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

Forward Looking Statements

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

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in 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; 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 unaudited financial statements and related notes which are included under Item 1.

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

Overview

General

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.

At present, the Company's anticipated 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

We generated no revenue during the quarter because we transferred the operations of the Company to Worlds Online Inc.

We classify our expenses into two broad groups:

O cost of revenues; and

O selling, general and administration

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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.

RESULTS OF OPERATIONS

Our net revenues for each of the three months ended June 30, 2012 and 2011 were $0 and $0, respectively. Our net revenue for each of the six months ended June 30, 2012 and 2011 were $0 and $199, respectively. The lack of revenue is due to spinning off the online business operations to Worlds Online Inc.

Three and six months ended June 30, 2012 compared to three and six months ended June 30, 2011

Revenue is $0 for the three months ended June 30, 2012 and 2011. Revenue is $0 because the online business operations including the VIP subscription business has been transferred to Worlds Online Inc. The business up to the spin off continued to run in a severely diminished mode due to the lack of liquidity. Post spin off we still need to raise a sufficient amount of capital to provide the resources required that would enable us to continue running the business.

Cost of revenues decreased by $4,650 to $0 in the three months ended June 30, 2012 from $4,650 in the three months ended June 30, 2011.

Selling general and administrative (S, G & A) expenses decreased by $3,795 or 3% from $112,172 to $108,377 for the three months ended June 30, 2011 and 2012, respectively. Common stock issued for services rendered decreased by $182,999 to $27,001 for three months June 30, 2012 compared to $210,000 for the same period in 2011. The decrease is due to certain strategic business consulting and advice agreements ending last year after the spin off.

As a result of the foregoing, we realized a net loss of $215,904 for the three months ended June 30, 2012 compared to a loss of $387,826 in the three months ended June 30, 2011, an decreased loss of $171,922.

Revenue decreased by $199 to $0 for the six months ended June 30, 2012 from $199 in the prior year. The Company spun off the online businesses to Worlds Online Inc. The VIP subscriptions and revenue related to the deferred revenue agreement has been transferred over to Worlds Online Inc. Before the spin off, the business was running in a severely diminished mode due to the lack of liquidity. We still need to raise a sufficient amount of capital to provide the resources required that would enable us to continue to operate the business.

Our cost of revenues during the six months ended June 30, 2012 and 2011 are primarily comprised of (1) cost of goods sold: 0% and 2%, respectively, (2) selling general and administrative expenses: 30% and 21%, respectively, (3) Common stock issued for services rendered: 45% and 64%, respectively, and (4) payroll and related taxes: 25% and 13%, respectively. Cost of sales on a consolidated basis decreased $16,959 to $0 for the six months ended June 30, 2012, from $16,959 in the six months ended June 30, 2011. The decrease was due to a data recovery project undertaken during the six months ended June 30, 2011 and not the result of sales and there was no activity in 2012 due to the spin off of the online business operations. Selling general and administrative expenses decreased by approximately $66,888, from $225,425 to approximately $158,537 for the six months ended June 30, 2011 and 2012, respectively. Decrease is due to a decrease in professional service fees including business consulting, legal and accounting.

Common stock issued for services rendered decreased by $449,394 to $234,036 in 2012 compared to $683,430 for 2011. The decrease is due to the strategic business consulting and advice agreements in the prior year ending due to the spin off and also last year the Company issued shares to individuals who had been performing valuable services for the company over the years without any form of compensation.

As a result of the foregoing we had a net loss of $521,414 for the six months ended June 30, 2012 compared to a loss of $1,059,824 in the six months ended June 30, 2011.

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Liquidity and Capital Resources

Our financial and liquidity position has deteriorated somewhat from the prior year period. Our cash equivalents was $61,516 at June 30, 2012. We raised an aggregate of $250,000 in March of 2012 from a private placement of common stock.

At June 30, 2011, cash and cash equivalents was $170,946. There were no capital expenditures in the three months ended June 30, 2012 or in the three months ended June 30, 2011.

Historically, our primary cash requirements have been to fund the cost of operations, to keep the Company in compliance with its reporting requirements, 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 each of 2007 - 2010. There can be no assurance that any significant financing would become available to us at this time. The additional capital that we secured in previous years enabled us to bid on new business. There can be no assurance that any such new business would be sold in the future.

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