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

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2002
                                             -----------------

                        Commission File Number: 001-15819
                                                ---------
                               Activeworlds Corp.
                               ------------------
        (Exact name of small business issuer as specified in its charter)

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

                112 Baypoint Drive, San Rafael, California 94901
                ------------------------------------------------
               (Address of principal executive offices) (Zip code)

                                 (415) 453-4868
                                 --------------
                           (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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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

Indicate by check mark if 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. [ ]

<PAGE>

State issuer's revenues for its most recent fiscal year. $268,956

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. (See definition of affiliate in Rule
12b-2 of the Exchange Act.). $159,594

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 5,319,790 shares of common stock and
were outstanding as of April 11, 2003.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Not applicable


                                      -2-
<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

About Activeworlds Corp.
------------------------

     We are a Delaware corporation organized on September 5, 1995. Beginning in
1999, through our wholly-owned subsidiary Activeworlds, Inc., we operated the
business of providing Internet software products and services that enabled the
delivery of three dimensional content over the Internet. We operated this
business until July 10, 2002 when we entered into an agreement to sell the
subsidiary to our former management. The sale closed on September 9, 2002, at
which time we became inactive. We are now seeking business opportunities.

Our Plan
--------

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

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

     Our search for a business opportunity will not be limited to any particular
geographical area or industry, including both U.S. and international companies.
Our management has unrestricted discretion in seeking and participating in a
business opportunity, subject to the availability of such opportunities,
economic conditions and factors. Our management believes that companies who
desire a public market to enhance liquidity for current stockholders, or plan to
acquire additional assets through issuance of securities rather than for cash
will be potential merger or acquisition candidates.

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

                                      -3-
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                      -4-
<PAGE>

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

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

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

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

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

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

     Regardless of the legal structure, we likely will acquire another
corporation or entity through the issuance of common stock or other securities.
Although the terms of any such transaction cannot be predicted, it is possible
that the acquisition will occur simultaneously with a sale of shares
representing a controlling interest by our current principal stockholder. In
addition, our present management and stockholders most likely will not have
control of a majority of our voting shares following a merger or reorganization
transaction. As part of such a transaction, our existing director will probably
resign and new directors may be appointed without any vote by our stockholders.

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

                                      -5-
<PAGE>

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

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

ITEM 2. DESCRIPTION OF PROPERTY.

     We do not currently own or lease any property. Until we acquire a viable
business opportunity, we will not have any need for an office. Our president
provides us with a mailing address and telephone.

ITEM 3. LEGAL PROCEEDINGS.

     We are seeking to recover damages against Juno.com, Inc. on the basis that
Juno induced us to enter into an agreement without disclosing that Juno.com
planned to announce a change in their business model four days after execution
of the agreement which rendered our services useless. Juno.com in fact made this
announcement. We are seeking to recover the $337,500 paid to Juno.com and other
damages. The defendants deny liability, and the suit is in the discovery stage.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted to a vote for our security holders during the
fourth quarter of the year ended December 31, 2002.

                                      -6-
<PAGE>

                                     PART II

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

     The following table sets forth, for the periods indicated, the range of
quarterly high and low sales prices for our common stock which has traded on the
Over-the-Counter Bulletin Board under the symbol "AWLD.OB" since July 12, 2002,
and which previously traded on the Nasdaq SmallCap Market System under the
symbol "AWLD" through July 11, 2002.

Common Stock                               High           Low
------------                               ----           ---
2001
----
Fourth Quarter                             $0.75          $0.40
Third Quarter                              $1.15          $0.40
Second Quarter                             $1.25          $0.55
First Quarter                              $1.27          $0.50

2002
----
Fourth Quarter                             $0.12          $0.02
Third Quarter                              $0.39          $0.06
Second Quarter                             $0.65          $0.10
First Quarter                              $0.97          $0.46

HOLDERS

     As of April 11, 2003, there were 64 holders of record of our common stock
holding 5,319,790 shares of common stock.

DIVIDEND POLICY

     We have never paid cash dividends on our common stock. Payment of dividends
is within the discretion of board of directors and will depend upon our
earnings, capital requirements and operating and financial condition. We have
not had any income and if we acquire a profitable company, we cannot predict
what its board of directors will do.

SALES OF UNREGISTERED SECURITIES FOR THE YEAR ENDED DECEMBER 31, 2002.

     During the fiscal year ended December 31, 2002, we did not issue any shares
of our common stock to any person or entity.

ITEM 6. PLAN OF OPERATION.

     The following discussion of our plan of operation should be read together
with the financial statements and related notes included in this Report. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in those forward-looking statements as a result of certain factors, including
but not limited to, those contained in the discussion on forward-looking
statements that follows this section and those contained in "Special Factors
Relating to Our Business and Common Stock".

     We are currently inactive, and are seeking a business opportunity. We have
not had revenues from operations since entering into the agreement to sell our
subsidiary on July 10, 2002.

                                      -7-
<PAGE>

     Our primary expenses will relate to our reporting obligations under the
Securities Exchange Act of 1934. 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 SEC. In the event we acquire a business opportunity, we
may incur additional expenses related to proxy or information statements we must
provide to our stockholders which disclose that company's business operations,
management and financial condition.

     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. We do not anticipate a
need to engage any employees so long as we are seeking and evaluating business
opportunities. We will determine the need for employees based upon the specific
business opportunity once we consummate an acquisition transaction.

RECENT ACCOUNTING PRONOUNCEMENTS

     In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds and amends certain previous standards related
primarily to debt and leases. The most substantive amendment requires
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The provisions of SFAS
145 related to the rescission of SFAS 4 are effective for financial statements
issued for fiscal years beginning after May 15, 2002 and will become effective
for the Company commencing with its 2003 fiscal year. The provisions of SFAS 145
related to the rescission of SFAS 13 became effective for transactions occurring
after May 15, 2002. All other provisions of SFAS 145 are effective for financial
statements issued on or after May 15, 2002. This accounting pronouncement is not
expected to have a significant impact on the Company's financial position or
results of operations.

     In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
146 addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies EITF Issue No. 94-3. This SFAS requires
that a liability for a cost associated with an exit or disposal activity be
recorded at fair value when the liability is incurred. SFAS 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. This
accounting pronouncement is not expected to have a significant impact on the
Company's financial position or results of operations.

     In December 2002, the FASB 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, 2002
financial statements and have been included in the current presentation.

                                      -8-
<PAGE>

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 BUSINESS AND COMMON STOCK

Risks Related To Our Business
-----------------------------

WE MAY NEVER IDENTIFY AND ACQUIRE A BUSINESS OPPORTUNITY, AND YOUR INVESTMENT
MAY BE LOST

     The selection of a business opportunity in which to participate is complex
and extremely risky and will be made by our president in the exercise of his
business judgment. There is no assurance that we will be able to identify and
acquire any business opportunity which will ultimately prove to be beneficial to
us and our stockholders. Should a merger or acquisition prove unsuccessful, it
is possible management may decide not to pursue further acquisition activities
and management may abandon its activities and we may become dormant or be
dissolved.

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.

                                      -9-
<PAGE>

IN LIGHT OF THE POTENTIAL IMPACT OF RECENT EVENTS ON THE ECONOMY, WE MAY BE
HAMPERED IN OUR SEARCH FOR A BUSINESS OPPORTUNITY

     The events of September 11, 2001 have had a substantial impact on the
financial markets and businesses in the United States. Further, the current war
against Iraq may also have a substantial impact on the financial markets and
businesses in the United States. In light of these events, it may be difficult
for us to identify and acquire a business opportunity. As a result, your
investment in our securities may be lost.

RISKS RELATED TO OUR COMMON STOCK
---------------------------------

WE MAY ISSUE COMMON OR 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 STOCK PRICE

     In the future, our board of directors may issue one or more series of
common or preferred stock that has more than one vote per share without a vote
of our stockholders. This could permit our board of directors to issue preferred
stock to investors who support our management and increase control of our
business by management. Additionally, issuance of super voting common or
preferred stock could block an acquisition, even if an acquisition is in the
best interest of the stockholders. This could cause the market price of our
common stock to drop significantly.

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

     Since Activeworlds common stock only trades on the over-the-counter
bulletin board, and has extremely limited trading volume, your ability to sell
your common stock may be severely restricted. Accordingly, investors must be
able to bear the financial risk of losing their entire investment.

THE PRICE OF THE COMMON STOCK MAY BE HIGHLY VOLATILE, AND INVESTORS MAY NOT BE
ABLE TO SELL THE COMMON STOCK AT OR ABOVE MARKET PRICES

     The market price for Activeworlds common stock, may be highly volatile. As
long as the future market for the common stock is limited, investors who
purchase the common stock may only be able to sell them, if at all, at a loss.

ITEM 7. FINANCIAL STATEMENTS.

See pages F-1 through F-17 beginning after page 16.


                                      -10-
<PAGE>

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

      We have had no change in, or disagreements with, our principal independent
accountants during our last two fiscal years.

PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

     We have only one officer and director.

NAME                      AGE               POSITION(S)
----                      ---               -----------
Sean Deson                39                President, Treasurer, Secretary
                                            and Director

     Sean Deson has been a director since December 1999. Mr. Deson is the
managing partner of Deson & Co., a strategic development and investment firm
focused on technology companies. Prior to that, Mr. Deson was a senior vice
president in investment banking at Donaldson, Lufkin & Jenrette where he was a
senior banker in its Internet focus group. Mr. Deson is also a director of
Technology Flavors and Fragrances, Inc., a company which creates and
manufactures flavors and fragrances for consumer products.

COMPENSATION OF OUR DIRECTORS

     During 2002, we paid our directors fees of $26,800, $29,800 and $28,250 for
their service as members of the Board of Directors. In addition, these directors
approved the payment of additional fees and granted themselves options to
purchase our common stock. Mr. Deson, our current director, cancelled the
options granted to him because he felt the grant was not in the best interests
of the company or its stockholders. The payment of fees and grant of these
options to our directors is more fully discussed below under Related Party
Transactions.

LIMITATION OF OUR DIRECTOR'S LIABILITY

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

     o any breach of the director's duty of loyalty to us or our stockholders,

     o acts or omission not in good faith or that involve intentional misconduct
       or a knowing violation of law,

     o payments of dividends or approval of stock repurchases or redemptions
       that are prohibited by Delaware law, or

     o any transaction from which the director derives an improper personal
       benefit.

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

                                      -11-
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

     We currently have no employees and our president is our only executive
officer. During 2002, one other person served as our chief executive officer. No
other employee's compensation exceeded $100,000 during the year ended December
31, 2002.

                           SUMMARY COMPENSATION TABLE
                           --------------------------
ANNUAL COMPENSATION

<TABLE>
<CAPTION>
                                                                                      All Other
Name and Principal Position                    Year        Salary($)                  Compensation($)
<S>                                            <C>          <C>                       <C>
Sean Deson,                                    2002         $0.00                     $26,800
President, secretary and treasurer             2001         $0.00                     $24,000
                                               2000         $0.00                     $0.00

Richard F. Noll                                2002         $ 80,767                  $0.00
Former chief executive officer                 2001         $150,000                  $0.00
                                               2000         $140,000                  $0.00
</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table provides information as of December 31, 2002 concerning
the beneficial ownership of our capital stock by each director, each person
known by us to be the beneficial owner of at least 5% of any class of our
capital stock, and all executive officers and directors as a group.

Name and Address of               Number of Shares of
Beneficial Owners                    Common Stock         Percentage of Class
-----------------------------------------------------------------------------
Michael Gardner                       2,473,160                46.5% *
40 Wall Street, Suite 58
New York, NY  10005

Richard F. Noll                         416,352                 7.8%

J.P. McCormick                          399,983                 7.5%

All officers and directors as                 0                   0%
a group (one person)

* Includes warrants to purchase 600,000 shares of common stock held by Baytree
Capital Associates, LLC. of which Mr. Gardner is the managing member. 300,000 of
these warrants are exercisable at $1.187 per share, and 300,000 of are
exercisable at $0.06 per share.

                                      -12-
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On July 15, 2002 at a meeting of the board of directors, our directors
adopted the 2002 Stock Option Plan and, under the Plan, granted themselves fully
vested options to purchase our common stock at $0.16 per share in the following
amounts: Messrs. Alex Adelson and Bruce Judson were granted 200,000 options
each, and Mr. Sean Deson was granted 100,000 options. At a meeting of the board
of directors held on August 8, 2002, these directors also awarded themselves
fees as follows: $7,000 per month for Mr. Adelson, $5,000 per month for Mr.
Judson, and $2,000 per month for Mr. Deson. At the time, Messrs. Adelson, Judson
and Deson were our only directors. Subsequently, Mr. Deson voluntarily and for
no consideration, cancelled the options granted to him because he felt that the
grant was not in the best interest of the company or its stockholders. Baytree
Capital Associates, LLC, an affiliate of our principal stockholder, has objected
to the grant of these options and the payment of the fees on the basis that the
Delaware General Corporation Law provides an interested party transaction is not
void or voidable if the transaction is

     o approved by a majority of disinterested directors;

     o approved by the stockholders; or

     o fair to the corporation at the time it is approved by the board.

     The stockholder has requested that the grant of options be rescinded and
the fees be repaid. Based upon advice of counsel, none of these criteria have
been met, and the options have been cancelled. Additionally, the Plan provides
that if our board of directors concludes that the grant of options is against
the interests of our stockholders, the options shall be immediately forfeited.
Oue sole director has made this finding which provides another basis for
canceling the options.

     On August 27, 2002, we entered into a management consulting agreement with
Baytree Capital Associates, LLC. whereby Baytree agreed to render consulting
advice to us with respect to financial, corporate and general business
development matters. Baytree is controlled by Michael Gardner who beneficially
owns approximately 46.5% of our capital stock. As consideration for the
agreement, we issued warrants to purchase 300,000 shares of our common stock to
Baytree at an exercise price of $0.06 per share which was the fair market value
of our common stock on the date we issued the warrants. The term of the
consulting agreement is for 24 months, beginning August 27, 2002. The previous
two year consulting agreement with Baytree, which contained similar terms,
expired on August 22, 2002.

     On September 9, 2002, we transferred 100% of the issued and outstanding
common stock of Activeworlds, Inc. to Messrs. J.P. McCormick and Richard F.
Noll. We paid the sum of $215,000 to Mr. McCormick, the sum of $210,000 to Mr.
Noll, and paid $15,000 of Messrs. McCormick's and Noll's legal fees relating to
the sale. In exchange, Mr. McCormick transferred 1,289,497 of his shares and Mr.
Noll transferred 1,305,948 of his shares of our common stock back to us. Messrs.
McCormick and Noll were our officers and two of our directors until their
resignations on July 10, 2002.

                                      -13-
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

         (a) EXHIBIT INDEX

Exhibit Number  Description
--------------  -----------

 2.1            Agreement and Plan of Exchange (1)
 3.1            Certificate of Incorporation (2)
 3.2            Amendment to Certificate of Incorporation dated September 29,
                1995(2)
 3.3            Amendment to Certificate of Incorporation dated October 12,
                1995(2)
 3.4            Amendment to Certificate of Incorporation dated January 21,
                1999(2)
 3.5            Amendment to Certificate of Incorporation dated April 7, 2000(3)
 3.6            Bylaws (2)
 3.7            Amended and Restated Bylaws (4)
 4.1            Form of Common Stock Certificate (2)
10.1            Management Consulting Agreement (5)
10.2            2002 Employee Stock Option Plan
23.1            Consent of Pannell Kerr Forster, P.C. dated April 14, 2003
99.1            Certification pursuant to Section 906 of the Sarbanes-Oxley Act

---------------
(1)      Contained in Form 8-K filed on July 12, 2002
(2)      Contained in Form SB-2 filed on August 13, 1999
(3)      Contained in Form SB-2/A filed on April 12, 2000
(4)      Contained in Form SB-2 filed on March 16, 2000
(5)      Contained in Schedule 13-d/A filed on September 11, 2002

     (b) One Report on Form 8-K was filed during the last quarter of the period
covered by this Report. The Report filed on November 25, 2002, contained the
required financial information relating to the sale of our subsidiary.

ITEM 14. CONTROLS AND PROCEDURES

     Our chief executive officer and chief financial officer evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934, as amended) within 90 days
of the filing date of this report (the "Evaluation Date") and, based on that
evaluation, concluded that, as of the Evaluation Date, the our disclosure
controls and procedures were effective in timely alerting them to the material
information relating to us that is required to be disclosed in our reports under
the Securities Exchange Act of 1934, as amended, within the time periods
specified in the Securities and Exchange Commission's rules and forms.

     Since the Evaluation Date, there have not been any significant changes to
our internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.

                                      -14-
<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 14th day of April 2003.

                                         Activeworlds Corp.


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

In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

SIGNATURES                    TITLE                          DATE
----------                    -----                          ----
/s/ Sean Deson                Chief Financial Officer,       April 14, 2003
--------------                Chief Accounting Officer
Sean Deson                    and Director

                                      -15-
<PAGE>

                                  CERTIFICATION

I, SEAN DESON, certify that:

          1.   I have reviewed this report on Form 10K-SB of ACTIVEWORLDS CORP.;

          2.   Based on my knowledge, this report does not contain any untrue
               statement of a material fact or omit to state a material fact
               necessary to make the statements made, in light of the
               circumstances under which such statements were made, not
               misleading with respect to the period covered by this report;

          3.   Based on my knowledge, the financial statements, and other
               financial information included in this report, fairly present in
               all material respects the financial condition, results of
               operations and cash flows of the registrant as of, and for, the
               periods presented in this report;

          4.   I am responsible for establishing and maintaining disclosure
               controls and procedures (as defined in Exchange Act Rules 13a-14
               and 15d-14) for the registrant and have:

               a)   designed such disclosure controls and procedures to ensure
                    that material information relating to the registrant,
                    including its consolidated subsidiaries, is made know to us
                    by others within those entities, particularly during the
                    period in which this report is being prepared;

               b)   evaluated the effectiveness of the registrant's disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this report (the "Evaluation Date"); and

               c)   presented in this report our conclusions about the
                    effectiveness of the disclosure controls and procedures
                    based on our evaluation as of the Evaluation Date;

          5.   I have disclosed, based on our most recent evaluation, to the
               registrant's auditors and the audit committee of registrant's
               board of directors (or persons performing the equivalent
               function);

               a)   all significant deficiencies in the design or operation of
                    internal controls which could adversely affect the
                    registrant's ability to record, process summarize and report
                    financial data and have identified for the registrant's
                    auditors any material weaknesses in internal controls; and

               b)   any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal controls; and

          6.   I have indicated in this report whether or not there were
               significant changes in internal controls or in other factors that
               could significantly affect internal controls or in other factors
               that could significantly affect internal controls subsequent to
               the date or our most recent evaluation, including any corrective
               actions with regard to significant deficiencies and material
               weaknesses.

DATED:  APRIL 14, 2003                               /S/ SEAN DESON
                                                     ---------------
                                                     SEAN DESON
                                                     CHIEF EXECUTIVE OFFICER AND
                                                     CHIEF FINANCIAL OFFICER


                                      -16-


<PAGE>


                                Table of Contents

                                                                       Page
                                                                       ----
Independent Auditors' Report                                            F-2

Consolidated Financial Statements

    Consolidated Balance Sheet - December 31, 2002                      F-3

    Consolidated Statement of Operations for Years Ended
       December 31, 2002 and 2001                                       F-4

    Consolidated Statement of Changes in Stockholders' Equity for
       Years Ended December 31, 2002 and 2001                           F-5

    Consolidated Statement of Cash Flows for
       Years Ended December 31, 2002 and 2001                           F-6

    Notes to Consolidated Financial Statements                    F-7 to 17

                                      F-1

<PAGE>

                          Independent Auditors' Report



To the Stockholders
Activeworlds Corp.

We have audited the accompanying consolidated balance sheet of Activeworlds
Corp., as of December 31, 2002, 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 consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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, 2002, 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.

April 3, 2003, except for Note 11
as to which the date is April 11, 2003


                                      F-2
<PAGE>

                               ACTIVEWORLDS CORP.

                           Consolidated Balance Sheet
                                December 31, 2002


                                     Assets

Current assets

    Cash                                                           $   346,213
    Due from Activeworlds, Inc.                                          6,916
    Prepaid expenses                                                    10,519
    Investments                                                         50,256
                                                                   -----------
              Total current assets                                     413,904
                                                                   -----------

              Total assets                                         $   413,904
                                                                   -----------


                      Liabilities and Stockholders' Equity

Current liabilities

    Accounts payable                                               $    19,323
    Accrued liabilities                                                 10,000
                                                                   -----------
              Total current liabilities                                 29,323
                                                                   -----------

Commitments and contingencies

Stockholders' equity
    Preferred stock, $.001 par value, 500,000 shares authorized,
      no shares issued or outstanding                                       --
    Common stock, $.001 par value, 50,000,000 shares authorized,
      5,319,790 shares issued and outstanding                            5,320
    Additional paid-in capital                                       5,725,910
    Treasury stock                                                    (118,403)
    Accumulated deficit                                             (5,147,725)
    Accumulated other comprehensive income (loss)                      (80,521)
                                                                   -----------
              Total stockholders' equity                               384,581
                                                                   -----------

              Total liabilities and stockholders' equity           $   413,904
                                                                   -----------

See notes to consolidated financial statements

                                      F-3
<PAGE>


                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Operations

                                                     Year Ended December 31
                                                   --------------------------
                                                       2002           2001
                                                   -----------    -----------

Revenues                                           $   268,956    $   490,503
                                                   -----------    -----------

Operating expenses
    Selling, general and administrative expenses       980,767      2,417,893
    Research and development expenses                  218,397        472,237
                                                   -----------    -----------
              Total operating expenses               1,199,164      2,890,130
                                                   -----------    -----------

    (Loss) from operations                            (930,208)    (2,399,627)

Interest income                                        (15,051)       102,584
                                                   -----------    -----------
    (Loss) before income taxes                        (915,098)    (2,297,043)
Income taxes                                                --             --
                                                   -----------    -----------
              Net (loss)                              (915,098)    (2,297,043)

Other comprehensive income (loss) -
  unrealized (losses) on securities                    (15,051)       (65,470)
                                                   -----------    -----------

              Comprehensive loss                   $  (930,149)   $(2,362,513)
                                                   -----------    -----------

Net (loss) per share of common stock
    Basic                                          $      (.13)   $     (2.90)
                                                   -----------    -----------

See notes to consolidated financial statements


                                      F-4

<PAGE>

                               ACTIVEWORLDS CORP.

            Consolidated Statement of Changes in Stockholders' Equity
                     Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>

                                   Preferred Stock        Common Stock            Additional
                                   ---------------    ----------------------       Paid-In       Accumlated
                                   Shares   Amount      Shares       Amount        Capital         Deficit
                                   -------  ------    ---------     --------     -----------     -----------
<S>                                  <C>    <C>       <C>           <C>          <C>             <C>
Balances at January 1, 2001          --     $ --      8,515,235     $  8,515     $ 6,292,994     $(1,935,584)

Accumulated other comprehensive
   income (loss)                     --       --             --           --              --              --
Issuance of stock
   warrants for services             --       --             --           --          51,399              --
Net (loss) for year                  --       --             --           --              --      (2,297,043)
                                   ----     ----     ----------     --------     ---------------------------

    Balances at December 31, 2001    --       --      8,515,235        8,515       6,344,393      (4,232,627)
                                   ----     ----     ----------     --------     ---------------------------

Accumulated other comprehensive
  income (loss)                      --       --             --           --              --              --

Repurchase of stock/sale of
   subsidiary                        --       --             --           --              --              --
Retirement of Treasury stock         --       --     (3,195,445)      (3,195)       (618,483)             --
Net (loss) for year                  --       --             --           --              --        (915,098)
                                   ----     ----     ----------     --------     ---------------------------

    Balances at December 31, 2002    --     $ --      5,319,790     $  5,320     $ 5,725,910     $(5,147,725)
                                   ----     ----     ----------     --------     ---------------------------


[RESTUB]
<CAPTION>
                                      Note      Accumulated
                                   Receivable     Other                          Total
                                   for Shares  Comprehensive   Treasury       Stockholders'
                                     Issued    Income (Loss)     Stock           Equity
                                     -------   ------------   ------------     -----------
<S>                                  <C>         <C>          <C>             <C>
Balances at January 1, 2001          $(6,500)    $     --     $  (118,403)    $ 4,241,022

Accumulated other comprehensive
   income (loss)                          --      (65,470)             --         (65,470)
Issuance of stock
   warrants for services                  --           --              --          51,399
Net (loss) for year                       --           --              --      (2,297,043)
                                     -------     --------     -----------     -----------

    Balances at December 31, 2001     (6,500)     (65,470)       (118,403)      1,929,908
                                     -------     --------     -----------     -----------

Accumulated other comprehensive
  income (loss)                           --      (15,051)             --         (15,051)

Repurchase of stock/sale of
   subsidiary                          6,500           --        (621,678)       (615,178)
Retirement of Treasury stock              --           --         621,678              --
Net (loss) for year                       --           --              --        (915,098)
                                     -------     --------     -----------     -----------

    Balances at December 31, 2002    $    --     $(80,521)    $  (118,403)    $   384,581
                                     -------     --------     -----------     -----------
</TABLE>

See notes to consolidated financial statements

                                      F-5
<PAGE>

                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31
                                                                                       2002           2001
<S>                                                                                <C>             <C>
Operating activities
    Net (loss)                                                                     $  (915,098)    $(2,297,043)
    Adjustment to reconcile net (loss) to net cash used in operating activities
       Depreciation and amortization                                                    18,405         108,783
       Change in estimate of allowance for doubtful accounts                            (5,000)
       Contract billing adjustment                                                          --         216,880
       Warrants issued for services                                                         --          51,399
       Contracts in progress in excess of billings                                          --          91,857
       Changes in operating assets and liabilities which provided (used) cash
          Accounts receivable                                                              774          12,949
          Due from Activeworlds, Inc.                                                   (6,916)             --
          Prepaid expenses                                                              32,432         261,167
          Advances to officer/stockholder/employees                                         --          11,551
          Accounts payable                                                              (1,964)        (31,095)
          Accrued liabilities                                                          (42,857)        (13,848)
          Deferred revenue                                                                  --          49,939
                                                                                   -----------     -----------
              Net cash used in operating activities                                   (915,224)     (1,542,461)
                                                                                   -----------     -----------

Investing activities
    Purchases of equipment and leasehold improvements                                   (1,434)        (97,953)
                                                                                   -----------     -----------
              Net cash used in investing activities                                     (1,434)        (97,953)
                                                                                   -----------     -----------

Financing activities
    Purchase of treasury stock/sale of subsidiary                                     (576,681)             --
    Payments on capital lease obligation                                                  (878)        (10,974)
                                                                                   -----------     -----------
              Net cash used in financing activities                                   (577,559)        (10,974)
                                                                                   -----------     -----------

Net decrease in cash                                                                (1,494,217)     (1,651,388)
Cash at beginning of year                                                            1,840,430       3,491,818
                                                                                   -----------     -----------

              Cash at end of year                                                  $   346,213     $ 1,840,430
                                                                                   -----------     -----------

Supplemental disclosure information

    Cash paid for interest during the year                                         $        --     $       448
                                                                                   -----------     -----------
    Cash paid for income taxes during the year                                     $        --     $        --
                                                                                   -----------     -----------

Supplemental schedule of noncash investing and financing activities
    Common stock in lieu of cash on accounts receivable                            $        --     $   130,770
                                                                                   -----------     -----------
    Non-cash items in connection with the purchase of treasury stock/sale
     of subsidiary                                                                 $   (45,061)    $        --
                                                                                   -----------     -----------
    Retirement of Treasury stock                                                   $   621,678     $        --
                                                                                   -----------     -----------
</TABLE>

See notes to consolidated financial statements

                                      F-6
<PAGE>


                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


Note 1 -  Organization and basis of presentation

          On January 22, 1999, Vanguard Enterprises, Inc., a publicly traded
          Delaware corporation, acquired all of the issued and outstanding
          common stock of Circle of Fire Studios, Inc., a Nevada corporation
          ("Circle of Fire"), in exchange for 5,433,211 shares of its common
          stock (the "1999 Acquisition") pursuant to an Agreement and Plan of
          Reorganization with Circle of Fire. As part of the 1999 Acquisition,
          outstanding options to acquire common stock of Circle of Fire were
          exchanged for options to purchase 322,682 shares of the Company's
          common stock (see note 4). At the time of the 1999 Acquisition,
          Vanguard had no significant operations. Simultaneous with the 1999
          acquisition, Vanguard Enterprises, Inc. changed its name to
          Activeworlds.com, Inc. (the "Company") and changed the name of its
          subsidiary from Circle of Fire Studios, Inc. to Activeworlds, Inc.
          ("Inc." ).

          Inc. was accounted for as the acquiring party and the surviving
          accounting entity because the former stockholders of Inc. received
          approximately 94% of the voting rights in the combined corporation.

          All intercompany accounts and transactions have been eliminated in
          consolidation. The consolidated financial statements are presented as
          those of Activeworlds.com, Inc. During June 2001, the Company changed
          its name from Activeworlds.com, Inc. to Activeworlds Corp.

          All share and per share information in the consolidated financial
          statements reflect (a) the consummation of the 1999 Acquisition
          whereby shares and options issued by Inc. were exchanged for shares of
          the Company's common stock and options to purchase shares of the
          Company's common stock, (b) the one-for-two reverse split (immediately
          prior to the 1999 Acquisition, and (c) the two-for-three reverse stock
          split which became effective on April 10, 2000.

          During January 2002, the Company was notified by NASDAQ that the
          Company had not met the minimum requirements of the Association and
          would be delisted from the NASDAQ in 2002 unless the minimum
          requirements were satisfied. The Company was subsequently delisted
          from the NASDAQ.

          From January 1, 2002 through July 9, 2002, the Company suffered a
          substantial consolidated net loss and has net capital in an amount
          less than its net loss for 2002. The board of directors began
          negotiations with management of the subsidiary, Activeworlds, Inc., to
          sell the subsidiary to the management of Activeworlds, Inc. On July
          10, 2002 Activeworlds Corp. entered into an Agreement and Plan of
          Exchange (the "Agreement"). Under the Agreement, the Company agreed to
          sell all of the issued and outstanding shares of common stock of its
          subsidiary, Activeworlds, Inc. to the Company's management as of the
          date of the Agreement (the "Former Management"). The Former Management
          agreed to sell the Company 2,595,445 shares of the Company's common
          stock representing approximately 30% of the outstanding shares. Under
          the Agreement, the Former Management resigned, terminated their
          employment agreements and assumed all expenses associated with the
          business of Activeworlds, Inc., and the Company agreed to pay Former
          Management $425,000 and up to $15,000 of their legal fees. At the same
          time, in a separate transaction, Former Management agreed to sell
          1,000,000 shares of common stock to a 10% stockholder (the
          "Stockholder"), contingent upon closing the transactions under the
          Agreement. The Agreement was subject to the approval of a majority of
          the outstanding shares of common stock of the Company. The Former
          Management issued irrevocable proxies to the Stockholder who had the
          power to vote a majority of outstanding shares and voted in favor of
          sale of Activeworlds, Inc. to the Former Management. On September 9,
          2002 the sale of Activeworlds, Inc. was approved by the consent of the
          majority of outstanding shares of common stock and the transactions
          under the Agreement closed. In accordance with the terms of the
          agreement, the subsidiary was sold to the former management effective
          as of the date of agreement (July 10, 2002).

                                      F-7
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


          Non-cash items in connection with the sale of the subsidiary are as
          follows:

                Property and equipment (net of accumulated
                 depreciation and amortization of $199,746)       $(224,163)
                Deferred revenue                                    185,602
                Note receivable for shares issued                    (6,500)
                                                                  ---------
                                                                  $ (45,061)
                                                                  ---------

          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.

          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 receivable, accounts
             payable and accrued liabilities, approximates carrying value.

                                      F-8
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements



          D. Cash and cash equivalents

             Cash and cash equivalents consist of cash on hand and all
             highly liquid securities with an original maturity of three
             months or less.

          E. Depreciation and amortization

             Equipment and fixtures were depreciated using accelerated
             methods over estimated lives of five years. Leasehold
             improvements are amortized over six years, the period of the
             lease. Depreciation and amortization expense of property and
             equipment totaled $18,405 and $108,783 for 2002 and 2001,
             respectively.

          F. 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.

          G. Marketing and public relations costs

             Marketing and public relations costs are expensed as incurred
             if it was determined that the benefit was received during the
             year. Marketing and public relations costs paid for services
             providing a benefit in the future are recorded as assets and
             amortized over the period benefited usually based on contract
             requirements. Marketing and public relations costs expensed in
             2002 and 2001 were $49,532 and $433,908, respectively.

          H. Research and development of software

             Research and development costs are expensed as incurred.

          I. Revenues

             Memberships, licensing and royalties

             Membership revenue and revenue from licensing the Company's
             worlds was recognized ratably over the periods the memberships
             were in effect and the licensing periods for the worlds.
             Advances on royalties from licensing agreements were recognized
             over the period the royalties were earned. Revenue from
             licensing the Company's uniservers and galaxservers was
             recognized when the license was granted and the Company had
             performed all of its obligations under the license agreement.

                                      F-9
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


             Services

             Revenue from technical services was recognized when the services
             were performed.

          J. Significant customers

             During 2002 and 2001, revenue from one customer amounted to
             approximately 11% and 10%, respectively. The customer was not
             the same in the two years.

          K. 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.

          L. 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.

          M. 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, 2002 financial statements and have been
             included in the current presentation. (See note 4).

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 decreased by $15,051 and
          $65,470 at December 31, 2002 and 2001, respectively. Accordingly,
          the value of the investment has been adjusted to $50,256 and
          $65,307 at December 31, 2002 and 2001, respectively.

                                      F-10
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements



Note 4 -  Stock options and warrants

          Stock options

          In 1999, the Company established a qualified Stock Incentive Plan
          for its employees. From time to time, the Company issues non
          qualified stock options to independent contractors and others.

          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 2001, six employees were granted a total of 92,000 stock
          options under the Company's Stock Incentive Plan. The exercise
          price was the fair value of the stock at the date of the grant but
          not less than $1.00.

          During 2001 the Company entered into an agreement with an
          individual to become a board member. The individual was granted
          options to purchase 100,000 shares of common stock at an exercise
          price of $1.00. The fair value of the publicly traded stock at the
          date the option was granted was less than $1.00.

          In 2001, the Company entered into a consulting agreement with an
          existing board member. Under the agreement the board member was
          granted options to purchase 100,000 shares of common stock at an
          exercise price of $1.00. The fair value of the publicly traded
          stock at the date the option was granted was less than $1.00.

          In 2001, the Company granted 6,000 options to contractors to
          provide services with exercise prices ranging between $1.10 to
          $1.25. The fair value of the publicly traded stock at the date the
          options were granted was less than $1.00.

          On July 15, 2002, two members of the Board of Directors received
          200,000 stock options and another board member, the Company's
          current President, received 100,000 stock options of the Company.
          On September 1, 2002 the current President cancelled his options
          for no consideration out of concern for existing stockholders. The
          options expire on July 15, 2007 and are exercisable at the fair
          value of the stock at the date of the agreement. The fair value of
          the publicly-traded stock at the date of the options were granted
          was less than $1.00 (see note 11).

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

                                      F-11
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements



          The table below sets forth information as to options granted in
          2002 and 2001:

<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, 2001         1,348,572       $ 3.26           45,889             $ 4.53

                Granted during the year                  299,000          .76            5,000                .77
                Expired during the year                 (110,666)        (.97)              --
                                                       ---------                        ------
                  Outstanding at December 31, 2001     1,536,906         3.35           50,889               4.41
                                                       ---------                        ------

                Granted during the year                  500,000          .03               --
                Cancelled during the year               (100,000)        (.02)              --
                                                       ---------                        ------
                  Outstanding at December 31, 2002     1,936,906         2.70           50,889               4.16
                                                       ---------                        ------

                Exercisable at December 31, 2002       1,636,904         2.26           50,889               4.63
                Exercisable at December 31, 2001         988,638         3.11           45,889               5.81
</TABLE>

          The shares under options at December 31, 2002 were in the following
          exercise price ranges:

<TABLE>
<CAPTION>
                                                        December 31, 2002
                                 ------------------------------------------------------------------

                                          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>               <C>
                $-0- - $6.75     1,675,007    $ 2.41         7         1,421,672         $ 1.80
                $6.76- $13.12      261,899      8.22         5           215,232           9.43
                                 ---------                             ---------
                                 1,936,906                             1,636,904
                                 ---------                             ---------
</TABLE>

                                      F-12
<PAGE>


                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements



          Warrants

          In 2001, 50,000 warrants were granted for marketing services. The
          warrants were granted at an exercise price of $3.00 which exceeded
          the fair value of the stock at the time of the agreement. The
          contract allows the service provider to purchase the Company's
          stock in lieu of receiving payment on services provided at $1.00
          per share with a maximum purchase of 2,500 shares of stock per
          month. No shares were issued as of December 31, 2001. The
          agreement expired in March 2002. Upon completion of the contract
          the service provider will receive another 50,000 warrants with an
          exercise price of $3.00 per share.

          On August 27, 2002 the Company issued 300,000 common stock
          warrants in connection with a contract to provide consulting
          services. The common stock warrants are exercisable for five years
          and can be exercised at $.06 per share, the fair market value of
          the stock at the date of the agreement. The majority stockholder
          of the consulting company is also a principal stockholder of the
          Company.

          Warrants outstanding as of December 31, 2002 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       8.55-8.52         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
                                                                                                          ---------
                                                                                                          2,536,893

                  Cancellations                                      --            --             --       (189,227)
                                                                                                          ---------
                  Outstanding at December 31, 2002                   --            --             --      2,347,666
                                                                                                          ---------
</TABLE>

               * Warrants cancelled in connection with May 2000 public offering

          The estimated value of stock warrants during 2002 and 2001 ranged
          between $.06 and $.76. The expense recognized for compensation and
          services for these stock warrants granted in 2002 and 2001 was
          $-0- and $51,399, respectively.

Note 5 -  Treasury stock

          In 2002 and 2001, 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
          totalling 3,195,445 on October 16, 2002.

                                      F-13
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements


Note 6 -  Operating leases

          In March, 1999 the Company entered into a lease for office space
          with a 3 year term and a 3 year renewal period. The annual minimum
          rental payments under the lease is approximately $31,500.

          Additionally, the Company leased vehicles in 1999 on three year
          operating leases. One vehicle's lease expired in 2001 and another
          lease was initiated for 39 months.

          The Company also leased telephone equipment. The lease expired in
          February 2002.

          As of the date of the Agreement and Plan of Exchange Activeworlds
          Inc. (see note 1), all leases were assigned to the former
          subsidiary.

          Rent expense for 2002 and 2001 was $28,464 and $46,697,
          respectively.

Note 7 -  Income taxes

          Prior to the sale of Activeworlds Inc., the Company has a net
          operating loss carryforward of approximately $4,384,000 that may
          be used to offset future taxable income at December 31, 2002. If
          not used, the carryforward will begin to expire with the year
          2018. The temporary difference for income tax reporting on a cash
          basis results in additional losses of approximately $345,600.

          However, in a sale of a wholly-owned subsidiary Activeworlds,
          Inc., the net operating loss carryforwards are allocated to the
          parent and the subsidiary based on the losses generated by each
          entity during the consolidation period. Accordingly, the net
          operating loss carryforward at December 31, 2002 attributable to
          Activeworlds Corp. on the income tax reporting basis is
          approximately $1,515,000.

          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, 2002:

             Net operating loss carryforward                    $526,971
             Accrual basis versus cash basis tax reporting        78,912
                                                                --------
             Deferred tax asset before valuation allowance       605,883
             Valuation allowance                                 605,883
                                                                --------

             Net deferred tax asset                             $     --
                                                                --------

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

                                      F-14
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements



          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 8 -  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:

                         Year Ended December 31,              Number of Shares
                         -----------------------              ----------------

                                  2002                            6,871,699

                                  2001                            8,160,899

          Diluted net (loss) per share of common stock has not been
          presented for 2002 and 2001 since the effect of including the
          stock options and warrants outstanding during these years (note 4)
          would be antidilutive.

Note 9 -  Related party transactions

          In 2002, two members of the Board of Directors received annual
          compensation of $26,800 and $29,800 and in 2001 they received
          $24,000 and $15,000, respectively.

          In 2001, a new member was added to the Board of Directors, with
          compensation of $15,000. The board member also provided consulting
          services during 2001 in the amount of $27,761 and received 100,000
          stock options under the agreement exercisable at $1. The director
          was paid $28,250 as a board member in 2002.

          The Company also entered into an agreement during 2001 with a
          board member to provide consulting services. The consultant was
          paid $5,250 and $4,500 in 2002 and 2001, respectively. Under the
          agreement the consultant also received 100,000 stock options
          exercisable at $1.

          The wives of two officers/stockholders were employed by the
          Company as of December 31, 2001. As of the sale of Activeworlds,
          Inc. on July 10, 2002 the wives ceased employment with
          Activeworlds Corp.

          Reference is also made to note 4.

Note 10 - Commitments and contingencies

          A. Employment contracts

          Effective January 21, 1999, the Company entered into three-year
          employment agreements with its President and Chief Financial Officer.
          Under the agreements annual compensation for each is $140,000.
          Additionally, the president and chief financial officer each were
          granted options to purchase up to 9,333 shares of the Company's common
          stock at an exercise price of $.83 per share. The agreements also
          provided for the president and chief financial officer to be eligible
          to participate in a bonus pool of not more than 10% of income before
          taxes, in excess of $750,000. A compensation committee would have sole
          discretion as to the allocation of the bonus pool among the senior
          executives. The bonus is not cumulative during any fiscal year.

                                      F-15
<PAGE>


                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements



          Each agreement contained a provision whereby if the Company breaches
          the provisions of the agreement, if the employee terminates the
          agreement for "good reason" or if the Company terminates the employee
          other than for cause (as defined in the agreement), the employee shall
          be entitled to payment equal to the lesser of (a) one year's salary
          and bonus for the period of employment prior to calendar year in which
          termination occurred; or (b) the salary due for the balance of the
          term plus a pro rata portion of the bonus paid to the employee for the
          previous year. Upon the sale of Activeworlds Inc. on July 10, 2002
          (see note 1) the President and Chief Financial Officer resigned and
          the contracts terminated.

          Effective February 12, 1999, the Company entered into a five-year
          employment agreement with the Company's lead programmer. Under the
          agreement, annual compensation starts at $100,000, increased annually
          by 10% of previous year's salary. Additionally, the employee was
          granted options to purchase up to 116,667 shares of the Company's
          common stock at an exercise price of $9.19 per share. The employment
          agreement was transferred to Activeworlds, Inc. as of July 10, 2002
          the date of the sale of the subsidiary (see note 1).

       B. Revenue Sharing Agreement - litigation

          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 $18,039 was received from memberships under the contract as
          of December 31, 2002 and 2001, respectively. The contract expired in
          2001. The Company is currently in litigation regarding adjustments to
          the contract due to the lack of registrations received under the
          agreement. At this time the outcome of the litigation process cannot
          be determined.

      C.  Marketing services

          In 2000, the Company entered into a contract with two consultants to
          provide marketing services. Under the agreements, the consultants are
          to provide the Company with prospective customers to utilize the
          products and services of the Company. The consultants will receive a
          consulting fee and/or stock options in the event the prospective
          customers become customers. The contracts expired on December 31,
          2001. As of December 31, 2002 and 2001, the Company had not entered
          into an agreement with a prospective customer provided by the
          consultants.

                                      F-16
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements



      D.  Retirement plan

          The Company has a defined contribution retirement plan for all
          eligible employees. The Company has contributed $11,280 and $62,272 to
          the plan on behalf of the employees in 2002 and 2001, respectively.
          All employees remained with Activeworlds, Inc. upon the sale of the
          subsidiary on July 10, 2002 (see note 1).

Note 11 - Subsequent events

          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. The
          principal stockholder objected to the grant of these options on the
          basis of Delaware General Corporation Law. The principal stockholder
          requested that the grant of options be rescinded. Based upon advice of
          counsel the options were cancelled (see note 4).


                                      F-17