets forth information as of December 31, 2011 concerning unexercised options, unvested stock and equity
incentive plan awards for the executive officers named in the Summary Compensation Table.



OUTSTANDING
EQUITY AWARDS AT YEAR-ENDED DECEMBER 31, 2011



|Name        |  | Number
        of
        Securities
        Underlying
        Unexercised
        Options
        (#)
        Exercisable |  | Number
        of
        Securities
        Underlying
        Unexercised
        Options
        (#)
        Unexercisable |  | Equity
        Incentive
        Plan
        Awards:
        Number of
        Securities
        Underlying
        Unexercised
        Unearned
        Options
        (#) |  | Option
        Exercise
        Price
        ($) |      | Option
        Expiration
        Date | 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ---- | -------------------------------------- | 
|Thom Kidrin |  | 15,000,000                                                                                                                  |  | 0                                                                                                                             |  | 0                                                                                                                                                                              |  | $                                                 | 0.05 | 09-04-12                              
|            |  |                                                                                                                             |  |                                                                                                                               |  |                                                                                                                                                                                |  |                                                   |      |                                        | 



Compensation
of Directors



On
September 5, 2007, the Board of Directors adopted a compensation program for the directors whereby each director will receive
compensation in the form of stock options for serving on the board. Five-year non-qualified stock options to purchase 100,000
shares of the Corporation’s common stock are to be granted annually on January 1 to each director then in office at an exercise
price equal to the last reported trading price of our common stock on that day, with such option to vest in 12 months, provided
the director serves for at least six months, following the date of grant.  In addition, every director upon first joining
our board receives 150,000 stock options that vest immediately and are exercisable for five years at a price equal to the last
reported trading price of our common stock on that day.



The following
table sets forth information concerning the compensation paid to each of our non-employee directors during 2011 for their services
rendered as directors.



DIRECTOR
COMPENSATION



|Name           |  | Fees
        Earned
        or Paid
        in Cash
        ($) |  | Stock
        Awards
        ($) |  | Option
        Awards
        ($)
        (1) |  |  |  | All Other
        Compensation
        ($) |  | Total
        ($)
|-------------- |  | --------------------------------------------------------------- |  | -------------------------------- |  | --------------------------------------------- |  |  |  | ------------------------------------------ |  | -----------------
|Jay Coleman    |  | 0                                                               |  | 0                                |  | 6,063                                         |  |  |  |                                            |  | 6,063            
|Robert Fireman |  | 0                                                               |  | 0                                |  | 6,063                                         |  |  |  |                                            |  | 6,063            
|Bernard Stolar |  | 0                                                               |  | 0                                |  | 6,063                                         |  |  |  |                                            |  | 6,063            



(1) This
column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2011 fiscal year
for the fair value of stock options granted to the named director in fiscal year 2011, in accordance with SFAS 123R. Pursuant
to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These
amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized from
these awards by the named director.





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Employment
Agreements





On September
4, 2007, our board approved entry into an employment agreement with our president, Thom Kidrin.  The agreement, dated
as of September 1, 2007, is for five years with a one-year renewal option held by Mr. Kidrin.  The agreement provides
for a base salary of $200,000, which increases 10% on January 1 of each year; a monthly car allowance of $1,000; an annual bonus
equal to 2.5% of Pre-Tax Income (as defined in the agreement); an additional bonus as follows: $75,000, if Pre-Tax Income for
the year is between 150% and 200% of the prior fiscal year’s Pre-Tax Income or (B) $100,000, if Pre-Tax Income for the year
is between 201% and 250% of the prior fiscal year’s Pre-Tax Income or (C) $200,000, if Pre-Tax Income for the year is 251%
or greater than the prior fiscal year’s Pre-Tax Income, but in no event shall this additional bonus exceed five (5%) percent
of Pre-Tax Income for such year; payment of up to $10,000 in life insurance premiums; options to purchase 15 million shares of
our common stock at an exercise price of  $0.05 per share, of which one-third vested on September 4, 2007, one-third
vest on August 31, 2008 and the balance vested on August 31, 2009; a death benefit equal to one year of the then base salary and
a disability benefit equal to two years of the then base salary; and a payment equal to 2.99 times his base amount (as defined
in the agreement) in the event of a Change of Control (as defined in the agreement).  The agreement also provides that
Mr. Kidrin can be terminated for cause (as defined in the agreement) and that he is subject to restrictive covenants for 12 months
after termination.



Stock
Option Plan



On
September 4, 2007, our board of directors adopted the 2007 Stock Option Plan which was presented to our shareholders for their
approval at our next annual meeting.  The plan provides for the issuance of up to 25 million options of which not more
than 22 million can be incentive stock options.  To date, 18,287,500 options have been issued under the plan. In 2011,
928,529 options were exercised, at December 31, 2011 16,752,500 options were outstanding.





Compensation
Committee Interlocks and Insider Participation





All of our
officers and directors currently hold the same positions with our former subsidiary, Worlds Online Inc, although as described elsewhere
herein it is the intent that our current non-employee directors will only serve during a transition period not to exceed 12 months.
We do not have a compensation committee and all of our directors perform the function of a compensation committee, except that
Mr. Kidrin, our president and CEO, does not participate in any deliberations with respect to his compensation and physically removes
himself from the presence of the other directors while they deliberate over his compensation and bonuses. Accordingly, Mr. Kidrin,
who is both our president and CEO and of Worlds Online Inc. may be deemed to fall within the parameters of a compensation committee
interlock. To address this situation, as described above, Mr. Kidrin recuses himself from all deliberations of the board with respect
to his compensation.





SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS



|Name        |  | Number
        of
        Securities
        Underlying
        Unexercised
        Options
        (#)
        Exercisable |  | Number
        of
        Securities
        Underlying
        Unexercised
        Options
        (#)
        Unexercisable |  | Equity
        Incentive
        Plan
        Awards:
        Number of
        Securities
        Underlying
        Unexercised
        Unearned
        Options
        (#) |  | Option
        Exercise
        Price
        ($) |      | Option
        Expiration
        Date |         
|----------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ---- | -------------------------------------- | --------
|Thom Kidrin |  | 15,000,000                                                                                                                  |  | 0                                                                                                                             |  | 0                                                                                                                                                                              |  | $                                                 | 0.05 |                                        | 09-04-12
|            |  |                                                                                                                             |  |                                                                                                                               |  |                                                                                                                                                                                |  |                                                   |      |                                        |         





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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





The
following table sets forth as of March 28, 2012, certain information with respect to the beneficial ownership of Common
Stock by (i) each Director, nominee and executive officer of us; (ii) each person who owns beneficially more than 5% of the
common stock; and (iii) all Directors, nominees and executive officers as a group. The percentage of shares beneficially
owned is based on there having been 74,862,146 shares of common stock outstanding as of April 13, 2012.



OFFICERS,
DIRECTORS AND BENEFICIAL OWNERS, AS OF APRIL 13, 2012



|Name
    & Address of Beneficial Owner(1)                        | Amount
    & Nature of Beneficial Owner | %
    of Class(2)
|---------------------------------------------------------------- | --------------------------------------- | -----------------
|Thomas Kidrin                                                    | 16,290,000(3)                           | 24.20%           
|Robert Fireman                                                   | 650,000(4)                              | 0.82%            
|Bernard Stolar                                                   | 550,000(4)                              | 0.67%            
|Steven Chrust                                                    | 6,023,661(5)                            | 8.95%            
|All directors and executive
    officers as a group (one person) | 17,490,000(6)                           | 35.38%           



(1) Unless
stated otherwise, the business address for each person named is Worlds Inc., 11 Royal Road, Brookline, MA  02445.



(2) Calculated
pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934. Under Rule 13d-3(d), shares not outstanding which are subject
to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating
the number and percentage owned by a person, but not deemed outstanding for the purpose of calculating the percentage owned by
each other person listed. We believe that each individual or entity named has sole investment and voting power with respect to
the shares of common stock indicated as beneficially owned by them (subject to community property laws where applicable) and except
where otherwise noted.



(3) Includes
15 million currently exercisable stock options.



(4) Consists
of stock options all but 100,000 are currently exercisable.



(5) Includes
common shares and warrants directly and indirectly owned.



(6)
Includes 17,290,000 currently exercisable stock options.



ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.





We are not currently
subject to the requirements of any stock exchange or inter-dealer quotation system with respect to having a majority of “independent
directors” although we believe that we meet that standard inasmuch as Messrs. Stolar and Fireman are “independent”
and only Mr. Kidrin, by virtue of being our president and CEO, is not independent. Although we are not currently subject to such
rule, the independence of our directors meets the definition of such term as contained in NASDAQ Rule 5605(a)(2).



We currently own 19.7% of the outstanding common stock of our former wholly-owned
subsidiary, Worlds Online Inc., and it has officers and directors which mirror ours, although as described elsewhere herein it
is the intent that our current non-employee directors will only serve during a transition period not to exceed 12 months.













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ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.



Fees
Billed For Audit and Non-Audit Services



The following
table represents the aggregate fees billed for professional audit services rendered to the independent auditor, Bongiovanni &
Associates, P.A. (“Bongiovanni”), for our audit of the annual financial statements for the years ended December 31,
2011 and 2010. Bongiovanni was retained as our auditor in 2007. Audit fees and other fees of auditors are listed as follows:



|Year Ended December 31                                                                                                                                                                                                                                                   |  | 2011 |             | 2010
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- | ----
|                                                                                                                                                                                                                                                                         |  |      | Bongiovanni |     
|                                                                                                                                                                                                                                                                         |  |      |             |     
|Audit
                                                                                                                             Fees
                                                                                                                             (1) |  | $    | 26,500      | (2) 
|Audit-Related
                                                                                        Fees (3)                                                                                                                                                           |  |      | 15,000      |     
|Tax
                                                                                                                 Fees (4)                                                                                                                                            |  | $    | 1,500       |     
|All
                                                                                                                 Other Fees (5)                                                                                                                                      |  |      | —           |     
|Total Accounting Fees and Services                                                                                                                                                                                                                                       |  | $    | 43,000      |     









| | (1) | Audit Fees. These are
    fees for professional services for the audit of our annual financial statements, and for the review of the financial statements
    included in our filings on Form 10-QSB, and for services that are normally provided in connection with statutory and regulatory
    filings or engagements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The amounts shown for Bongiovanni
    in 2011 and 2010 relate to (i) the audit of our annual financial statements for the years ended December 31, 2011 and 2010,
    and (ii) the review of the financial statements included in our filings on Form 10-Q for the first, second and third quarters
    of 2011 and 2010.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Audit-Related Fees. These
    are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial
    statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Tax Fees. These are fees
    for professional services with respect to tax compliance, tax advice, and tax planning.
| | --- | --------------------------------------------------------------------------------------------------------------------



| | (5) | All Other Fees. These
    are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees,
    or Tax Fees.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pre-Approval
Policy For Audit and Non-Audit Services



We do
not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval
of all audit and non-audit services before we engage an accountant. All of the services rendered to us by Bongiovanni & Associates,
P.A. were pre-approved by our Board of Directors.



We are
presently working with our legal counsel to establish formal pre-approval policies and procedures for future engagements of our
accountants. The new policies and procedures will be detailed as to the particular service, will require that the Board or an
audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management.
It is currently anticipated that our new policy will provide (i) for an annual pre-approval, by the Board or audit committee,
of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as
specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not
approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will
be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before
management engages the auditors for any such purposes. The new policy and procedures may authorize the Board or audit committee
to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the
estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent
on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible
with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related
service be approved that would result in the independent auditor no longer being considered independent under the applicable rules
and regulations of the Securities and Exchange Commission.





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ITEM
15. EXHIBITS.





| | 3.1           |  | Certificate of Incorporation (a)                                                       
| | ------------- |  | ---------------------------------------------------------------------------------------
| |               |  |                                                                                        
| | 3.2           |  | By-Laws- Restated as Amended (a)                                                       
| |               |  |                                                                                        
| | 4.1           |  | 2007 Stock Option Plan (c)                                                             
| |               |  |                                                                                        
| | 10.1          |  | Consulting Agreement
    between the Registrant and SGC Advisory, Inc. (b)             
| |               |  |                                                                                        
| | 10.2          |  | Employment Agreement between the Registrant and Thom Kidrin (d)                        
| |               |  |                                                                                        
| | 10.3          |  | License Agreement between Worlds Online Inc. and Registrant date as of May 16, 2011 (e)
| |               |  |                                                                                        
| | 14.1          |  | Code of Ethics (d)                                                                     
| |               |  |                                                                                        
| | 31.1.         |  | Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer**                   
| |               |  |                                                                                        
| | 31.2.         |  | Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial  Officer**                  
| |               |  |                                                                                        
| | 32.1.         |  | Section 1350 Certifications of Chief Executive Officer **                              
| |               |  |                                                                                        
| | 32.2.         |  | Section 1350 Certifications of Chief Financial Officer**                               
| |               |  |                                                                                        
| | 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                                               





|(a) | Filed previously with the Proxy Statement Form DEF 14A on May,
    19, 2010, and incorporated herein by reference.                            
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Filed previously as an exhibit to Registrant's Annual Report on
    Form 10-KSB filed on March 30, 2000, and incorporated herein by reference.



|(c) | Filed previously as an exhibit to Registrant's Current Report
    on Form 8-K filed on September 7, 2007, and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Filed previously as an exhibit to Registrant's Annual Report on
    Form 10-KSB filed on April 3, 2008, and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------





|(e) | Incorporated by reference from Registration statement on form 10-12G
    (File No. 000-54433), Amendment No. 2 of Worlds Online Inc. filed on October 7, 2011
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------





** Filed herewith





Table of Contents


(34)






SIGNATURES



In accordance with Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.







Dated: April 13, 2012                                                                                                WORLDS
INC.



(Registrant)



|By:   /s/
        Thomas Kidrin
        Name: Thomas Kidrin
        Title:   President
        and Chief Executive Officer
|--------------------------------------------------------------------------------------------------------------------------



In accordance with the Securities
Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.



|Signatures                                                      Title                                                              Date
        
        /s/ Thomas Kidrin                           President,
        Chief Executive Officer                          April
        13, 2012
        Thomas Kidrin                                and
        Director
        
        /s/ Christopher
        J. Ryan                     Vice
        President - Finance and                                 April
        13, 2012
        Christopher J. Ryan                          Principal
        Accounting and
        Financial
        Officer
        
        /s/ Bernard Stolar                             Director                                                              April
        13, 2012
        Bernard Stolar
        
        
        /s/ Robert Fireman                            Director                                                              April
        13, 2012
        Robert Fireman
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  





Table of Contents


(35)








EXHIBIT
TO INDEX





| | Exhibit No.   |  | Description                                                                              
| | ------------- |  | -----------------------------------------------------------------------------------------
| |               |  |                                                                                          
| | 3.1           |  | Certificate of Incorporation (a)                                                         
| |               |  |                                                                                          
| | 3.2           |  | By-Laws- Restated as Amended (a)                                                         
| |               |  |                                                                                          
| | 4.1           |  | 2007 Stock Option Plan (c)                                                               
| |               |  |                                                                                          
| | 10.1          |  | Consulting Agreement
    between the Registrant and SGC Advisory, Inc. (b)               
| |               |  |                                                                                          
| | 10.2          |  | Employment Agreement between the Registrant and Thom Kidrin (d)                          
| |               |  |                                                                                          
| | 10.3          |  | License Agreement between  Worlds Online Inc. and Registrant dated as of May 16, 2011 (e)
| |               |  |                                                                                          
| | 14.1          |  | Code of Ethics (d)                                                                       
| |               |  |                                                                                          
| | 31.1.         |  | Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer**                     
| |               |  |                                                                                          
| | 31.2.         |  | Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial  Officer**                    
| |               |  |                                                                                          
| | 32.1.         |  | Section 1350 Certifications of Chief Executive Officer **                                
| |               |  |                                                                                          
| | 32.2.         |  | Section 1350 Certifications of Chief Financial Officer**                                 
| |               |  |                                                                                          
| | 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                                                 











|(a) | Filed previously with the Proxy Statement Form DEF 14A on May,
    19, 2010, and incorporated herein by reference.                            
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                               
|(b) | Filed previously as an exhibit to Registrant's Annual Report on
    Form 10-KSB filed on March 30, 2000, and incorporated herein by reference.



|(c) | Filed previously as an exhibit to Registrant's Current Report
    on Form 8-K filed on September 7, 2007, and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Filed previously as an exhibit to Registrant's Annual Report on
    Form 10-KSB filed on April 3, 2008, and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------





|(e) | Incorporated by reference from Registration statement on form 10-12G
    (File No. 000-54433), Amendment No. 2 of Worlds Online Inc. filed on October 7, 2011
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------





** Filed herewith