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

                               FORM 10-KSB/A NO. 2

[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 add 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 $119,894 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 1st day of February
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,                    February 1, 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

                                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 15

                                      F-1
<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.

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 January 17, 2006

                                      F-2
<PAGE>

                               ACTIVEWORLDS CORP.

                           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                                 5,664,710
    Accumulated deficit                                       (5,203,529)
    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       119,894         40,910
              Total operating expenses                 119,894         40,910

    (Loss) from operations                            (119,894)       (40,910)

Litigation settlement                                       --        105,000
    Income (loss) before income taxes                 (119,894)        64,090
Income taxes                                                --             --

              Net income (loss)                       (119,894)        64,090

Other comprehensive income (loss) -
  unrealized gain (loss) on securities                   4,764         36,855
                                                     ---------      ---------

              Comprehensive income (loss)            $(115,130)     $ 100,945
                                                     ---------      ---------

Net income (loss) per share of common stock
    Basic                                            $   (.022)     $    .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)       --           --          --       --        57,200             --          --           --       57,200

Net (loss)
  for year
  (restated)                --           --          --       --            --       (119,894)         --           --     (119,894)
                        ------       ------   ---------   ------   -----------    -----------    --------    ---------    ---------

Balances at
  December 31, 2004
  (restated)                --   $       --   5,317,116   $5,317   $ 5,664,710    $(5,203,529)   $(38,902)   $      --    $ 427,596
                        ------       ------   ---------   ------   -----------    -----------    --------    ---------    ---------
</TABLE>

                 See notes to consolidated financial statements

                                      F-5
<PAGE>
                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Cash Flows

                                                        Year Ended December 31
                                                       ------------------------
                                                         2004            2003
                                                       ---------      ---------
                                                      (Restated)
Operating activities
    Net income (loss)                                  $(119,894)     $  64,090
    Adjustment to reconcile net income (loss)
      to net cash provided by (used in)
      operating activities
       Issuance of stock options for services             57,200             --
       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      $      --
                                                       ---------      ---------

                 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 acquire 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.

                                      F-7
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

          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.

          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.

                                      F-8
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

          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).

          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

                                      F-9
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

               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.

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.

                                      F-10
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

          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.

          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>

                                      F-11
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


          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 $585,000 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 $12,200 for the period from the
          beginning of the contract on December 13, 2004 to December 31, 2004.

          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%


                                      F-12
<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 $12,200
          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-13
<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.

                                      F-14
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

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
          $12,200 in 2004. Also see notes 1, 4 and 10.

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
          $337,500 using the Black Scholes Model and assuming certain discounts.
          The error pertains to the use of discounts in the valuation of the
          warrants. The fair value of the warrants has now been determined to be
          $585,000 using the Black Scholes Model. The effect of the restatement
          was to increase the net loss for the year ended December 31, 2004 by
          $5,200 and increase the net loss per share by $.001.

                                      F-15