UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





|                                                               |                                                                             
|-------------------------------------------------------------- | ----------------------------------------------------------------------------
|ü                                                              | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
|                                                               | ACT OF 1934                                                                 
|For the quarterly period ended:                               
|June 30, 2008                                                 
|                                                               |                                                                             
|                                                               | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
|                                                               | ACT OF 1934                                                                 
|For the transition period from: _____________ to _____________





ACTIVEWORLDS CORP.

(Exact name of registrant as specified in its charter)





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

40 Wall Street, 58th Floor, New York, NY 10005

(Address of Principal Executive Office) (Zip Code)

(212) 509-1700

(Registrants telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)



|                                                                                                                                                                                                                                                         |   |     |  |                           |   |  |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --- |  | ------------------------- | - |  |  | 
|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.                                                                                                                                               | ü | Yes |  | No                       
|                                                                                                                                                                                                                                                        
|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer., or a smaller reporting company.                                                                                             
|                                                                                                                                                                                                                                                         |  
|Large accelerated filer                                                                                                                                                                                                                                  |   |     |  | Accelerated filer         |   | 
|Non-accelerated filer                                                                                                                                                                                                                                    |   |     |  | Smaller reporting company | ü | 
|                                                                                                                                                                                                                                                         |  
|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).                                                                                                                                                  | ü | Yes |  | No                       
|                                                                                                                                                                                                                                                         |  
|Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.                                                                                                                           
|As of August _____, 2008 there were 6,250,010 shares of common stock outstanding                                                                                                                                                                        
|APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY                                                                                                                                                                                                   
|PROCEEDINGS DURING THE PRECEDING FIVE YEARS:                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                        
|Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
|                                                                                                                                                                                                                                                         |   | Yes |  | No                       











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PART I  FINANCIAL INFORMATION

Item 1.

Financial Statements.

ACTIVEWORLDS CORP.



Consolidated Balance Sheet



|                                                                                                      |  |             |            |   |              |   |            |  
|----------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ------------ | - | ---------- | -
|                                                                                                      |  | June 30,    |            |   | December 31, |  
|                                                                                                      |  | 2008        |            |   | 2007 *       |  
|                                                                                                      |  | (Unaudited) |            |   |              |  
|Assets                                                                                                | 
|                                                                                                      |  |             |            |   |              |  
|Current assets                                                                                        |  |             |            |   |              |  
|Cash                                                                                                  |  | $           | 213,876    |   |              | $ | 232,893    |  
|Total current assets                                                                                  |  |             | 213,876    |   |              |   | 232,893    |  
|                                                                                                      |  |             |            |   |              |   |            |  
|Total assets                                                                                          |  | $           | 213,876    |   |              | $ | 232,893    |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|Liabilities and Stockholders Equity                                                                  | 
|Current liabilities                                                                                   |  |             |            |   |              |   |            |  
|Accrued liabilities                                                                                   |  | $           | 3,000      |   |              | $ | 8,500      |  
|Total current liabilities                                                                             |  |             | 3,000      |   |              |   | 8,500      |  
|                                                                                                      |  |             |            |   |              |   |            |  
|Commitments and contingencies                                                                         |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|Stockholders equity                                                                                  |  |             |            |   |              |   |            |  
|Preferred stock, $.001 par value, 500,000 shares authorized, no shares issued or outstanding          |  |             |           |   |              |   |           |  
|Common stock, $.001 par value, 100,000,000 shares authorized, 6,250,010 shares issued and outstanding |  |             | 6,250      |   |              |   | 6,250      |  
|Additional paid-in capital                                                                            |  |             | 7,193,706  |   |              |   | 7,193,706  |  
|Accumulated deficit                                                                                   |  |             | (6,989,080 | ) |              |   | (6,975,563 | )
|Total stockholders equity                                                                            |  |             | 210,876    |   |              |   | 224,393    |  
|                                                                                                      |  |             |            |   |              |   |            |  
|Total liabilities and stockholders equity                                                            |  | $           | 213,876    |   |              | $ | 232,893    |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|                                                                                                      |  |             |            |   |              |   |            |  
|*Derived from audited financial statements                                                            |  |             |            |   |              |   |            |  





See notes to consolidated financial statements



1



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ACTIVEWORLDS CORP.



Consolidated Statement of Operations



|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | --------------------------- | ------ | ------------------------- | ----------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |            
|                                             |  | 2008                        |        |                           | 2007        |   |        | 2008 |  |   | 2007    |  
|                                             |  | (Unaudited)                 |        |                           | (Unaudited) |  
|Revenues                                     |  | $                           |       |                           |             | $ |       |      |  | $ |        |   |  | $ |        |  
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|Operating expenses                           |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|Selling, general and administrative expenses |  |                             | 7,610  |                           |             |   | 5,807  |      |  |   | 13,517  |   |  |   | 10,946  |  
|Research and development expenses            |  |                             |       |                           |             |   |       |      |  |   |        |   |  |   |        |  
|Total operating expenses                     |  |                             | 7,610  |                           |             |   | 5,807  |      |  |   | 13,517  |   |  |   | 10,946  |  
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|Loss from operations                         |  |                             | (7,610 | )                         |             |   | (5,807 | )    |  |   | (13,517 | ) |  |   | (10,946 | )
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|Loss before income taxes                     |  |                             | (7,610 | )                         |             |   | (5,807 | )    |  |   | (13,517 | ) |  |   | (10,946 | )
|Income taxes                                 |  |                             |       |                           |             |   |       |      |  |   |        |   |  |   |        |  
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|Net loss                                     |  | $                           | (7,610 | )                         |             | $ | (5,807 | )    |  | $ | (13,517 | ) |  | $ | (10,946 | )
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|Net loss per share of common stock           |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|Basic                                        |  | $                           | (.001  | )                         |             | $ | (.001  | )    |  | $ | (.002   | ) |  | $ | (.002   | )
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  
|                                             |  |                             |        |                           |             |   |        |      |  |   |         |   |  |   |         |  





See notes to consolidated financial statements



2



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ACTIVEWORLDS CORP.



Consolidated Statement of Cash Flows



|                                                                          |  |                           |         |   |      |   |         |  
|------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                          |  | Six Months Ended
June 30, |        
|                                                                          |  | 2008                      |         |   | 2007 |  
|                                                                          |  | (Unaudited)               |        
|Operating activities                                                      |  |                           |         |   |      |  
|Net loss                                                                  |  | $                         | (13,517 | ) |      | $ | (10,946 | )
|Adjustment to reconcile net loss to net cash used in operating activities |  |                           |         |   |      |   |         |  
|Changes in operating assets and liabilities which provided (used) cash    |  |                           |         |   |      |   |         |  
|Accrued liabilities                                                       |  |                           | (5,500  | ) |      |   | (5,500  | )
|Net cash used in operating activities                                     |  |                           | (19,017 | ) |      |   | (16,446 | )
|                                                                          |  |                           |         |   |      |   |         |  
|Net decrease in cash                                                      |  |                           | (19,017 | ) |      |   | (16,446 | )
|Cash at beginning of period                                               |  |                           | 232,893 |   |      |   | 247,241 |  
|                                                                          |  |                           |         |   |      |   |         |  
|Cash at end of period                                                     |  | $                         | 213,876 |   |      | $ | 230,795 |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  
|                                                                          |  |                           |         |   |      |   |         |  



See notes to consolidated financial statements



3



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Note 1 

Basis of presentation

The accompanying 2008 and 2007 unaudited interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to prevent the information presented from being misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Companys Form 10-KSB, which contains financial information for the years ended December 31, 2007 and 2006.

The information provided in these financial statements reflects all adjustments (consisting solely of normal recurring accruals) that are, in the opinion of management, necessary to present fairly the results of operations for this period. The results for this period are not necessarily indicative of the results to be expected for the full year.

Activeworlds Corp. (the Company) became inactive in July 2002 when the Company entered into an agreement to sell all of the issued and outstanding stock of its operating subsidiary, Activeworlds, Inc. The agreement closed in September 2002 and the Companys former management purchased Activeworlds, Inc. in exchange for their selling 2,595,445 shares or approximately 30% of the Companys common stock to the Company.



In 2004, the Company formed a wholly-owned subsidiary, AWLD, Inc., a Delaware corporation. AWLD, Inc. then formed a wholly-owned subsidiary AWLD, Ltd., an Israeli company in anticipation of an acquisition which was not consummated by the Company.  Both AWLD, Inc. and AWLD, Ltd. were dissolved during 2007.



All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented as those of Activeworlds Corp.



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



Note 2 

Income taxes



At June 30, 2008, the Company has a net operating loss carryforward of approximately $3,967,000 that may be used to offset future taxable income.

An allowance has been established for the full amount of gross deferred tax asset of approximately $1,587,000 due to the uncertainty of utilizing the deferred taxes in the future.

Note 3 

Net (loss) per share of common stock

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

|                          |  |                 
|------------------------- |  | ----------------
|                          |  | Weighted Average
|Six Months Ended June 30, |  | Number of Shares
|(Unaudited)               |  |                 
|2008                      |  | 6,250,010       
|2007                      |  | 5,317,116       



Diluted net (loss) per share of common stock has not been presented for the six months ended June 30, 2008 and 2007 since the effect of including the stock options and warrants outstanding would be antidilutive.



4



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Note 4 

Related party transactions  warrants

In August 2007, the sole member of the Companys Board of Directors reduced the exercise price of the 750,000 common stock warrants issued under a consulting contract with the Company's principal stockholder, from $2.00 per share to $0.25 per share. The modification in fair value as a result of the decrease in exercise price was determined using the Black-Scholes Model with the following assumptions:

|                        |           
|----------------------- | ----------
|Risk-free interest rate | 4.60%     
|Volatility              | 100.0%    
|Expected life           | 3.5 months
|Expected dividend yield | 0.00%     



In August 2007, the sole member of the Companys Board of Directors reduced the exercise price of the 300,000 common stock warrants issued under a separate contract, from $1.1875 per share to $0.25 per share. The modification in fair value as a result of the decrease in exercise price was determined using the Black-Scholes Model with the following assumptions:

|                        |        
|----------------------- | -------
|Risk-free interest rate | 4.60%  
|Volatility              | 100.0% 
|Expected life           | 3 years
|Expected dividend yield | 0.00%  



The total modification in fair value of the warrants described above was $293,379 and has been recognized as additional consulting services.

In September 2007, the principal stockholder cashlessly exercised the 1,050,000 warrants at their reduced exercise price and an additional 300,000 warrants at $0.06 per share. The stockholder received a total of 857,894 common shares through the exercise of warrants.





5



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Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations 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.

OVERVIEW

We are a Delaware corporation organized on September 5, 1995.  We have been inactive since September 2002 since we sold our business to our former management.  We are now seeking business opportunities. We have not had revenues from operations since July 2002.

Our primary expenses relate to our reporting obligations under the Securities Exchange Act of 1934 and expenses related to the acquisition of another business opportunity. We will incur expenses due to the legal and accounting services required to prepare periodic reports and the costs of filing these reports with the Securities and Exchange Commission.

Our plan of operations does not call for any product research or development, nor do we plan to purchase any equipment.  We believe we have enough working capital to meet our operational needs for the next 12 months.

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.

Results of Operations

We had no revenue for the quarter and three months ended June 30, 2008 and 2007. Our net loss for the three and six months ended June 30, 2008 was $7,610 and $13,517, respectively, in contrast to $5,807 and $10,946 for the same periods in 2007.  Our only expenses are currently public company expenses.

Liquidity and Capital Resources

At June 30, 2008 we had total assets of $213,876 consisting of cash and total liabilities of $3,000.

For further information, see our report on Form 10-KSB for the year ended December 31, 2007.

Forward-Looking Statements

The statement made above relating to the adequacy of our working capital is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. The statements that express the belief, anticipation, plans, expectations, will and similar expressions are intended to identify forward-looking statements.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include matters relating to the business and financial condition of any company we acquire. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

Not required for Smaller Reporting Companies.



Item 4.

Controls and Procedures

Not required for Smaller Reporting Companies.





6



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Item 4T.

Controls and Procedures

Disclosure Controls



We carried out an evaluation required by Rule 13a-15(b) of the Securities Exchange Act of 1934 or the Exchange Act under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.



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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) information is accumulated and communicated to management, including our Principal Executive Officer and Principal 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 is 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 Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information which is required to be included in our periodic reports filed with the SEC as of the filing of this Report.

Changes in Internal Controls Over Financial Reporting



During the three months ended June 30, 2008, the Company made no changes in the control procedures related to financial reporting.



7



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PART II  OTHER INFORMATION

Item 1.

Legal Proceedings.

Not Applicable.

Item 1A.

Risk Factors.

Not required for Smaller Reporting Companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not Applicable.

Item 3.

Defaults Upon Senior Securities.

Not Applicable.

Item 4.

Submission of Matters to a Vote of Security Holders.

Not Applicable.

Item 5.

Other Information.

Not Applicable.

Item 6.

Exhibits.

Exhibit

Number

Description

3.1

Certificate of Incorporation (1)

3.2

Amendment to Certificate of Incorporation dated September 29, 1995 (1)

3.3

Amendment to Certificate of Incorporation dated October 12, 1995 (1)

3.4

Amendment to Certificate of Incorporation dated January 21, 1999 (1)

3.5

Amendment to Certificate of Incorporation dated April 7, 2000 (2)

3.6

Restated Bylaws (3)

31

PEO and PFO certifications required under Section 302 of the Sarbanes-Oxley Act of 2002

32

PEO and PFO certifications required under Section 906 of the Sarbanes-Oxley Act of 2002

(1)

Contained in Form SB-2 filed on August 13, 1999

(2)

Contained in Form SB-2/A filed on April 12, 2000

(3)

Contained in Form SB-2/A filed on March 16, 2000







8



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date: August 13, 2008

| |                          |                                      
| | ------------------------ | -------------------------------------
| | ACTIVEWORLDS CORPORATION
| |                          |                                      
| |                          |                                      
| | By:                      | /s/ Paul Goodman                     
| |                          | Paul Goodman                         
| |                          | President and Chief Financial Officer





9