================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[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
 incorporation or organization)                     Identification No.)

                 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

<PAGE>

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>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

INTRODUCTION

         We are a Delaware corporation organized on September 5, 1995. Beginning
in 1999, through our wholly-owned subsidiary Activeworlds, Inc., we operated the
business of providing Internet software products and services that enabled the
delivery of three dimensional content over the Internet. We operated this
business until July 10, 2002 when we entered into an agreement to sell the
subsidiary to our former management. The sale closed on September 11, 2002, at
which time we became inactive. Since September 2002, we have not conducted any
operations and have been searching to acquire an operating business. Our only
expenses have related to seeking a reverse merger candidate and our auditing
legal fees and other public company expenses.

         On December 13, 2004, we signed an Agreement and Plan of Merger with
Hi-G-Tek, Ltd., an Israeli corporation ("Hi-G") under which our newly-formed
wholly-owned subsidiary will merge with and into a subsidiary of Hi-G, in
exchange for 24,683,303 shares of our restricted Common Stock in a transaction
expected to be treated as a reverse merger resulting in the stockholders of Hi-G
obtaining control of the Company. The Agreement expired by its terms on February
28, 2005, although the parties continued discussions through March 31, 2005 at
which time all discussions ceased and the parties determined that the merger
would not close.

OUR PLAN

         Our business plan is to seek, investigate, and, if warranted, acquire
an interest in a business opportunity. Our acquisition of a business opportunity
may be made by merger, exchange of stock, or otherwise. We have no target under
consideration, we have very limited sources of capital, and we probably will
only be able to take advantage of one business opportunity. At the present time
we have not identified any business opportunity that we plan to pursue, nor have
we reached any preliminary or definitive agreements or understandings with any
person concerning an acquisition or merger.

         During 2004, we were involved in advanced discussions with two parties
relating to a reverse acquisition prior to the Hi-G negotiations, neither of
which resulted in an agreement.

         We have had no operating activity since completing the sale of our
subsidiary on September 9, 2002. Our management intends to merge with or acquire
an operating business to create operating revenue.

         Our search for a business opportunity will not be limited to any
particular geographical area or industry, including both U.S. and international
companies. Our management has unrestricted discretion in seeking and
participating in a business opportunity, subject to the availability of such
opportunities, economic conditions and factors. Our management believes that
companies who desire a public market to enhance liquidity for current

<PAGE>

stockholders, or plan to acquire additional assets through issuance of
securities rather than for cash will be potential merger or acquisition
candidates.

         In the event we merge or acquire a business opportunity, the successor
company will be subject to our reporting obligations with the Securities and
Exchange Commission. This requirement will also require the successor company to
file information on its business operations as well as audited financial
statements. Accordingly, we may incur additional expense to conduct due
diligence and present the required information for the business opportunity in
any report. Also, the SEC may elect to conduct a full review of the successor
company and may issue substantive comments on the sufficiency of disclosure
related to the company to be acquired.

Investigation and Selection of Business Opportunities
-----------------------------------------------------

         We anticipate that business opportunities will come to our attention
from various sources, including our sole officer/director, our stockholders,
professional advisors such as attorneys and accountants, securities
broker-dealers, investment banking firms, venture capitalists, members of the
financial community and others who may present unsolicited proposals. Management
expects that prior personal and business relationships may lead to contacts for
business opportunities; however, we have not entered into any direct or indirect
negotiations at the time of this filing with any person, corporation or other
entity regarding any possible business reorganization involving Activeworlds
Corp.

         A decision to participate in a specific business opportunity may be
made upon our management's analysis of the quality of the other company's
management and personnel, the anticipated acceptability of the business
opportunity's new products or marketing concept, the merit of its technological
changes, the perceived benefit that it will derive from becoming a publicly held
entity, and numerous other factors which are difficult, if not impossible, to
analyze through the application of any objective criteria. In many instances, we
anticipate that the historical operations of a specific business opportunity may
not necessarily be indicative of the potential for the future because of the
possible need to shift marketing approaches substantially, expand significantly,
change product emphasis, change or substantially augment management, or make
other changes. We will be dependent upon the owners of a business opportunity to
identify any such problems which may exist and to implement, or be primarily
responsible for the implementation of, required changes.

         In our analysis of a business opportunity we anticipate that we will
consider, among other things, the following factors:

o    Potential for growth and profitability, indicated by new technology,
     anticipated market expansion, or new products;

o    Our perception of how any particular business opportunity will be received
     by the investment community and by our stockholders;

                                      -2-

<PAGE>

o    Whether, following the business combination, the financial condition of the
     business opportunity would be, or would have a significant prospect in the
     foreseeable future of becoming sufficient to enable our securities to
     qualify for listing on a exchange or on a national automated securities
     quotation system, such as the stock market.

o    Capital requirements and anticipated availability of required funds, to be
     provided by us or from operations, through the sale of additional
     securities, through joint ventures or similar arrangements, or from other
     sources;

o    The extent to which the business opportunity can be advanced;

o    Competitive position as compared to other companies of similar size and
     experience within the industry segment as well as within the industry as a
     whole;

o    Strength and diversity of existing management, or management prospect that
     are scheduled for recruitment;

o    The cost of our participation as compared to the perceived tangible and
     intangible values and potential; and

o    The accessibility of required management expertise, personnel, raw
     materials, services, professional assistance, and other required items.

         No one of the factors described above will be controlling in the
selection of a business opportunity. Management will attempt to analyze all
factors appropriate to each opportunity and make a determination based upon
reasonable investigative measures and available data. Potentially available
business opportunities may occur in many different industries and at various
stages of development. Thus, the task of comparative investigation and analysis
of such business opportunities will be extremely difficult and complex.
Potential investors must recognize that, because of our limited capital
available for investigation, we may not discover or adequately evaluate adverse
facts about the opportunity to be acquired.

Form of Acquisition
-------------------

         We cannot predict the manner in which we may participate in a business
opportunity. Specific business opportunities will be reviewed as well as our
needs and desires and those of the promoters of the opportunity. The legal
structure or method deemed by management to be suitable will be selected based
upon management's review and our relative negotiating strength. We may agree to
merge, consolidate or reorganize with another corporation or form of business
organization.

         Regardless of the legal structure, we likely will acquire another
corporation or entity through the issuance of common stock or other securities.
Although the terms of any such transaction cannot be predicted, it is possible
that the acquisition will occur simultaneously with a sale of shares
representing a controlling interest by our current principal stockholder. In
addition, our present management and stockholders most likely will not have


                                       -3-
<PAGE>

control of a majority of our voting shares following a merger or reorganization
transaction. As part of such a transaction, our existing director will probably
resign and new directors may be appointed without any vote by our stockholders.

         This method may also include, but is not limited to, leases, purchase
and sale agreements, licenses, joint ventures and other contractual
arrangements. We may act directly or indirectly through an interest in a
partnership, corporation or other forms of organization.

Competition
-----------

         In our effort to locate an attractive opportunity, we expect to
encounter competition from business development companies, venture capital
partnerships and corporations, venture capital affiliates of large industrial
and financial companies, small investment companies, and wealthy individuals.
Many of these persons or entities have significantly greater experience,
resources and managerial capabilities than we do and will be in a better
position than we are to obtain access to attractive business opportunities. We
also will experience competition from other public "blank check" companies, many
of which may have more funds available for the investigation and selection of a
business opportunity. In addition, we expect competition will be especially
tough due to the recent downturns in the economy which includes poor performance
by stocks in both the national markets and in the over-the-counter markets
making it less attractive for private companies to "go public."


ITEM 2.  DESCRIPTION OF PROPERTY.

         We do not currently own or lease any property. Until we make an
acquisition, we will not have any need for our own office. Pending that event,
our principal stockholder provides us with an office and administrative
services.

ITEM 3.  LEGAL PROCEEDINGS.
            None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         No matters were submitted to a vote for our security holders during the
fourth quarter of the year ended December 31, 2004.


                                       -4-

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The following table sets forth, for the periods indicated, the range of
quarterly high and low sales prices for our Common Stock which trades on the
Over-the-Counter Bulletin Board under the symbol "AWLD.OB."

Common Stock                                High        Low
------------                                ----        ---

2004
----
First Quarter                               $ 0.55     $ 0.17
Second Quarter                              $ 0.82     $ 0.23
Third Quarter                               $ 2.45     $ 0.38
Fourth Quarter                              $ 3.25     $ 1.65

2003
----
First Quarter                               $ 0.04     $ 0.03
Second Quarter                              $ 0.20     $ 0.03
Third Quarter                               $ 0.13     $ 0.08
Fourth Quarter                              $ 0.51     $ 0.08


HOLDERS

         As of April 5, 2005, there were 67 holders of record of our common
stock holding 5,317,116 shares of common stock.

DIVIDEND POLICY

         We have never paid cash dividends on our Common Stock. Payment of
dividends is within the discretion of board of directors and will depend upon
our earnings, capital requirements and operating and our future financial
condition.


                                       -5-
<PAGE>

SALES OF UNREGISTERED SECURITIES FOR THE YEAR ENDED DECEMBER 31, 2004.

         During the fiscal year ended December 31, 2004, we did not issue any
shares of our common stock to any person or entity, but in May 2004 we issued
five-year options exercisable at $.25 per share as follows under our 2004 Stock
Option Plan:

                       No. of Options                       Person(s)
                       --------------                       --------
                          500,000                     Sean Deson
                          100,000                     Paul Goodman
                           75,000                     Michael and Beth Harris,
                                                      tenants by the entireties
                           25,000                     Marsha Rosenberg

      The options were issued for services rendered. All options immediately
vested except for 250,000 options granted to Mr. Sean Deson, our sole officer
and director, which options vest upon completion of an acquisition in which
control of our company changes. The options were exempt from registration under
Section 4(2) of the Securities act of 1933 as a non public offering.

PURCHASES OF EQUITY SECURITIES.

         During the quarter ended December 31, 2004, we did not purchase any of
our equity securities, nor did any person or entity purchase any equity
securities on our behalf.

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.


                                       -6-
<PAGE>


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 loss from operations in fiscal 2004 was $114,694 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.

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.

                                       -7-
<PAGE>

         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
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.


                                       -8-
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

         See pages F-1 through F-14 at the end of this Report.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

            We have had no change in, or disagreements with, our independent
registered public accounting firm during our last two fiscal years.


ITEM 8A. CONTROLS AND PROCEDURES.

            We carried out an evaluation required by Rule 13a-15(b) of the
Securities Exchange Act of 1934 under the supervision and with the participation
of our chief executive officer and chief financial officer of the effectiveness
of the design and operation of our "disclosure controls and procedures" as of
the end of the period covered by this Report.

            Disclosure controls and procedures are designed with the objective
of ensuring that (i) information required to be disclosed in an issuer's reports
filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC rules and
forms and (ii) information is accumulated and communicated to management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosures.

            The evaluation of our disclosure controls and procedures included a
review of our objectives and processes and effect on the information generated
for use in this Report. This type of evaluation will be done quarterly so that
the conclusions concerning the effectiveness of these controls can be reported
in our periodic reports filed with the SEC. We intend to maintain these controls
as processes that may be appropriately modified as circumstances warrant.

            Based on their evaluation, our chief executive officer and chief
financial officer has concluded that our disclosure controls and procedures are
effective in timely alerting him to material information relating to
Activeworlds Corp. required to be included in our periodic reports filed with
the SEC as of the end of the period covered by this Report. There were no
changes in our internal control over financial reporting that occurred during
our last fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting. However, a
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Management necessarily applied its judgment in assessing the benefits
of controls relative to their costs. Because of the inherent limitations in all


                                       -9-
<PAGE>

control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. Because of the inherent limitations
in a control system, misstatements due to error or fraud may occur and may not
be detected.

ITEM 8B. OTHER INFORMATION.

           None.


                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         We have only one officer and director.

NAME                 AGE        POSITION(S)
----                 ---        -----------
Sean Deson           41         President, Chief Financial Officer, Treasurer,
                                Secretary and Director

          Mr. Deson has been a director since December 1999. See "Principal
Stockholders." Since January 2000, Mr. Deson has been the Managing Partner of
Deson Ventures, LLC, and Managing Director of Deson & Co., Inc. both finance and
investment firms principally focused on high technology companies. Additionally,
since November 2002, Mr. Deson has been the Managing Member of Treeline
Management, LLC, also a finance and investment firm principally focused on high
technology companies. From 1990 to 2000, Mr. Deson was employed by Donaldson,
Lufkin & Jenrette as an Investment Banker. His last position was as Senior Vice
President of the Internet Investment Banking Group. Mr. Deson has been a
director of Technology Flavors and Fragrances, Inc. (AMEX:TFF) since June 1998
and also serves on its audit committee, and been a director of e-Centives, Inc.
(ECTV.OB) since August 2004. Mr. Deson earned his BS in Computer Technology and
his MBA in Finance, both with Distinction from the University of Michigan, Ann
Arbor.

AUDIT COMMITTEE

         We do not have an audit committee.

AUDIT COMMITTEE FINANCIAL EXPERT

         Not applicable, although Mr. Deson is qualified to be an audit
committee financial expert.


                                      -10-

<PAGE>

LIMITATION OF OUR DIRECTOR'S LIABILITY

         Our certificate of incorporation eliminates the liability of our
directors for monetary damages to the fullest extent possible. However, our sole
director (and future directors) remain liable for:

         o   any breach of the director's duty of loyalty to us or our
             stockholders,
         o   acts or omission not in good faith or that involve intentional
             misconduct or a knowing violation of law,
         o   payments of dividends or approval of stock repurchases or
             redemptions that are prohibited by Delaware law, or
         o   any transaction from which the director derives an improper
             personal benefit.

         These provisions do not affect any liability any director may have
under federal and state securities laws.

CODE OF ETHICS

         Since we have no employees, and only one officer and director, we have
not adopted a code of ethics.

ITEM 10. EXECUTIVE COMPENSATION.

         We currently have no employees, and Mr. Sean Deson, our president, is
our only executive officer. Mr. Deson receives no compensation other than the
stock options we granted him in May 2004. See "Related Party Transactions."
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                        SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------------
                                                                                     Long Term
                                            Annual Compensation                    Compensation
-----------------------------------------------------------------------------------------------------------------
          (a)            (b)        (c)             (d)               (e)               (f)             (g)
-----------------------------------------------------------------------------------------------------------------
                                                                                     Securities      All Other
                                                                                     Underlying       Compen-
  Name and Principal                                             Other Annual       Options/SARs      sation
       Position          Year    Salary ($       Bonus ($)     Compensation ($)         (#)             ($)
-----------------------------------------------------------------------------------------------------------------
<S>                      <C>         <C>            <C>               <C>             <C>               <C>
Sean Deson, President,
Secretary and Treasurer  2004        $0             $0                --              500,000           $0
                         2003        $0             $0                --                 0              $0
                         2002        $0             $0                --                 0              $0
-----------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -11-

<PAGE>


OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------

                    NUMBER OF       % OF TOTAL
                   SECURITIES      OPTION/SARS
                   UNDER-LYING      GRANTED TO
                    OPTIONS/       EMPLOYEES IN    EXERCISE PRICE    EXPIRATION
      NAME        SARS GRANTED     FISCAL YEAR        PER SHARE        DATE
------------------------------------------------------------------------------
   Sean Deson      500,000(1)          100%             0.25         5/5/09
------------------------------------------------------------------------------

(1)   Exercisable at $.25 per share. One-half vested upon grant, and the balance
      upon completion of an acquisition which results in change of control of
      our company.

         For further information concerning options we granted during 2004, see
Note 4 to the Consolidated Financial Statements contained in this Report.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

         The following table provides information as of April 5, 2005 concerning
the beneficial ownership of our common stock by each director, each person known
by us to be the beneficial owner of at least 5% of any class of our Common
Stock, and all executive officers and directors as a group.


Name and Address of                 Number of Shares      Percentage
Beneficial Owners                  of Common Stock(1)      of Class
------------------                 ------------------     ----------

Michael Gardner                    3,223,160(2)              53.1%
40 Wall Street, 58th Floor
New York, NY  10005

Sean Deson                           396,667(3)               6.9%
40 Wall Street, 58th Floor
New York, NY  10005

Richard F. Noll                      416,352(4)               7.8%
95 Parker Street
Newburyport, MA 01950

J.P. McCormick                       399,983                  7.5%
95 Parker Street
Newburyport, MA 01950

All officers and directors as        396,667                  6.9%
a group (one person)

                                      -12-
<PAGE>

(1)   Unless otherwise indicated, we believe that all persons named in the table
      have sole voting and investment power with respect to all securities
      beneficially owned by them. Beneficial ownership exists when a person has
      either the power to vote or sell our Common Stock. A person is deemed to
      be the beneficial owner of securities that can be acquired by such person
      within 60 days whether upon the exercise of options, warrants or
      otherwise.

(2)   Includes shares of Common Stock owned by Mr. Gardner and warrants to
      purchase 1,350,000 shares of Common Stock held by Baytree Capital
      Associates LLC ("Baytree") of which Mr. Gardner is the managing member. Of
      these warrants, 300,000 are exercisable at $1.187 per share, 300,000 are
      exercisable at $0.06 per share and 750,000 are exercisable at $2.00 per
      share.

(3)   Consists of 396,667 shares of Common Stock issuable upon exercise of
      vested options. Two Hundred Fifty Thousand of the options are exercisable
      at $.25 per share, and 146,667 of the options are exercisable at $6.09 per
      share. Does not include 250,000 options exercisable at $.25 per share
      which vest upon completion of an acquisition resulting in a change of
      control of our company.

(4)   Includes 16,352 shares of Common Stock owned by Mr. Noll's wife, as to
      which he disclaims beneficial ownership.


EQUITY COMPENSATION PLANS

         The following table reflects information relating to equity
compensation plans as of December 31, 2004.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                  Number of securities to   Weighted average   Number of securities
                                                  be issued upon exercise       price of       remaining available
                                                   of outstanding options     outstanding      for future issuance
                  Plan Category                                                 options
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                     <C>                 <C>
Equity compensation plans approved
by security holders                                     2,065,017               $2.35               848,317
---------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders                              126,000               $7.01                  0

---------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -13-

<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         As compensation for his services as our sole officer and director
without cash compensation, in May 2004 we granted Mr. Deson five-year options to
purchase 500,000 shares of our Common Stock exercisable at $.25 per share which
was fair market value at the time of grant. One half of these shares were
immediately vested, and the remainder will vest upon the completion of a merger
in which control of the company changes. We have not provided Mr. Deson with any
other material compensation for serving as a director in more than two years.

         We receive all office space and services from Baytree for free. In
December 2004, Baytree renewed its consulting agreement with the Company which
had expired in August 2004 and received 750,000 warrants exercisable at $2.00
per share. From time to time, Baytree, Mr. Gardner and Mr. Deson provide
services, unrelated to the Company, to each other.

ITEM 13. EXHIBITS.

         (a) EXHIBIT INDEX

Exhibit Number   Description
--------------   -----------
2.1      Merger Agreement with Hi-G dated December 10, 2004 (1)
3.1      Certificate of Incorporation (2)
3.2      Amendment to Certificate of Incorporation dated September 29, 1995 (2)
3.3      Amendment to Certificate of Incorporation dated October 12, 1995 (2)
3.4      Amendment to Certificate of Incorporation dated January 21, 1999 (2)
3.5      Amendment to Certificate of Incorporation dated April 7, 2000 (3)
3.6      Bylaws (2)
3.7      Amended and Restated Bylaws (4)
4.1      Form of Common Stock Certificate (2)
10.1     Management Consulting Agreement (1)
10.2     2004 Stock Option Plan (5)
21       Subsidiaries of the Registrant
23       Consent of Pannell Kerr Forster, P.C. dated April 6, 2005
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

(1)   Contained in Form 8-K filed on December 13, 2004
(2)   Contained in Form SB-2 filed on August 13, 1999
(3)   Contained in Form SB-2/A filed on April 12, 2000
(4)   Contained in Form SB-2 filed on March 16, 2000 (5) Contained in Form
      10-QSB filed on August 13, 2004

                                      -14-

<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

         The aggregate fees billed for professional services rendered by our
independent registered public accounting firm for the audit of our annual
financial statements and review of our financial statements included in our
Forms 10-QSB for the fiscal year ended December 31, 2004 were $16,500 as
compared to $21,000 for the fiscal year ended December 31, 2003.

AUDIT-RELATED FEES

         We did not incur any audit related fees during the fiscal years ended
December 31, 2004 or 2003.

TAX FEES

         Our principal independent registered public accounting firm did not
perform any tax related services for us during the fiscal years ended December
31, 2004 or 2003.

ALL OTHER FEES

         Our independent registered public accounting firm did not perform any
other services for us during the fiscal years ended December 31, 2004 or 2003.

         We have not adopted audit committee pre-approval policies and
procedures.


                                      -15-

<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 7 day of April 2005.

                                                 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,               April 7, 2005
----------------
Sean Deson             Chief Accounting Officer and
                       Director



                                      -16-


<PAGE>



                               ACTIVEWORLDS CORP.

                        Consolidated Financial Statements
                    at December 31, 2004 and for years ended
                           December 31, 2004 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                    F-3

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

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

    Consolidated Statement of Cash Flows for Years Ended
       December 31, 2004 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.








February 4, 2005, except for note 1
  as to which the date is April 4, 2005



                                      F-2

<PAGE>



                               ACTIVEWORLDS CORP.

                           Consolidated Balance Sheet
                                December 31, 2004



                                     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                                        5,659,510
    Accumulated deficit                                              (5,198,329)
    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
                                                        ---------     ---------

Revenues                                                $      --     $      --
                                                        ---------     ---------
Operating expenses
    Selling, general and administrative expenses          114,694        40,910
                                                        ---------     ---------
              Total operating expenses                    114,694        40,910
                                                        ---------     ---------
    (Loss) from operations                               (114,694)      (40,910)
Litigation settlement                                          --       105,000
                                                        ---------     ---------
    Income (loss) before income taxes                    (114,694)       64,090
Income taxes                                                   --            --
                                                        ---------     ---------
              Net income (loss)                          (114,694)       64,090

Other comprehensive income (loss) -
  unrealized gain (loss) on securities                      4,764        36,855
                                                        ---------     ---------
              Comprehensive income (loss)               $(109,930)    $ 100,945
                                                        ---------     ---------
Net income (loss) per share of common stock
    Basic                                               $   (.021)    $    .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 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>        <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                      --         --        --        52,000            --          --          --     52,000

Net (loss) for year                 --       --         --        --            --      (114,694)         --          --   (114,694)
                               -------  -------  ---------   -------   -----------   -----------   ---------   ---------  ---------
    Balances at
       December 31, 2004            --  $    --  5,317,116   $ 5,317   $ 5,659,510   $(5,198,329)  $ (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
                                                                                  ---------    ---------
<S>                                                                               <C>          <C>
Operating activities
    Net income (loss)                                                             $(114,694)   $  64,090
    Adjustment to reconcile net income (loss) to net cash provided by (used in)
      operating activities
       Issuance of stock options for services                                        52,000           --
       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 we 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        Weighted       Number of Shares       Weighted
                                                           of Shares       Average        Under Option in        Average
                                                             Under        Exercise        Excess or Less       Fair Value
                                                            Option          Price         Than 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. The warrants 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.



                                      F-11

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


              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
              $7,000 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.

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.

                                      F-12

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


              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 $7,000 in 2004. Also see notes 1 and 4.

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


                                      F-13

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


              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.















                                      F-14