UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               FORM 10-KSB/A NO. 3

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                   For the fiscal year ended December 31, 2004
                                             -----------------

                        Commission File Number: 001-15819
                                                ---------

                               Activeworlds Corp.
                               ------------------
           (Name of small business issuer as specified in its charter)

            Delaware                                      13-3883101
            --------                                      ----------
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

                 40 Wall Street, 58th Floor, New York, NY 10005
                 ----------------------------------------------
               (Address of principal executive offices) (Zip code)

                                 (212) 509-1700
                                 --------------
                           (Issuer's telephone number)

         Securities registered under Section 12(b) of the Exchange Act:

                                      None

       Securities Registered Pursuant to Section 12(g) of the Exchange Act

                                  Common Stock

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [X] Yes [ ] No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $0

State 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 sold, or the average bid and asked price of such common equity, as of April
5, 2005. (See definition of affiliate in Rule 12b-2 of the Exchange Act.).
$2,582,967

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 5,317,116 shares of common stock and
were outstanding as of April 5, 2005.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                 Not applicable
<PAGE>
                                Explanatory Note
                                ----------------

This Report has been amended to include changes to Note 10 to our financial
statements which explains the error that we corrected in our revised Form 10-KSB
for the year ended December 31, 2004.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

ITEM 7.  FINANCIAL STATEMENTS.

         See pages F-1 through F-15 at the end of this Report.

ITEM 13. EXHIBITS.

         (a) EXHIBIT INDEX

             Exhibit Number    Description
             --------------    -----------
                   31          CEO and CFO certifications required under
                               Section 302 of the Sarbanes-Oxley Act of 2002
                   32          CEO and CFO certifications required under
                               Section 906 of the Sarbanes-Oxley Act of 2002

                                       2
<PAGE>

                                     PART II

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         The following Management's Discussion and Analysis of Financial
Conditions and Results of Operations contain forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from
management's expectations.

         The following discussion and analysis should be read in conjunction
with our audited 2003 and 2004 financial statements which are included herein.
This discussion should not be construed to imply that the results discussed
herein will necessarily continue into the future, or that any conclusion reached
herein will necessarily be indicative of actual operating results in the future.
Such discussions represent only the best present assessment of our management.

OVERVIEW

         We are a Delaware corporation organized on September 5, 1995. We have
been inactive since September 11, 2002. Since that date, we have been seeking
and evaluating business opportunities. We have not had revenue from operations
since July 10, 2002.

         Our primary expenses relate to our reporting obligations under the
Securities Exchange Act of 1934 and expenses related to the acquisition of
another business opportunity. We will incur expenses due to the legal and
accounting services required to prepare periodic reports and the costs of filing
these reports with the Securities and Exchange Commission. During 2004, we
incurred expenses related to evaluating three acquisition candidates, none of
which was consummated.

         Our plan of operations does not call for any product research or
development, nor do we plan to purchase any equipment.

         We currently have no employees. Our management expects to confer with
consultants, attorneys and accountants as necessary.

CRITICAL ACCOUNTING ESTIMATES

         Because we are inactive, we do not make the same judgments or estimates
that are made by operating companies. See Note 2 to our Consolidated Financial
Statements for a discussion of our significant accounting policies.

RESULTS OF OPERATIONS

         We had no revenue for the fiscal years ended December 31, 2004 and
2003. The restated loss from operations in fiscal 2004 was $133,319 consisting
of expenses related to our evaluation of three acquisition possibilities, a
$45,000 non-cash charge resulting from the issuance of options and public
company expenses in contrast to our loss from operations in 2003 of $40,910
consisting solely of public company expenses.

                                       3
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2004, we had total assets of $438,698 including
$346,823 of cash and liabilities of $11,102.

FORWARD-LOOKING STATEMENTS

         This Report contains forward-looking statements that address, among
other things, the adequacy of our working capital, In addition to these
statements, trend analyses and other information including words such as "seek,"
"anticipate," "believe," "plan," "estimate," "expect," "intend" and other
similar expressions are forward looking statements. These statements are based
on our beliefs as well as assumptions we made using information currently
available to us. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Because these statements reflect our current views
concerning future events, these statements involve risks, uncertainties, and
assumptions. Actual future results may differ significantly from the results
discussed in the forward-looking statements. For more information regarding some
of the ongoing risks and uncertainties of our business, see our other filings
with the Securities and Exchange Commission. We anticipate that some or all of
the results may not occur because of factors which we discuss in the "Risk
Factors" section which follows.

SPECIAL FACTORS RELATING TO OUR COMMON STOCK AND WARRANTS

SINCE WE EXPECT TO INCUR EXPENSES IN EXCESS OF REVENUES FOR THE NEAR FUTURE, WE
MAY NOT BECOME PROFITABLE AND YOUR INVESTMENT MAY BE LOST

         We expect to incur losses for the foreseeable future. We have not had
revenues since entering into the agreement to sell our subsidiary on July 10,
2002, and may never be profitable, or, if we become profitable, we may be unable
to sustain profitability. As a result, your investment in our securities may be
lost.

WE MAY ISSUE PREFERRED STOCK WITHOUT THE APPROVAL OF OUR STOCKHOLDERS WITH
FEATURES, WHICH COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US AND
COULD DEPRESS OUR COMMON STOCK PRICE.

         In the future, our board of directors may issue one or more series of
preferred stock that has more than one vote per share without a vote of our
stockholders. This can prevent a third party from acquiring us even when it is
in our stockholders' best interests and reduce the price of our Common Stock and
warrants.

BECAUSE OUR COMMON STOCK AND WARRANTS WILL NOT BE LISTED ON A STOCK EXCHANGE OR
NASDAQ, INVESTORS MAY BE UNABLE TO RESELL THEM.

         Our Common Stock and warrants trade on the Over-the-Counter Bulletin
Board. The Bulletin Board is not liquid and trading is limited. This may hinder


                                       4
<PAGE>

an investor's ability to sell Common Stock or warrants. Accordingly, investors
must be able to bear the financial risk of losing their entire investment.

SINCE OUR COMMON STOCK AND WARRANTS ARE SUBJECT TO THE PENNY STOCK RULES,
INVESTORS MAY EXPERIENCE SUBSTANTIAL DIFFICULTY IN SELLING THEIR SECURITIES.

         The SEC has established penny stock rules, which restrict the ability
of brokers to solicit the sale of certain securities of companies whose assets,
revenue, and/or stock prices fall below minimal thresholds. Since we are subject
to these rules, our Common Stock and warrants are each deemed a "penny stock."
The penny stock rules limit the ability of a broker to solicit purchasers, which
reduces liquidity. They also generally require a broker to deliver a
standardized risk disclosure document prior to a transaction in a penny stock.
The broker must also provide the customer with bid and offer quotations for the
penny stock, the compensation of the broker and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. These additional requirements may
hinder investor's ability to sell their Common Stock or warrants.

THE PRICE OF OUR COMMON STOCK AND WARRANTS HAS BEEN AND MAY CONTINUE TO BE
HIGHLY VOLATILE, AND INVESTORS MAY NOT BE ABLE TO SELL THEIR COMMON STOCK OR
WARRANTS AT OR ABOVE MARKET PRICES.

         The market price for our Common Stock and warrants has been highly
volatile at times. As long as the future market for our Common Stock and
warrants is limited, investors who purchase our Common Stock and warrants may
only be able to sell them at a loss.

OUR PUBLICLY-TRADED WARRANTS MAY NOT BE EXERCISED UNLESS A CURRENT REGISTRATION
STATEMENT IS IN EFFECT.

         We have publicly-traded warrants issued in 2000 which expire on May 1,
2005. Each warrant permits the holder to purchase one share of Common Stock at
$4.68 per share. In order to exercise the warrants, we are required to have in
effect a current registration statement. Because our common stock is trading at
a price which is substantially below the purchase price of our warrants, we have
not filed a registration statement with the Securities Exchange Commission.

                                       5
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of 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 this 28th day of March
2006.

                                         Activeworlds Corp.


                                         By: /s/ Sean Deson
                                             --------------
                                             Sean Deson, 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/ Sean Deson     Chief Financial Officer,                    March 28, 2006
--------------     Chief Accounting Officer and Director
Sean Deson


                                       6
<PAGE>

                               ACTIVEWORLDS CORP.

                        Consolidated Financial Statements
               at December 31, 2004 (Restated) and for years ended
                      December 31, 2004 (Restated) and 2003


<PAGE>

                                Table of Contents



                                                                         Page
                                                                         ----
Report of Independent Registered Public Accounting Firm                  F-2

Consolidated Financial Statements

    Consolidated Balance Sheet - December 31, 2004 (Restated)            F-3

    Consolidated Statement of Operations for Years Ended
        December 31, 2004 (Restated) and 2003                            F-4

    Consolidated Statement of Changes in Stockholders' Equity
       for Years Ended December 31, 2004 (Restated) and 2003             F-5

    Consolidated Statement of Cash Flows for Years Ended
       December 31, 2004 (Restated) and 2003                             F-6

    Notes to Consolidated Financial Statements                         F-7 to 14












<PAGE>

             Report of Independent Registered Public Accounting Firm



To the Stockholders
Activeworlds Corp.


We have audited the accompanying consolidated balance sheet of Activeworlds
Corp., as of December 31, 2004, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the two
years in the period then ended. These consolidated financial statements are the
responsibility of the Corporation'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
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Activeworlds Corp. at December 31, 2004, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period then ended in conformity with accounting principles generally accepted in
the United States of America.



                                                  /s/ PANNELL KERR FORSTER, P.C.





Boston, Massachusetts
February 4, 2005, except for note 1
  as to which the date is April 4, 2005, and except for
  note 10 as to which the date is March 17, 2006



                                      F-2

<PAGE>

                           Consolidated Balance Sheet
                                December 31, 2004
                                   (Restated)



                                     Assets

Current assets
    Cash                                                            $   346,823
    Investments                                                          91,875
                                                                    -----------
              Total current assets                                      438,698
                                                                    -----------
              Total assets                                          $   438,698


                      Liabilities and Stockholders' Equity
Current liabilities
    Accounts payable                                                $     2,602
    Accrued liabilities                                                   8,500
                                                                    -----------
              Total current liabilities                                  11,102
                                                                    -----------
Commitments and contingencies

Stockholders' equity
    Preferred stock, $.001 par value, 500,000 shares authorized,
      no shares issued or outstanding                                        --
    Common stock, $.001 par value, 100,000,000 shares authorized,
      5,317,116 shares issued                                             5,317
    Additional paid-in capital                                        5,678,135
    Accumulated deficit                                              (5,216,954)
    Accumulated other comprehensive income (loss)                       (38,902)
                                                                    -----------
              Total stockholders' equity                                427,596
                                                                    -----------
              Total liabilities and stockholders' equity            $   438,698
                                                                    -----------










                 See notes to consolidated financial statements

                                       F-3

<PAGE>

                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Operations



                                                     Year Ended December 31
                                                    -----------------------
                                                       2004          2003
                                                    ----------    ---------
                                                    (Restated)

Revenues                                            $      --     $      --
                                                    ---------     ---------
Operating expenses
    Selling, general and administrative expenses      133,319        40,910
                                                    ---------     ---------
              Total operating expenses                133,319        40,910
                                                    ---------     ---------
    (Loss) from operations                           (133,319)      (40,910)

Litigation settlement                                      --       105,000
                                                    ---------     ---------
    Income (loss) before income taxes                (133,319)       64,090
Income taxes                                               --            --
                                                    ---------     ---------
              Net income (loss)                      (133,319)       64,090
                                                    ---------     ---------
Other comprehensive income (loss) -
  unrealized gain (loss) on securities                  4,764        36,855
                                                    ---------     ---------
              Comprehensive income (loss)           $(128,555)    $ 100,945
                                                    ---------     ---------
Net income (loss) per share of common stock
    Basic                                           $   (.025)    $    .019
                                                    ---------     ---------
Net income per share of common stock
    Diluted                                                --     $    .011
                                                    ---------     ---------





                 See notes to consolidated financial statements

                                       F-4



<PAGE>

                               ACTIVEWORLDS CORP.

            Consolidated Statement of Changes in Stockholders' Equity
                Years Ended December 31, 2004 (Restated) and 2003


<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                                                                                     Other
                                  Preferred Stock       Common Stock    Additional               Comprehensive            Total
                                ------------------   -----------------    Paid-In    Accumulated    Income   Treasury  Stockholders'
                                 Shares     Amount     Shares   Amount    Capital      Deficit      (Loss)     Stock      Equity
                                --------   -------   ---------  ------  -----------  -----------  ---------  ---------  ----------
<S>                             <C>        <C>       <C>        <C>     <C>          <C>          <C>        <C>        <C>
Balances at January 1, 2003           --   $    --   5,317,116  $5,317  $ 5,725,913  $(5,147,725) $ (80,521) $(118,403) $  384,581
                                --------   -------   ---------  ------  -----------  -----------  ---------  ---------  ----------
Accumulated other comprehensive
  income                              --        --          --      --           --           --     36,855         --      36,855

Net income for year                   --        --          --      --           --       64,090         --         --      64,090
                                --------   -------   ---------  ------  -----------  -----------  ---------  ---------  ----------
  Balances at December 31, 2003       --        --   5,317,116   5,317    5,725,913   (5,083,635)   (43,666)  (118,403)    485,526
                                --------   -------   ---------  ------  -----------  -----------  ---------  ---------  ----------
Retirement of Treasury stock          --        --          --      --     (118,403)          --         --    118,403          --

Accumulated other
  comprehensive income                --        --          --      --           --           --      4,764         --       4,764

Issuance of stock options/
  warrants for services
  (restated)                          --        --          --      --       70,625           --         --         --      70,625

Net (loss) for year (restated)        --        --          --      --           --     (133,319)        --         --    (133,319)
                                --------   -------   ---------  ------  -----------  -----------  ---------  ---------  ----------
  Balances at December 31, 2004
     (restated)                       --   $    --   5,317,116  $5,317  $ 5,678,135  $(5,216,954) $ (38,902) $      --  $  427,596
                                --------   -------   ---------  ------  -----------  -----------   --------  ---------  ----------

</TABLE>










                 See notes to consolidated financial statements

                                       F-5


<PAGE>


                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Cash Flows


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31
                                                                                  ----------------------
                                                                                     2004         2003
                                                                                  ---------    ---------
                                                                                 (Restated)
<S>                                                                               <C>          <C>
Operating activities
    Net income (loss)                                                             $(133,319)   $  64,090
    Adjustment to reconcile net income (loss) to net cash provided by (used in)
      operating activities
       Issuance of stock options for services                                        70,625           --
       Changes in operating assets and liabilities which provided (used) cash
          Due from Activeworlds, Inc.                                                    --        6,916
          Prepaid expenses                                                               --       10,519
          Accounts payable                                                            2,199      (18,920)
          Accrued liabilities                                                            --       (1,500)
                                                                                  ---------    ---------
              Net cash provided by (used in) operating activities                   (60,495)      61,105
                                                                                  ---------    ---------
Investing activities                                                                     --           --
                                                                                  ---------    ---------
Financing activities                                                                     --           --
                                                                                  ---------    ---------
Net increase (decrease) in cash                                                     (60,495)      61,105
Cash at beginning of year                                                           407,318      346,213
                                                                                  ---------    ---------
              Cash at end of year                                                 $ 346,823    $ 407,318
                                                                                  ---------    ---------

Supplemental schedule of noncash investing and financing activities
    Retirement of Treasury stock                                                  $ 118,403    $      --
                                                                                  ---------    ---------
</TABLE>









                 See notes to consolidated financial statements

                                       F-6

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


Note 1 - Organization and basis of presentation

         Activeworlds Corp. (the "Company") became inactive in July 2002 when
         the Company entered into an agreement to sell all of the issued and
         outstanding stock of its operating subsidiary, Activeworlds, Inc. The
         agreement closed in September 2002 and the Company's former management
         purchased Activeworlds, Inc. in exchange for their selling 2,595,445
         shares or approximately 30% of the Company's common stock to the
         Company. The Company has been actively seeking to merge, invest in or
         aquire other companies.

         On September 9, 2004, the Company entered into a letter of intent to
         acquire Hi-G-Tek, Ltd., an Israeli company, ("Hi-G-Tek") in a
         transaction expected to be treated as a reverse acquisition (the
         "Reverse Acquisition"). In connection with the Reverse Acquisition, the
         Company formed a wholly-owned subsidiary, AWLD, Inc., a Delaware
         corporation. AWLD, Inc. then formed a wholly-owned subsidiary AWLD,
         Ltd., an Israeli company.

         On December 13, 2004 the Company signed an Agreement and Plan of Merger
         (the "Plan") by and among the Company, AWLD, Inc., AWLD Ltd., Baytree
         LLC (a related company, substantially owned by a significant
         stockholder of the Company) and Hi-G-Tek. The Plan called for the
         merger of Hi-G-Tek and the Company's wholly-owned subsidiary AWLD, Ltd.
         in exchange for 24,683,303 shares of the Company's outstanding common
         stock. The terms of the Plan expired on February 28, 2005, although the
         parties continued discussions through March 31, 2005, at which time the
         parties ended discussions.

         All intercompany accounts and transactions have been eliminated in
         consolidation. The consolidated financial statements are presented as
         those of Activeworlds Corp.

Note 2 - Summary of significant accounting policies

         A. Nature of operations

            The Company provided computer software products and on-line services
            that permitted users to enter, move about and interact with others
            in computer-generated, three-dimensional virtual environment using
            the Internet prior to the subsidiary, Activeworlds, Inc. being sold.
            As discussed in note 1, the Company is actively seeking to merge,
            invest in or acquire other companies to generate revenues and
            profits.

        B.  Accounting estimates

            The preparation of financial statements in conformity with
            accounting principles generally accepted in the United States of
            America requires management to make estimates and assumptions that
            affect the reported amounts of assets and liabilities and disclosure
            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 those
            estimates.

                                      F-7

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


        C.  Financial instruments

            The estimated fair value of the Company's financial instruments,
            which include cash, accounts payable and accrued liabilities,
            approximates carrying value.

        D.  Investments

            Management determines the appropriate classification of securities
            at the time of acquisition. If management has the intent and the
            Company has the ability at the time of acquisition to hold
            securities until maturity, they are classified as investments held
            to maturity and carried at amortized historical cost. Securities to
            be held for indefinite periods of time and not intended to be held
            to maturity are classified as available for sale and carried at fair
            value.

            Realized gains and losses on dispositions are based on the net
            proceeds and the adjusted book value of the securities sold, using
            the specific identification method. Unrealized gains and losses on
            investment securities available for sale are based on the difference
            between book value and fair value of each security. Unrealized gains
            and losses are reported in accumulated other comprehensive income
            (loss), whereas realized gains and losses are included in other
            income.

        E.  Net income (loss) per share of common stock

            Net income (loss) per share of common stock is computed by dividing
            net income (loss) by the weighted-average number of common shares
            outstanding for the year.

        F.  Income taxes

            The Company reports income for tax purposes on the cash basis.
            Deferred taxes result from temporary differences and the net
            operating loss carryforward. An allowance for the full amount of the
            gross deferred tax asset has been established due to the uncertainty
            of utilizing the deferred tax asset in the future.

        G.  Stock Plans

            In December 2002, the Financial Accounting Standards Board issued
            Statement of Financial Accounting Standards No. 148, ACCOUNTING FOR
            STOCK BASED COMPENSATION - TRANSITION AND DISCLOSURE. SFAS 148
            amends SFAS 123, ACCOUNTING FOR STOCK BASED COMPENSATION, to provide
            alternative methods of transition for an entity that voluntarily
            changes to the fair value based method of accounting for stock based
            compensation. It also amends the disclosure provisions of that
            statement. The disclosure provisions of this statement are effective
            for the December 31, 2003 financial statements and have been
            included in the current presentation (see note 4).

                                      F-8

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


        H.  Capitalization

            In 2004 the Board of Directors approved an increase in its
            authorized capital to 50,000,000 additional shares of common stock
            with a par value of $.001, which increase is subject to stockholder
            approval.

        I.  Recent accounting pronouncement - SFAS 123(R)

            On December 16, 2004 the FASB issued SFAS No. 123 (revised 2004),
            SHARE-BASED PAYMENT (SFAS 123(R)), which is a revision of SFAS No.
            123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS 123(R) supersedes
            APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and
            Amends SFAS No. 95, STATEMENT OF CASH FLOWS. Generally, the approach
            in SFAS 123(R) is similar to the approach described in Statement
            123. However, SFAS 123(R) requires all share-based payments to
            employees, including grants of employee stock options, to be
            recognized in the income statement based on their fair values. Pro
            forma disclosure is not an alternative.

            SFAS 123(R) must be adopted by small business issuers for periods
            beginning after December 15, 2005. The Company plans to adopt SFAS
            123(R) effective January 1, 2006.

            SFAS 123(R) permits public companies to adopt its requirements using
            one of two methods: (1) a "modified prospective" approach or (2) a
            "modified retrospective" approach. Under the modified prospective
            approach, compensation cost is recognized beginning with the
            effective date based on (a) the requirements of SFAS 123(R) for all
            share based payments granted after the effective date and (b) the
            requirements of SFAS 123(R) for all awards granted to employees
            prior to the effective date of SFAS 123(R) that remain unvested on
            the effective date. The modified retrospective approach, includes
            the requirements of the modified prospective approach, but also
            permits entities to restate based on the amounts previously
            recognized under SFAS 123 for purposes of pro forma disclosures
            either all prior periods presented or prior interim periods of the
            year of adoption.

            The Company is evaluating which method to adopt.

Note 3 - Investments

         In 2001 the Company agreed to accept 9,800,000 shares of common stock
         of its largest contract customer in full and final payment on the work
         completed to date on the contract. The fair market value at the date
         the common stock was transferred was $130,770. The fair market value of
         the investment increased by $4,764 and $36,855 at December 2004 and
         2003, respectively. Accordingly, the value of the investment has been
         adjusted to $91,875 and $87,111 at December 31, 2004 and 2003,
         respectively.

                                      F-9


<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


Note 4 - Stock options and warrants

         Stock options

         In 1999, the Company established a qualified Stock Incentive Plan for
         its employees. From time to time, the Company issues non qualified
         stock options to independent contractors and others. In 2004, the
         Company adopted the 2004 Stock Option Plan granting 500,000 options to
         its sole director. (See below).

         STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("SFAS 123") allows
         the Company to account for stock-based compensation, including options,
         granted to employees under the provisions of ACCOUNTING PRINCIPLES
         BOARD OPINION NO. 25 ("APB 25") and disclose in a footnote the pro
         forma effect on net income (loss) if the fair value accounting method
         of SFAS 123 had been used.

         The methodology used in estimating the fair value of the stock options
         was the Minimum Value Method adjusted for the facts and circumstances
         of the stock option agreements. Significant assumptions included a risk
         free interest rate of 6% and an expected life of one year. The value of
         the options issued after January 22, 1999 is determined based on the
         fair value of the stock traded at the date granted.

         In 2004 the Board of Directors adopted the 2004 Stock Plan authorizing
         1,000,000 shares of common stock to be available under the Plan and
         approved the granting of 500,000 options to its sole director for
         services rendered to the company. 50% of the options granted vest
         immediately. The remaining 250,000 vest only if an acquisition occurs
         in which control of the Company changes as a result of the acquisition.
         The options are exercisable at $.25 over a five-year period.

         The Company also granted options to individuals for services rendered
         as follows:

                  Administrative services                         25,000
                  Consulting/legal services                      175,000

         The options are exercisable at $.25 and vest immediately. The options
         expire in May of 2009. Compensation in the amount of $45,000 has been
         recognized for the services provided by the director and the
         individuals based on the fair value of the services rendered.

         On April 11, 2003, the Company cancelled the 200,000 stock options
         granted to two members of the Board of Directors on July 15, 2002
         because the Company's sole director believed the grant of the options
         involved a breach of fiduciary duty. Based upon advice of counsel, the
         options were cancelled.

         Under APB 25, no compensation was recognized in the financial
         statements for the value of the stock options issued to employees as
         the exercise price was equal to or in excess of the estimated fair
         value of the Company stock at the time of grant. Pro forma information
         as if SFAS 123 had been used is not presented, as the pro forma
         compensation amounts are immaterial.

                                      F-10

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


         The table below sets forth information as to options in 2004 and 2003:

<TABLE>
<CAPTION>
                                                                             Number of
                                                Number         Weighted     Shares Under        Weighted
                                               of Share         Average      Excess or          Average
                                                 Under         Exercise      Less Than         Fair Value
                                                Option           Price       Fair Value          Price
                                              ----------       --------      --------          --------
          <S>                                 <C>              <C>           <C>               <C>
         Outstanding at January 1, 2003        1,936,906       $   2.70        50,889          $   4.16

         Granted during the year                      --             --            --                --
         Cancelled during the year              (400,000)          (.04)           --                --
                                              ----------       --------      --------          --------
           Outstanding at December 31, 2003    1,536,906           3.41        50,889              4.16

         Granted during the year                 700,000            .25            --                --
         Expired during the year                 (45,889)         (3.83)      (45,889)             2.54
                                              ----------       --------      --------          --------
           Outstanding at December 31, 2004    2,191,017           4.61         5,000               .77
                                              ----------       --------      --------          --------
         Exercisable at December 31, 2004      1,875,817           3.08         5,000               .77
         Exercisable at December 31, 2003      1,356,172           3.08        50,889              4.38
</TABLE>


         The shares under options at December 31, 2004 were in the following
         exercise price ranges:

<TABLE>
<CAPTION>
                                                         December 31, 2004
                                ---------------------------------------------------------------------

                                          Options Outstanding            Options Currently Exercisable
                                -------------------------------------    ----------------------------
                                               Weighted     Weighted                        Weighted
                                                Average     Average                         Average
                                   Number      Exercise    Contractual      Number          Exercise
              Exercise Range     of Options     Price         Life        of Options          Price
              --------------    -----------    -------     ----------    ----------         ---------
                                                           (in years)
              <S>               <C>            <C>             <C>       <C>                <C>

              $-0- - $6.75       1,938,350     $  1.50         6           1,523,150        $    1.97
              $6.76- $13.12        252,667        8.06         5             252,667             9.09
                                ----------                               ----------
                                 2,191,017                                1,775,817
                                ----------                               ----------
</TABLE>

         Warrants

         In December 2004 the Company issued 750,000 common stock warrants to a
         company controlled by its principal stockholder. The consulting
         contract is for two years from the date of the contract (measurement
         date). The warrants are fully vested, can be exercised at $2.00 per
         share and expire three years from the date of the contract. A prior
         consulting contract had expired in August 2003. The fair values of the
         warrants of $1,230,000 issued for the consulting services will be
         expensed over the life of the consulting contract and is not affected
         by changes in the fair value of the Company's stock subsequent to the
         measurement date. Expenses for consulting services under the contract
         were recognized in the amount of $25,625 for the period from the
         beginning of the contract on December 13, 2004 to December 31, 2004.

                                      F-11
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


         The fair value has been determined using the Black Scholes Model with
         the following assumptions:

                Risk-free interest rate                     3.09%
                Volatility                                  100.0%
                Expected life                               3 years
                Expected dividend yield                      0.00%


         Warrants outstanding as of December 31, 2004 are as follows:

<TABLE>
<CAPTION>
                                                       Date        Exercise       Exercise   Shares under
              Description                            Granted        Price          Period      Warrant
         -----------------------------------       ----------    -----------      --------   ----------
           <S>                                          <C>      <C>                <C>      <C>
         Marketing services                             4/99     $    3.80          4/04        166,667
         Financial services                             5/99          5.70          5/04      * 166,667
         Services in connection with
          private placement                             6/99          5.70          6/04        119,999
         Placement agent warrants                       6/99          8.52-8.55     6/04      *  22,560
         Public offering                                5/00          4.675         5/05      1,260,000
         Underwriter unit purchase warrants             5/00          4.675         5/05        126,000
         Marketing and financial services               8/00          1.187         8/05        300,000
         Marketing services                             9/00          1.40          9/05         25,000
         Marketing services                            10/01          3.00         10/06         50,000
         Marketing services                             8/02           .06          8/07        300,000
         Consulting services                           12/04          2.00         12/07        750,000
                                                                                             ----------
                                                                                              3,286,893

         Cancellations                                                                         (189,227)
         Expirations                                                                           (286,666)
                                                                                             ----------
                                                                                              2,811,000
                                                                                             ----------
</TABLE>
         ------------
         *   Warrants cancelled in connection with May 2000 public offering

         The estimated value of stock warrants during 2004 and 2003 ranged
         between $.06 and $8.55. The expense recognized for compensation and
         services for these stock warrants granted in 2004 and 2003 was $25,625
         and $-0-, respectively.

Note 5 - Treasury stock

         In 2003, Treasury stock is shown at a cost of $118,403, which
         represents 87,527 shares of common stock. During 2002, 2,595,445 shares
         were purchased under the Agreement to sell the subsidiary (see note 1).
         In conjunction with the Agreement to sell the subsidiary the Company
         also purchased 600,000 shares for $100,000 from X3D Technologies, Inc.
         The Company retired shares totaling 3,195,445 on October 16, 2002. On
         March 29, 2004 the Company retired the remaining 87,527 shares of
         common stock held as Treasury stock.

                                      F-12

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


Note 6 - Income taxes

         The net operating loss carryforward at December 31, 2004 attributable
         to Activeworlds Corp. on the income tax reporting basis is
         approximately $1,626,000. An allowance has been established for the
         full amount of the gross deferred tax asset due to the uncertainty of
         utilizing the deferred taxes in the future.

         The tax effect of each type of temporary difference and carryforward is
         reflected in the following table as of December 31, 2004:

            Net operating loss carryforward                       $   649,000
            Accrual basis versus cash basis tax reporting               1,000
                                                                  -----------
            Deferred tax asset before valuation allowance             650,000
            Valuation allowance                                       650,000
                                                                  -----------
            Net deferred tax asset                                $        --
                                                                  -----------

         The effective combined Federal and State tax rate used in the
         calculation of the deferred tax asset was 40%.

         The operating loss carryforward is available to reduce Federal and
         State taxable income and income taxes, respectively, in future years,
         if any. The realizability of deferred taxes is not assured as it
         depends upon future taxable income. However, there can be no assurance
         that the Company will ever realize any future cash flows or benefits
         from these losses.

Note 7 - Net income (loss) per share of common stock

         The number of shares on which the basic net income (loss) per share of
         common stock has been calculated is as follows:

                                                        Weighted Average
               Year Ended December 31,                  Number of Shares
               ----------------------                  ------------------
                       2004                                 5,317,116

                       2003                                 5,317,116

         The diluted income per share of common stock for 2003 has been
         calculated using 9,348,113 weighted average number of shares for the
         year. Diluted net (loss) per share of common stock has not been
         presented for 2004 since the effect of including the stock options and
         warrants outstanding (note 4) would be antidilutive.

Note 8 - Related party transactions

         The Company entered into a consulting agreement in 2004 with a company
         controlled by its principal stockholder. The agreement is for two years
         and grants 750,000 warrants for services (see note 4). Compensation
         relating to the contract was recognized in the amount of $25,625 in
         2004. Also see notes 1, 4 and 10.

                                      F-13

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


Note 9 -  Commitments and contingencies

          Revenue Sharing Agreement - litigation settlement

          During 2000 the Company entered into an agreement with an internet
          on-line service provider to promote and market the Activeworlds Corp.
          services to the service provider's members. The term of the agreement
          was one year. Revenue from new members generated under the agreement
          is shared equally. The agreement required Activeworlds Corp. to make
          four quarterly installments in the amount of $112,500 each as a
          guarantee against future revenues earned from memberships derived from
          the on-line service provider. As of December 31, 2002, the Company had
          made three installments in the total amount of $337,500. Approximately
          $-0- and $18,000 was received from memberships under the contract as
          of December 31, 2002 and 2001, respectively. The contract expired in
          2001. The Company entered into litigation regarding adjustments to the
          contract due to the lack of registrations received under the
          Agreement. On July 9, 2003 a settlement was reached between the
          parties. Under the settlement agreement, the on-line provider paid the
          Company $105,000 to settle all claims associated with the litigation.

Note 10 - Correction of an error

          On January 17, 2006 the Company determined that its previously issued
          consolidated financial statements at December 31, 2004 and for the
          year ended December 31, 2004 need to be restated to correct an error
          in connection with a non-cash expense. The Company previously valued
          common stock warrants granted for consulting services (note 8) at
          $585,000 using the Black Scholes Model. The error pertains to a
          formula mistake in the Black Scholes Model used in the valuation of
          the warrants. The fair value of the warrants has now been determined
          to be $1,230,000 using the Black Scholes Model. The effect of the
          restatement was to increase the net loss for the year ended December
          31, 2004 by $13,425 and increase the net loss per share by $.003.










                                      F-14