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, 2003

                        Commission File Number: 001-15819

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

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

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

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

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

                                      None

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

                                  Common Stock

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

<PAGE>

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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.).     $861,658

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 5,317,116 shares of common stock and
were outstanding as of March 29, 2004.

                       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 11, 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
11, 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.

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

                                      -3-
<PAGE>

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;

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

                                      -4-
<PAGE>

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.

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

                                      -5-
<PAGE>

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.

     None.

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

     No matters were submitted to a vote for our security holders during the
fourth quarter of the year ended December 31, 2003.

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

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

                                      -6-
<PAGE>

HOLDERS

     As of March 29, 2004, there were 66 holders of record of our common stock
holding 5,317,116 shares of common stock.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. Payment of dividends is
within the discretion of board of directors and will depend upon our earnings,
capital requirements and operating and 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, 2003

During the fiscal year ended December 31, 2003, we did not issue any shares of
our common stock to any person or entity.

PURCHASES OF EQUITY SECURITIES.

During the quarter ended December 31, 2003, we did not purchase any of our
equity securities, nor did any person or entity purchase any equity securities
on our behalf.

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.

     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.

                                      -7-
<PAGE>

     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.

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,"

                                      -8-
<PAGE>

"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.

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

                                      -9-
<PAGE>

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 you 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-16 beginning after page 16.

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.

ITEM 8A.  CONTROLS AND PROCEDURES.

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

Disclosure controls and procedures are designed with the objective of ensuring
that (i) information required to be disclosed in an issuer's reports filed under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms and (ii)
information is accumulated and communicated to management,

                                      -10-
<PAGE>

including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosures.

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

Based on their evaluation, our chief executive officer and chief financial
officer has concluded that our disclosure controls and procedures are effective
in timely alerting him to material information relating to Activeworlds Corp.
required to be included in our periodic reports filed with the SEC as of the end
of the period covered by this Report. There were no changes in our internal
control over financial reporting that occurred during our last fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. However, a control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
Management necessarily applied its judgment in assessing the benefits of
controls relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. Because of the inherent limitations
in a control system, misstatements due to error or fraud may occur and may not
be detected.

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           40           President, Chief Financial Officer, 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.

                                      -11-
<PAGE>

COMPENSATION OF OUR DIRECTORS

     We do not compensate Mr. Deson for serving as a director.

AUDIT COMMITTEE

     We do not have an audit committee.

AUDIT COMMITTEE FINANCIAL EXPERT

     Mr. Deson is our audit committee financial expert.

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.

CODE OF ETHICS

     Since we have no employees, and only one officer and director, we have not
adopted a code of ethics. At such time as we acquire or begin engaging in a
business, we intend to adopt a code of ethics.

ITEM 10. EXECUTIVE COMPENSATION

     We currently have no employees and our president is our only executive
officer. No other employee's compensation exceeded $100,000 during the year
ended December 31, 2003.

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

ANNUAL COMPENSATION
                                                                All Other
Name and Principal Position            Year      Salary($)      Compensation ($)
---------------------------            ----      ---------      ----------------
Sean Deson,                            2003       $0.00         $
President, secretary and treasurer     2002       $0.00         $26,800
                                       2001       $0.00         $24,000

                                      -12-
<PAGE>

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

     The following table provides information as of March 24, 2004 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
-----------------                ------------                -------------------

Sean Deson                                 0                           0%
40 Wall Street, 58th Floor
New York, NY 10005

Michael Gardner                    2,473,160                        46.5%*
40 Wall Street, 58th Floor
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 these warrants are exercisable at $0.06 per share.

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.

                                      -13-
<PAGE>

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, 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 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. Our sole director made this finding which
provided another basis for canceling the options. The options held by Messrs
Adelson and Judson were cancelled by our board of directors on April 11, 2003.

     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.


                                      -14-
<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 (6)

23.1           Consent of Pannell Kerr Forster, P.C. dated March 29, 2004

31             CEO and CFO certifications required under Section 302 of the
               Sarbanes-Oxley Act of 2002

32             CEO and CFO certifications required under Section 906 of the
               Sarbanes-Oxley Act of 2002

    (1) Contained in Form 8-K filed on 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
    (6) Contained in Form 10-KSB filed on April 15, 2003

     (b) No Reports on Form 8-K were filed during the last quarter of the period
         covered by this Report.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

     The aggregate fees billed for professional services rendered by our
principal independent accountants for the audit of our annual financial
statements and review of our financial statements included in our Forms 10-QSB
for the fiscal year ended December 31, 2003 were $21,000 as compared to $57,000
for the fiscal year ended December 31, 2002.

AUDIT-RELATED FEES

     We did not incur any audit related fees during the fiscal years ended
December 31, 2003 or 2002.

TAX FEES

     Our principal independent accountants did not perform any tax related
services for us during the fiscal years ended December 31, 2003 or 2002.

                                      -15-
<PAGE>

ALL OTHER FEES

     Our principal independent accountants did not perform any other services
for us during the fiscal years ended December 31, 2003 or 2002.

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

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 29th day of March 2004.

                                        Activeworlds Corp.

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

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

SIGNATURES            TITLE                                      DATE
----------            -----                                      ----

/s/ Sean Deson        Chief Financial Officer,                   March 29, 2004
---------------       Chief Accounting Officer and Director
Sean Deson

                                      -16-

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                             Page
                                                                                             ----

<S>                                                                                          <C>
Independent Auditors' Report                                                                 F-2

Consolidated Financial Statements

    Consolidated Balance Sheet - December 31, 2003                                           F-3

    Consolidated Statement of Operations for Years Ended December 31, 2003 and 2002          F-4

    Consolidated Statement of Changes in Stockholders' Equity for Years
       Ended December 31, 2003 and 2002                                                      F-5

    Consolidated Statement of Cash Flows for Years Ended December 31, 2003 and 2002          F-6

    Notes to Consolidated Financial Statements                                               F-7 to 16

</TABLE>

                                      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, 2003, 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, 2003, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period then ended in conformity with accounting principles generally accepted in
the United States of America.

  February 7, 2004, except for note 5 as
   to which the date is March 29, 2004

                                      F-2
<PAGE>

                               ACTIVEWORLDS CORP.

                           Consolidated Balance Sheet
                                December 31, 2003

                                     Assets

<TABLE>
<S>                                                                     <C>
Current assets
    Cash                                                                $   407,318
    Investments                                                              87,111
                                                                        -----------
         Total current assets                                               494,429
                                                                        -----------
         Total assets                                                   $   494,429
                                                                        -----------
                      Liabilities and Stockholders' Equity
Current liabilities
    Accounts payable                                                    $       403
    Accrued liabilities                                                       8,500
                                                                        -----------
         Total current liabilities                                            8,903
                                                                        -----------
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,
     5,317,116 shares issued                                                  5,317

    Additional paid-in capital                                            5,725,913
    Treasury stock                                                         (118,403)
    Accumulated deficit                                                  (5,083,635)
    Accumulated other comprehensive income (loss)                           (43,666)
                                                                        -----------
         Total stockholders' equity                                         485,526
                                                                        -----------
         Total liabilities and stockholders' equity                     $   494,429
                                                                        -----------

</TABLE>

See notes to consolidated financial statements

                                      F-3
<PAGE>

                        ACTIVEWORLDS CORP.

               Consolidated Statement of Operations

                                                        Year Ended December 31
                                                      ------------------------
                                                         2003           2002
                                                      --------      ----------

Revenues                                              $     --      $  268,956
                                                      --------      ----------

Operating expenses
    Selling, general and administrative expenses        40,910         980,767
    Research and development expenses                       --         218,397
                                                      --------      ----------
         Total operating expenses                       40,910       1,199,164
                                                      --------      ----------
    (Loss) from operations                             (40,910)       (930,208)

Interest income                                             --         (15,110)
Litigation settlement (note 10)                        105,000              --
                                                      --------      ----------
    Income (loss) before income taxes                   64,090        (915,098)
Income taxes                                                --              --
                                                      --------      ----------
         Net income (loss)                              64,090        (915,098)

Other comprehensive income (loss) -
  unrealized gain (loss) on securities                  36,855         (15,051)
                                                      --------      ----------
         Comprehensive income (loss)                  $100,945      $ (930,149)
                                                      --------      ----------

Net income (loss) per share of common stock
    Basic                                             $   .019      $     (.13)
                                                      --------      ----------
Net income per share of common stock
    Dilutive                                          $   .011
                                                      --------      ----------

See notes to consolidated financial statements

                                      F-4
<PAGE>

                               ACTIVEWORLDS CORP.

            Consolidated Statement of Changes in Stockholders' Equity
                     Years Ended December 31, 2003 and 2002

<TABLE>
<CAPTION>

                                            Preferred Stock             Common Stock                Additional
                                            ---------------             ------------                  Paid-In        Accumulated
                                          Shares      Amount       Shares         Amount              Capital          Deficit
                                          ------      ------       ------         ------              -------          -------
<S>                                      <C>          <C>        <C>             <C>               <C>               <C>
Balances at January 1, 2002                    --     $   --     8,512,561       $    8,512        $ 6,344,396       $(4,232,627)

Accumulated other comprehensive
  (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                  --         --     5,317,116            5,317          5,725,913        (5,147,725)
                                         --------     ------     ---------       ----------        -----------       -----------
Accumulated other comprehensive
  income

Net income for year                                                                                                       64,090
                                         --------     ------     ---------       ----------        -----------       -----------
Balances at December 31, 2003                  --     $   --     5,317,116       $    5,317        $ 5,725,913       $(5,083,635)
                                         --------     ------     ---------       ----------        -----------       -----------

<CAPTION>

[restubbed]

                                           Note          Accumulated
                                        Receivable          Other                               Total
                                        for Shares      Comprehensive       Treasury        Stockholders'
                                          Issued        Income (Loss)         Stock            Equity
                                        ----------      -------------       --------        -------------
<S>                                     <C>              <C>               <C>               <C>
Balances at January 1, 2002             $  (6,500)       $  (65,470)       $ (118,403)       $1,929,908

Accumulated other comprehensive
  (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
                                        ---------        ----------        ----------        ----------

Accumulated other comprehensive
  income                                                     36,855                              36,855

Net income for year                                                                              64,090
                                        ---------        ----------        ----------        ----------
Balances at December 31, 2003           $      --        $  (43,666)       $ (118,403)       $  485,526
                                        ---------        ----------        ----------        ----------
</TABLE>

See notes to consolidated financial statements

                                      F-5
<PAGE>

                               ACTIVEWORLDS CORP.

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31
                                                                                         -------------------------
                                                                                           2003            2002
                                                                                           ----            ----
Operating activities
<S>                                                                                      <C>           <C>
    Net income (loss)                                                                    $ 64,090      $  (915,098)
    Adjustment to reconcile net income (loss) to net cash provided by (used in)
      operating activities
       Depreciation and amortization                                                           --           18,405
       Changes in operating assets and liabilities which provided (used) cash
          Accounts receivable                                                                  --              774
          Due from Activeworlds, Inc.                                                       6,916           (6,916)
          Prepaid expenses                                                                 10,519           32,432
          Accounts payable                                                                (18,920)          (1,964)
          Accrued liabilities                                                              (1,500)         (42,857)
                                                                                         --------      -----------
              Net cash provided by (used in) operating activities                          61,105         (915,224)
                                                                                         --------      -----------
Investing activities
    Purchases of equipment and leasehold improvements                                          --           (1,434)
                                                                                         --------      -----------
              Net cash used in investing activities                                            --           (1,434)
                                                                                         --------      -----------
Financing activities
    Purchase of treasury stock/sale of subsidiary                                              --         (576,681)
    Payments on capital lease obligation                                                       --             (878)
                                                                                         --------      -----------
              Net cash used in financing activities                                            --         (577,559)
                                                                                         --------      -----------
Net increase (decrease) in cash                                                            61,105       (1,494,217)
Cash at beginning of year                                                                 346,213        1,840,430
                                                                                         --------      -----------
              Cash at end of year                                                        $407,318      $   346,213
                                                                                         --------      -----------
Supplemental schedule of noncash investing and financing activities
    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

                                      F-7
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

         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).

         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 prior to the subsidiary, Activeworlds, Inc. being sold.
            As discussed in note 1, the Company is actively seeking to merge,
            invest in or acquire other companies to generate revenues and
            profits.

         B. Accounting estimates

            The preparation of financial statements in conformity with
            accounting principles generally accepted in the United States of
            America requires management to make estimates and assumptions that
            affect the reported amounts of assets and liabilities and disclosure
            of contingent assets and liabilities at the date of the financial
            statements and the reported amounts of revenues and expenses during
            the reporting period. Actual results could differ from those
            estimates.

         C. Financial instruments

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

                                      F-8
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

         D. Depreciation and amortization

            Equipment and fixtures were depreciated using accelerated methods
            over estimated lives of five years. Leasehold improvements were
            amortized over six years, the period of the lease. Depreciation and
            amortization expense of property and equipment totaled $-0- and
            $18,405 for 2003 and 2002, respectively.

         E. 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.

         F. 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 2003 and 2002 were $-0- and
            $49,532, respectively.

         G. Research and development of software

            Research and development costs are expensed as incurred.

         H. 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 are
            performed.

         I. Significant customers

            During 2002, revenue from one customer amounted to approximately
            11%.

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

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

         K. 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.

         L. 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).

         M. Reclassifications

            Certain reclassifications have been made to the prior year balances
            to conform to current presentation.

Note 3 - Investments

         In 2001 the Company agreed to accept 9,800,000 shares of common stock
         of its largest contract customer in full and final payment on the work
         completed to date on the contract. The fair market value at the date
         the common stock was transferred was $130,770. The fair market value of
         the investment increased (decreased) by $36,855 and $(15,051) at
         December 31, 2003 and 2002, respectively. Accordingly, the value of the
         investment has been adjusted to $87,111 and $50,256 at December 31,
         2003 and 2002, 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.

         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 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.

         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.

         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 in 2003 and 2002:

<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, 2002             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
                                                ---------                           ------        --------

     Granted during the year                           --                               --           --
     Cancelled during the year                   (400,000)            (.04)             --
                                                ---------                           ------        --------
       Outstanding at December 31, 2003         1,536,906             3.41          50,889            4.16
                                                ---------                           ------        --------
     Exercisable at December 31, 2003           1,356,172             3.08          50,889            4.38
     Exercisable at December 31, 2002           1,636,904             2.26          50,889            4.63

</TABLE>

         The shares under options at December 31, 2003 were in the following
         exercise price ranges:

<TABLE>
<CAPTION>
                                                                       December 31, 2003
                                    ----------------------------------------------------------------------------
                                              Options Outstanding                  Options Currently Exercisable
                                    ----------------------------------------       -----------------------------
                                                    Weighted      Weighted                            Weighted
                                                    Average        Average                            Average
                                      Number        Exercise     Contractual         Number           Exercise
                Exercise Range      of Options       Price          Life           of Options          Price
                --------------      ----------       -----          ----           ----------          -----
                                                                 (in years)
<S>                                  <C>              <C>             <C>          <C>                 <C>
                $-0- - $6.75         1,275,007        $2.41           8            1,117,607           $2.25
                $6.76- $13.12          261,899         8.22           5              238,565            9.38
                                     ---------                                     ---------
                                     1,536,906                                     1,356,172
                                     ---------                                     ---------
</TABLE>

         Warrants

         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.

                                      F-12
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

         Warrants outstanding as of December 31, 2003 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, 2003                                                  2,347,666
                                                                                                ---------

</TABLE>

              * Warrants cancelled in connection with May 2000 public offering

         The estimated value of stock warrants during 2003 and 2002 ranged
         between $8.55 and $.06. The expense recognized for compensation and
         services for these stock warrants granted in 2003 and 2002 was $-0- and
         $-0-, respectively.

Note 5 - Treasury stock

         In 2003 and 2002, 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. On
         March 29, 2004 the Company retired the remaining 87,527 shares of
         common stock held as Treasury stock.

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.

                                      F-13
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

         Rent expense for 2003 and 2002 was $-0- and $28,464, 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, 2003. 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 $335,700.

         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, 2003:

              Net operating loss carryforward                   $ 594,100
              Accrual basis versus cash basis tax reporting        (9,900)
                                                                ---------
              Deferred tax asset before valuation allowance       584,200
              Valuation allowance                                 584,200
                                                                ---------
              Net deferred tax asset                            $      --
                                                                ---------

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

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

Note 8 - Net income (loss) per share of common stock

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

                                              Weighted Average
            Year Ended December 31,           Number of Shares
            -----------------------           ----------------
                     2003                         5,317,116
                     2002                         6,869,025

         The diluted income per share of common stock for 2003 has been
         calculated using 9,348,113 weighted average number of shares for the
         year. Diluted net (loss) per share of common stock has

                                      F-14
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

         not been presented for 2002 since the effect of including the stock
         options and warrants outstanding (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.

            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

                                      F-15
<PAGE>

                               ACTIVEWORLDS CORP.

                   Notes to Consolidated Financial Statements

            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 settlement

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

         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.

         D. Retirement plan

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

                                      F-16