NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Description of Business

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

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 us as a going concern. We have always been considered a developmental stage business, have incurred significant losses since our inception and have not always had significant revenues from operations. We will require substantial additional funds for development and marketing of our products. There can be no assurance that we will be able to obtain the substantial additional capital resources necessary to pursue our business plan or that any assumptions relating to our business plan will prove to be accurate. We have not been able to generate sufficient revenue or obtain additional financing which has had a material adverse effect on us, including requiring us to severely diminish operations in recent years and at times halting them entirely. These factors raise substantial doubt about our ability to continue as a going concern. We have been operating at a significantly reduced capacity in recent years with no full time employees and performing primarily consulting services and licensing software using consultants to perform any 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.

Property and Equipment

Net property and equipment owned by us as of June 30, 2008 total $10,843.

Income Recognition

We have the following sources of revenue: (1) consulting/licensing revenue from the performance of development work performed on our behalf or from the sale of certain software to third parties; and (2) VIP subscriptions to our Worlds Ultimate 3-D Chat service.

Deferred revenue represents cash payments received in advance to be recorded as licensing revenue as earned.

Income Taxes

We use the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income tax assets and liabilities are recognized based on the temporary differences between the financial statement and income tax bases of assets, liabilities and net operating loss carry forwards using enacted tax rates. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Notes Payable

We have no long term or short term notes outstanding at June 30, 2008.

As part of a debt refinancing in 2000, $631,950 of debt was renegotiated to deferred revenue representing future services to be provided by us.

Commitments and Contingencies

During 2000, we were involved in a lawsuit relating to unpaid consulting services. On March 20, 2001 a judgment against us was rendered for approximately $205,000. As of June 30, 2008, we recorded a reserve of $205,000 for this lawsuit, which is included in accrued expenses in the accompanying balance sheet.

During 2003, a law firm obtained a judgment against us for unpaid legal fees and other debt in the aggregate amount of $182,075. During the first quarter of 2008 we settled the dispute by issuing common stock in settlement of the debt.

Impairment of Long Lived Assets

We review the carrying value of long-lived assets to determine if circumstances exist indicating whether there has been any impairment of the carrying value of property and equipment or whether the depreciation periods should be modified. Long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying value of the assets may not be fully recoverable. As of the date of the financial statements, we have no long lived assets.

NOTE 2 - GOING CONCERN

From mid-2001 through most of 2007, we had to significantly curtail and at times cease operations due to lack of resources. The accompanying financial statements have been prepared assuming that we will continue as a going concern. Since its inception, we had periods wherewe had only minimal revenues from operations. There can be no assurance that we will be able to obtain the substantial additional capital resources necessary to pursue our business plan or that any assumptions relating to our business plan will prove to be accurate. We are pursuing sources of additional financing and there can be no assurance that any such financing will be available to us on commercially reasonable terms, or at all. Any inability to obtain additional financing will likely have a material adverse effect on us, including possibly requiring us to reduce and/or cease operations.

These factors raise substantial doubt about our ability 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 – 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, three-dimensional ("3D") entertainment portal on the internet.

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

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes in technology that render our technology relatively inferior, obsolete or more expensive compared to others; foreign currency  fluctuations; changes in the business prospects of our business partners and customers; increased competition, including from our business partners; delays in the delivery of broadband capacity to the homes and offices of persons who use our services; general disruptions to Internet service; and the loss of customer faith in the Internet as a means of commerce. Additional risk factors pertaining to our business and the value of our stock is contained in our Annual Report on Form 10-KSB for the year ended December 31, 2007 and is available for review at no charge at www.sec.gov.

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

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

Worlds.com  is a leading 3D entertainment portal which leverages its  proprietary technology 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.

 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 our 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.

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 halt them all together.

We generated  significantly increased revenue during the quarter as we have  begun ramping up operations which have been in quasi hibernation since mid-2001. The revenue that was generated was generated in the following manner:

We classify our expenses into two broad groups:

o        cost of revenues; and

o        selling, general and administration.

During the quarter, our operations became more active so our expenses increased.

We have had to severely diminish our operations from mid-since 2001 until the last half of 2007 due to a lack of liquidity. We were able to issue equity in the last year and raise capital that will help us to be better positioned to compete for new business. We continue to pursue additional sources of capital. We have no current arrangements with respect to, or sources of, additional financing and there can be no assurance that any such financing would become available.  If we cannot start to generate sufficient revenues, we may need to halt operations.

Our net revenues for each of the three months ended June 30, 2008 and 2007 were $777 and $1,470, respectively. Our net revenues for each of the six months ended June 30, 2008 and 2007 were $91,876 and $3,024, respectively. Management believes that this increase was due to the software development project in 2008 to provide a demo 3-D world for a client. While this amount of business from operations is still relatively inconsequential, we believe it is indicative of our recent awakening and return to active operations.

Revenue decreased by $693, to $777 for the three months ended June 30, 2008 from $1,470 in the prior year. Revenue increased by $88,852 to $91,876 for the six months ended June 30, 2008 from $3,024 in the prior year. The business has been running in a severely diminished mode due to the lack of liquidity during the comparable quarters in 2007. We expect  increased, though not necessarily sufficient, operating results until such time that we can raise a sufficient amount of capital to provide the resources required that would enable us to generate significant sales.

Our cost of revenues during the three months ended June 30, 2008 and 2007 are primarily comprised of (1) cost of goods sold: greater than 100% and -0-%, respectively, and (2) selling general and administrative expenses: greater than 100% and greater than 100%, respectively. Cost of sales on a consolidated basis increased $30,771 to $30,771 for the three months ended June 30, 2008, from $-0- in the three months ended March 31, 2007, reflecting the increased business activities following the financing in 2007 and the software development project in 2008.

Our cost of revenues during the six months ended June 30, 2008 and 2007 are primarily comprised of (1) cost of goods sold: greater than 100% and greater than 100%, respectively, and (2) selling general and administrative expenses: greater than 100% and greater than 100%, respectively. Cost of sales on a consolidated basis increased $111,800 to $120,319 for the six months ended June 30, 2008, from $8,519 in the six months ended June 30, 2007, reflecting the increased business activities following the financing in 2007 and the software development project in 2008.

Selling general and administrative expenses increased by $106,798, from $1,723 to $108,521 for the three months ended June 30, 2007 and 2008, respectively. Selling general and administrative expenses increased by $211,125, from $6,901 to $218,026 for the six months ended June 30, 2007 and 2008, respectively. The balances increased due to our operations increasing thereby resulting in increased payroll, increased contract labor and increased legal and accounting services.

Extraordinary gains of $1,005,763 and $-0- were recorded in the six months ended 2008 and 2007, respectively. This activity occurred only in the first quarter of 2008 and pertained to debt that was legally extinguished due to expiration of the statute of limitations for such debts under state laws.

As a result of the foregoing we had a net (loss) of $(138,515) for the three months ended June 30, 2008 compared to a (loss) of $(38,714) in the three months ended June 30, 2007 although as disclosed above the gain resulted from non-operational bookkeeping entries from the extinguishment of debt.

 We had net income of $759,294 for the six months ended June 30, 2008 compared to a loss of $(89,318) in the three months ended June 30, 2007.

Our financial and liquidity position improved as exhibited by our cash and cash equivalents of $51,649 at June 30, 2008. At June 30, 2007, cash and cash equivalents was $3,145. This increase of $48,504 was the result of equity financing in the second half of 2007. There were capital expenditures of $3,031 in the six months ended June 30, 2008 compared to $0 for 2007.

Historically, our primary cash requirements have been 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.

We have had to severely diminish our operations due to a lack of liquidity from mid-2001 through most of 2007.  We were able to find a small source of additional capital in 2007. We have no current arrangements with respect to additional financing and there can be no assurance that any such financing would become available. The additional capital that we did secure enabled us to bid on new business. There can be no assurance that any such new business would be sold in the future.

As of June 30, 2008, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2008.

During the second quarter of 2008, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.