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

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

                                 --------------

                                  FORM 10-KSB/A
                                 --------------

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


                  For the fiscal year ended: December 31, 2006


[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
     OF 1934


         For the transition period from: _____________ to _____________


                                 --------------

                               ACTIVEWORLDS CORP.
                               ------------------
                 (Name of small business issuer in its charter)

                                 --------------

          DELAWARE                  001-15819                13-3883101
          --------                  ---------                ----------
(State or Other Jurisdiction       (Commission           (I.R.S. Employer
      of Incorporation)            File Number)         Identification No.)


                 40 WALL STREET, 58TH FLOOR, NEW YORK, NY 10005
                 ----------------------------------------------
               (Address of Principal Executive Office) (Zip Code)


                                 (212) 509-1700
                                 --------------
              (Registrant's telephone number, including area code)


                                       N/A
                                       ---
          (Former name or former address, if changed since last report)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(B)OF THE ACT:

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED


           SECURITIES REGISTERED PURSUANT TO SECTION 12(G)OF THE ACT:

                                (Title of Class)
                                 --------------

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 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]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).                                          [X] Yes  [ ] No

State issuer's revenue 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 a
specified date within the past 60 days. $290,572

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
                5,317,116 SHARES OUTSTANDING AS OF MARCH 30, 2007

                       DOCUMENTS INCORPORATED BY REFERENCE
                                 NOT APPLICABLE

Transitional Small Business Disclosure Format (Check one):       [X] Yes  [ ] No

================================================================================
<PAGE>

                                EXPLANATORY NOTE

We are restating this report to correct an error in our financial statements
in connection with an other than temporary impairment of investments in
equity securities. The items we amended are:

Item 6
Item 7
Item 13

<PAGE>

                                      INDEX



                                     PART II

Item 6.      Managements' Discussion and Analysis or Plan of Operation.

Item 7.      Financial Statements.


                                    PART III

Item 13.     Exhibits.


SIGNATURES


<PAGE>

ITEM 6.  MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         Management's Discussion and Analysis or Plan of Operation contains
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 2005 and 2006 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.

         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. However, our
primary estimate for 2006 consisted of an estimate of the fair market value of
750,000 warrants issued in December 2004 to a company controlled by our
principal stockholder.

RESULTS OF OPERATIONS


         We had no revenue for the fiscal years ended December 31, 2006 and
2005. The loss from operations in fiscal 2006 was $649,207 primarily consisting
of $589,375 of a non-cash charge for the 750,000 warrants referred to above. In
2005, we incurred a loss from operations of $652,148 primarily consisting of
$615,000 of a non-cash charge for the 750,000 warrants referred to above. Our
net loss for the year ended December 31, 2006 was $779,984 as compared to
$652,148 for the year ended December 31, 2005. The difference is due to the
realization in 2006 of an impairment of $130,777 in investments in equity
securities.


LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2006, we had total assets of $247,241 consisting solely
of cash and liabilities of $8,500.

NEW ACCOUNTING PRONOUNCEMENTS

         In December 2004, the Financial Accounting Standards Board issued SFAS
No. 123 (revised 2004) or Statement 123(R). Statement 123(R) revises Statement
No. 123 and supersedes APB Opinion No. 25, and its related implementation
guidance. This Statement eliminates the ability to account for share-based
compensation using the intrinsic value method under APB Opinion No. 25.
Statement 123(R) focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. Statement
123(R) requires a public entity to measure the cost of employee services


<PAGE>

received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award, known as the requisite service period, which is usually
the vesting period. Statement 123(R) is effective for the Company as of January
1, 2006. Accordingly, the provisions of Statement 123(R) will apply to new
awards and to awards modified, repurchased, or cancelled after the required
effective date. The adoption of Statement 123(R) did not have a financial effect
in 2006.

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.

RISK FACTORS RELATING TO OUR COMMON STOCK

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.

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

         Our Common Stock trades 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. Accordingly, investors must be able to
bear the financial risk of losing their entire investment.

SINCE OUR COMMON STOCK IS 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 is 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.


<PAGE>

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

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

ITEM 7.  FINANCIAL STATEMENTS.

         See pages F-1 through F-12 at the end of this Report.

<PAGE>

                                    PART III


ITEM 13. EXHIBITS.

(a)      EXHIBIT INDEX

Exhibit
Number          Description
-------         -----------
3.1             Certificate of Incorporation (1)
3.2             Amendment to Certificate of Incorporation dated
                September 29, 1995 (1)
3.3             Amendment to Certificate of Incorporation dated
                October 12, 1995 (1)
3.4             Amendment to Certificate of Incorporation dated
                January 21, 1999 (1)
3.5             Amendment to Certificate of Incorporation dated
                April 7, 2000 (2)
3.6             Bylaws (1)
3.7             Amended and Restated Bylaws (5)
4.1             Form of Common Stock Certificate (1)
10.1            Management Consulting Agreement (3)
10.2            2004 Stock Option Plan (4)
21              Subsidiaries of the Registrant(6)
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 SB-2 filed on August 13, 1999
(2)      Contained in Form SB-2/A filed on April 12, 2000
(3)      Contained in Schedule 13-d/A filed on September 11, 2002
(4)      Contained in Form 10-QSB filed on August 13, 2004
(5)      Contained in Form SB-2/A filed on March 16, 2000
(6)      Contained in Form 10-KSB filed on April 13, 2007.



<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Date: May 18, 2007
                                           ACTIVEWORLDS CORP.


                                           By:  /s/ Sean Deson
                                                -----------------------
                                                Sean Deson
                                                Chief Executive Officer

In accordance with the 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.

   SIGNATURE                   TITLE                              DATE
---------------   -----------------------------------         -------------
/s/ Sean Deson    Chief Financial Officer, (principal          May 18, 2007
---------------   financial and accounting officer) and
    Sean Deson    Director



<PAGE>

                               ACTIVEWORLDS CORP.

                        Consolidated Financial Statements
                    at December 31, 2006 and for years ended
                           December 31, 2006 and 2005

                                TABLE OF CONTENTS

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

Consolidated Financial Statements

    Consolidated Balance Sheet - December 31, 2006 (Restated)            F-3

    Consolidated Statement of Operations for Years
       Ended December 31, 2006 (Restated) and 2005                       F-4

    Consolidated Statement of Changes in Stockholders' Equity
       for Years Ended December 31, 2006 (Restated) and 2005             F-5

    Consolidated Statement of Cash Flows for Years
       Ended December 31, 2006 (Restated) and 2005                       F-6

    Notes to Consolidated Financial Statements                         F-7 to 12



                                       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, 2006, 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 Company
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, 2006, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period then ended in conformity with accounting principles generally accepted in
the United States of America.






                                                 /s/  PANNELL KERR FORSTER, P.C.





Boston, Massachusetts
 April 9, 2007, except for note 8
 as to which the date is May 15, 2007



                                       F-2

<PAGE>

                               ACTIVEWORLDS CORP.

                           Consolidated Balance Sheet
                                December 31, 2006
                                   (Restated)

<TABLE>
<CAPTION>
                                     Assets
<S>                                                                            <C>
Current assets
    Cash                                                                       $   247,241
                                                                               -----------
              Total current assets                                                 247,241
                                                                               -----------
              Total assets                                                     $   247,241
                                                                               -----------

                      Liabilities and Stockholders' Equity

Current liabilities
    Accrued liabilities                                                        $     8,500
                                                                               -----------
              Total current liabilities                                              8,500
                                                                               -----------

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 and outstanding                                        5,317
    Additional paid-in capital                                                   6,882,510
    Accumulated deficit                                                         (6,649,086)
    Accumulated other comprehensive (loss)                                              --
                                                                               -----------
              Total stockholders' equity                                           238,741
                                                                               -----------

              Total liabilities and stockholders' equity                       $   247,241
                                                                               -----------
</TABLE>





                 See notes to consolidated financial statements


                                       F-3
<PAGE>


                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Operations


<TABLE>
<CAPTION>
                                                             Year Ended December 31
                                                            ------------------------
                                                               2006           2005
                                                            ---------      ---------
                                                            (Restated)
<S>                                                         <C>            <C>
Revenues                                                    $      --      $      --
                                                            ---------      ---------
Operating expenses
    Selling, general and administrative expenses              649,207        652,148
                                                            ---------      ---------
              Total operating expenses                        649,207        652,148
                                                            ---------      ---------
    (Loss) from operations                                   (649,207)      (652,148)

Other Expenses
    Loss on impariment - investments                         (130,777)            --
                                                            ---------      ---------
    (Loss) before income taxes                               (779,984)      (652,148)
Income taxes                                                       --             --
                                                            ---------      ---------
              Net (loss)                                     (779,984)      (652,148)
                                                            ---------      ---------
Other comprehensive income (loss)
  Unrealized gain (loss) on securities (exchange
    rate translation)                                              --         (6,036)
  Unrealized gain (loss) on securities -
    reclassification adjustment                                44,938             --
                                                            ---------      ---------
              Comprehensive (loss)                          $(735,046)     $(658,184)
                                                            ---------      ---------
Net (loss) per share of common stock
    Basic                                                   $   (.138)     $   (.123)
                                                            ---------      ---------

</TABLE>


                 See notes to consolidated financial statements

                                       F-4
<PAGE>



                               ACTIVEWORLDS CORP.

            Consolidated Statement of Changes in Stockholders' Equity
                Years Ended December 31, 2006 (Restated) and 2005

<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                 Preferred Stock       Common Stock     Additional                  Other                Total
                               ------------------  -------------------   Paid-In    Accumulated Comprehensive 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, 2005          --  $     --  5,317,116  $ 5,317  $ 5,678,135  $(5,216,954) $ (38,902)    $    --  $ 427,596
                               --------  --------  ---------  -------  -----------  -----------  ---------     -------  ---------
Accumulated other comprehensive
  (loss)                                                                                            (6,036)                (6,036)

Compensation - warrants                                                    615,000                                        615,000

Net (loss) for year                                                                    (652,148)                         (652,148)
                               --------  --------  ---------  -------  -----------  -----------  ---------     -------  ---------
  Balances at December 31, 2005      --        --  5,317,116    5,317    6,293,135   (5,869,102)   (44,938)         --    384,412

Accumulated other comprehensive
  income (loss)
  Reclassification adjustment                                                                       44,938                 44,938

Compensation - warrants                                                    589,375                                        589,375

Net (loss) for year                                                                    (779,984)                         (779,984)
                               --------  --------  ---------  -------  -----------  -----------  ---------     -------  ---------
  Balances at December 31, 2006      --  $     --  5,317,116  $ 5,317  $ 6,882,510  $(6,649,086) $      --     $    --  $ 238,741
                               --------  --------  ---------  -------  -----------  -----------  ---------     -------  ---------


</TABLE>


                 See notes to consolidated financial statements

                                       F-5

<PAGE>


                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Cash Flows


<TABLE>
<CAPTION>
                                                                                     Year Ended December 31
                                                                                    ------------------------
                                                                                       2006           2005
                                                                                    ---------      ---------
                                                                                    (Restated)
<S>                                                                                 <C>            <C>
Operating activities
    Net (loss)                                                                      $(779,984)     $(652,148)
    Adjustment to reconcile net (loss) to net cash used in operating activities
       Issuance of stock warrants for services                                        589,375        615,000
       Loss on impairment - investments                                               130,777             --
       Changes in operating assets and liabilities which provided (used) cash
          Accounts payable                                                                 --         (2,602)
                                                                                    ---------      ---------
              Net cash used in operating activities                                   (59,832)       (39,750)
                                                                                    ---------      ---------
Investing activities                                                                       --             --
                                                                                    ---------      ---------
Financing activities                                                                       --             --
                                                                                    ---------      ---------
Net decrease in cash                                                                  (59,832)       (39,750)
Cash at beginning of year                                                             307,073        346,823
                                                                                    ---------      ---------
              Cash at end of year                                                   $ 247,241      $ 307,073
                                                                                    ---------      ---------


</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 it 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.

              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.

              The Company is actively seeking to merge, invest in or acquire
              other companies to generate revenues and profits.

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 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
                  (expense).


              E. Net (loss) per share of common stock

                  Net (loss) per share of common stock is computed by dividing
                  net (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


                  Effective January 1, 2006, the Company adopted SFAS No. 123
                  (revised 2004) - SHARE-BASED PAYMENT ("SFAS No. 123 (R)").
                  This statement requires compensation expense to be measured
                  based on the estimated fair value of share-based awards and
                  recognize in income (loss) on a straight-line basis over the
                  requisite service period which is generally the vesting
                  period. As prescribed in FAS No. 148 ACCOUNTING FOR
                  STOCK-BASED COMPENSATION - TRANSITION AND Disclosure, the
                  Company elected to use the "prospective method". The
                  prospective method requires expense to be recognized for all
                  grant awards granted, modified or settled beginning in the
                  year of adoption. Historically, the Company applied the
                  intrinsic method as provided in Accounting Principles Board
                  Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and
                  related interpretations and accordingly, no compensation cost
                  had been recognized for stock options in prior years. As a
                  result of adopting the fair value method for stock
                  compensation, all future awards will be expensed over the
                  stock options' vesting period. Pro forma information as if the
                  fair value method had been used in prior years is not
                  presented, as pro forma compensation amounts are
                  immaterial.The adoption did not have a financial effect in
                  2006.



                                       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.

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 $130,777
              based on trading on the Australian Stock Exchange ("ASE"). Trading
              of the common stock of Green X Global Limited (Green X), formerly
              known as 3D Global Limited, was suspended pending the acquisition
              of Red X Property Pty. Ltd. ("Red X"). In anticipation of the
              acquisition Green X consolidated its share capital through a
              reverse stock split wherein the Company received one share for
              every 20 shares held. After the reverse split the Company holds
              490,000 shares of Green X. The acquisition of Red X was completed
              during 2005, however, trading remained suspended. At December 31,
              2005 the carrying value of the investment was adjusted for changes
              in exchange rates resulting in a decrease of $6,036. Accordingly,
              the carrying value of the investment at December 31, 2005 was
              $85,839.

              On November 17, 2006, pursuant to Section 436A of the Corporations
              Act, an Administrator was appointed due to financial difficulties
              of Green X. The Administrator is currently managing the business,
              property and affairs of Green X and interacting with creditors of
              Green X at this time. Due to the current facts and circumstances,
              management has decided to establish a reserve for the remaining
              carrying value of $85,839 in the investment in Green X Global
              Limited as of December 31, 2006, effectively offsetting the value
              of the investment. This impairment is considered to be other than
              temporary therefore a loss for the full value of the investment,
              $130,777, will be recognized in the net loss and the previous
              unrealized losses will be reclassified (see note 8).



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 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-9
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


              The table below sets forth information as to options in 2006 and
              2005:
<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, 2005          2,191,017      $     4.61          5,000       $      .77
                  Granted during the year                        --              --             --               --
                  Expired during the year                  (127,000)          (2.52)            --               --
                                                         ----------                     ----------
                    Outstanding at December 31, 2005      2,064,017            2.09          5,000              .77
                                                         ----------                     ----------
                  Granted during the year                        --              --             --               --
                  Expired during the year                  (206,000)            .12             --               --
                                                         ----------                     ----------
                    Outstanding at December 31, 2006      1,858,017            2.21          5,000              .77
                                                         ----------                     ----------
                  Exercisable at December 31, 2006        1,608,017            2.52          5,000              .77
                  Exercisable at December 31, 2005        1,809,014            2.35          5,000              .77
</TABLE>

              The shares under options at December 31, 2006 were in the
              following exercise price ranges:

<TABLE>
<CAPTION>
                                                                                    December 31, 2006
                                                         ------------------------------------------------------------------------
                                                                    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                     1,731,350      $     1.71              8        1,481,350    $     1.95
                         $6.76- $13.12                      126,667            9.07              5          126,667          9.07
                                                         ----------                                      ----------
                                                          1,858,017                                       1,608,017
                                                         ----------                                      ----------
</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 value of the warrants of $1,230,000 issued for the
              consulting services are being 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 $589,375 and $615,000 for the years
              ended December 31, 2006 and 2005, respectively.


                                      F-10

<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


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

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


              Warrants outstanding as of December 31, 2006 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                8/10           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                                                                                     (1,747,666)
                                                                                                                   1,350,000
</TABLE>

               *  Warrants cancelled in connection with May 2000 public offering

              The estimated value of stock warrants during 2006 and 2005 ranged
              between $.06 and $2.00. The expense recognized for compensation
              and services for these stock warrants in 2006 and 2005 was
              $589,375 and $615,000, respectively.

Note 5 -      Income taxes

              The net operating loss carryforward at December 31, 2006
              attributable to Activeworlds Corp. on the income tax reporting
              basis is approximately $3,621,000. 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-11
<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, 2006:

              Deferred tax asset - net operating loss carryforward  $ 1,448,533
              Valuation allowance                                    (1,448,533)

                 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 6 -      Net loss per share of common stock

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

                                                             Weighted Average
                      Year Ended December 31,                Number of Shares
                    --------------------------              ------------------
                             2006                                5,317,116

                             2005                                5,317,116

              Diluted net loss per share of common stock has not been presented
              for 2006 and 2005 since the effect of including the stock options
              and warrants outstanding (note 4) would be antidilutive.

Note 7 -      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). The contract expired in December 2006. Compensation relating
              to the contract was recognized in the amount of $589,375 in 2006
              and $615,000 in 2005. Also see notes 1 and 4.


Note 8 -      Correction of an error

              On May 10, 2007, the Company determined that its previously issued
              consolidated financial statements at December 31, 2006 and for the
              year ended December 31, 2006 need to be restated to correct an
              error in connection with an other than temporary impairment of
              investments in equity securities. The Company previously reported
              the impairment as temporary, reflected as an unrealized gain
              (loss) on securities under Other Comprehensive Income (Loss) of
              $85,839. The impairment deemed other than temporary requires that
              the entire impairment of $130,777 be realized and included in the
              net loss and a reclassification adjustment for the unrealized gain
              (loss) on securities from the previous years of $44,938 be
              included under Other Comprehensive Income (Loss).



                                      F-12