U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-KSB

/x/ ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
                    For the fiscal year ended March 31, 2003

/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                    OF 1934
                 For the transition period from ______ to ______

                         Commission File number 0-12392

                               ALPHA VIRTUAL, INC.

         Delaware                                     95-2577731
 ------------------------                 ------------------------------------
 (State of Incorporation)                 (I.R.S. Employer Identification No.)


     10345 West Olympic Boulevard, Suite 102, Los Angeles, California 90064
                                  310-432-6200

    Securities registered pursuant to Section 12(b) of the Exchange Act: None

    Securities registered pursuant to Section 12(g) of the 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. Yes /x/ No //

Check if there is no disclosure of delinquent  filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB / /

State Issuer's revenues for its most recent fiscal year: $135,106.

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days: As of May 15, 2003 $33,200,000

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the  latest  practicable  date:  As of May  15,  2003  there  are
5,775,114 shares outstanding  adjusted for a 1:7 reverse split which occurred in
April, 2003 and the acquisition of Esstec, Inc. which occurred in May, 2003.

Documents Incorporated by Reference:  None

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                                     PART I
ITEM 1. BUSINESS

Overview

To leverage our  proprietary  technology,  in 2000 we refocused  our business to
develop  and  market  innovative,   real-time  Web  collaboration  products  for
business,  consumer entertainment,  education,  and government markets. In 2001,
Global  Alpha  Corporation  provided  private  equity  financing  of  $3,226,000
($2,400,000  of which was  received in fiscal  2002).  From fiscal 2001  through
October  2002,  our  business  refocus  has  been  entirely  on  developing  new
commercial  products in the area of Internet  collaboration.  Our patent-pending
OneView(TM)  product  platform  meets  the  growing  demand  for new  multi-user
interactivity  - integrating  browser,  Instant  Messaging,  and real-time group
collaboration  in an on-demand  basis.  OneView allows users to immediately form
groups and explore Web sites  together,  sharing the same experience at the same
time, whether they are located in the next room or half way around the world. As
such, it is the fastest,  most convenient way to collaborate  synchronously over
the Internet today.

Prior to our refocus on Internet  collaboration  product design, our company had
historically   engaged  in  the   design,   development   and   manufacture   of
computer-based  simulation  systems for  training and  decision  support.  These
systems  include both  hardware and software and are used to train  personnel in
the  use of  various  military  and  commercial  equipment,  including  weapons,
vehicles and aircraft.  Much of the company's simulator business has been in the
foreign  defense   industry  where  the  company  has  built  an   international
reputation.  The  tightening  of defense  budgets  worldwide,  combined with the
continuing  consolidation and intense  competition in the defense industry,  had
negatively impacted the growth and profit opportunities for small companies such
as Alpha Virtual. As a result, in July 2000, the Company sold the assets related
to the PGTS product line to Eidetics  Corporation,  a developer and manufacturer
of  specialized  defense  simulation  products.  From the  disposition  of those
assets, the company will earn certain royalties.

In October 2002, we licensed  substantially all of our proprietary  software and
systems  to  our  principal  shareholder,   Global  Alpha  Corporation  ("GAC").
Effective October 31 2002, the Company entered into a License Agreement with its
principal shareholder,  Global Alpha Corporation ("GAC") wherein GAC was granted
an exclusive license to the Company's  software and systems commonly referred to
as the "IC3D Framework" (the "System). The System encompasses  substantially all
of the Company's  software  including  software  developed to support multi-user
online collaborative  interactivity in a broad variety of applications employing
a variety of virtual media over a number of networks  including the Internet and
intra-nets.  Under the  Agreement,  GAC will pay to the Company a license fee of
ten  percent of the revenue  generated  from the sale or use of the System up to
$1,000,000,  nine percent up to $2,000,000,  eight percent up to $3,000,000 and,
thereafter,  seven percent of the revenue generated.  A minimum,  annual license
fee of $25,000 for the year ending  December 31, 2002 and December 31, 2003 must
be paid to maintain the exclusive license. Global Alpha Corporation has paid for
the continued development of the IC3D system through June 30, 2003.

On October 31, 2002, the Company  terminated  all but one of its employees;  and
except for its license  agreement  (above) it ceased all of its prior  operating
activities.   Its  principal   activities  will  be  directed  to  reducing  its
liabilities and seeking possible acquisitions.  Our company's corporate name was

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changed from Perceptronics, Inc. to Alpha Virtual, Inc. on October 12, 2001, and
remains a Delaware corporation. Our Common Stock trades on the Over-the-Counter-
Bulletin Board under the symbol "AVRT."

In view of the above, our activities have been reduced to paying our liabilities
and to  seeking  business  combinations.  Our  objective  has  been  to  acquire
operating  companies  that have  experienced  management  and the  potential for
profitable  growth in exchange for our securities.  Such transactions may result
in a change in control of the Company

Acquisition of Esstec

On April 28, 2003, Alpha Virtual, Inc. and EssTec, Inc., a privately-held Nevada
corporation,  entered into an Agreement and Plan of Merger.  In accordance  with
the Merger, on May 8, 2003, the Registrant, through its wholly-owned subsidiary,
Alpha Acquisition Corporation, a Nevada corporation, acquired EssTec in exchange
for  4,276,162  shares  of  the  Registrant's   Common  Stock.  The  transaction
contemplated  by the  Agreement  was intended to be a "tax-free"  reorganization
pursuant to the  provisions  of Section  351 and  368(a)(1)(A)  of the  Internal
Revenue Code of 1986, as amended.

The stockholders of EssTec (aggregating approximately 100) now own approximately
74% of the  Registrant's  common stock  outstanding as of May 8, 2003 (excluding
any additional  shares  issuable upon  outstanding  options,  warrants and other
securities convertible into our common stock).

Letter of Intent to Acquire Veridicom

On July 10th,  2003,  Alpha Virtual,  Inc.  announced that it has entered into a
binding  Letter of Intent to acquire  all key assets of  Veridicom,  Inc.  for a
combination of cash and shares of common stock.  The closing of the  transaction
is  anticipated  within  the  next 30 days and  subject  to a  definitive  asset
purchase  agreement.  The asset  purchase  will  include the  purchase of all of
Veridicom's intellectual property, patents and patent applications, methodology,
and other key  technologies.  Under the terms of the asset purchase,  Veridicom,
Inc. will retain certain licensing rights to use the technology.

Veridicom  designs,  manufactures  and  distributes  the FPS200 digital  silicon
fingerprint  sensor and  matching  fingerprint  algorithms,  used by PC OEMs and
other makers of personal security devices.  Veridicom also provides sensors to a
variety of hardware PC peripherals engineered to protect information accessed on
a PC or remotely through a network.  Based on security and biometric  standards,
these devices  include USB  peripherals,  PCMCIA cards and  smart-card  readers.
Veridicom also provides (SDK Software Development Kits) and application software
that  complements  its  authentication  devices,  enabling a  complete  personal
security solution.

History of Our Technology Development

Alpha  Virtual and its OneView  products  bring a unique  heritage of  long-term
research and  development  to the  collaborative  marketplace  achieved from our
government  and private  research and  development  operations and while we were
doing business as  Perceptronics.  A division of Alpha Virtual since April 2001,
Perceptronics  continues to perform  government  and private R&D  projects  that



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improve and expand the applications of Alpha Virtual's core OneView  technology.
Perceptronics  shares  resources and flows its R&D results into Alpha  Virtual's
commercial products.

The  Perceptronics  division  was headed by  founders  Dr.  Amos  Freedy and Dr.
Gershon  Weltman,  who,  from 1970 to 2001,  conducted  over $250 million in R&D
projects focused on the areas of intelligent systems, human performance analysis
and modeling, decision aiding and decision support,  man-machine communications,
and  simulation  and  training  for a variety of U.S.  Government  agencies  and
commercial  companies.  From  its very  beginnings  as an  offshoot  of the UCLA
Biotechnology  Laboratory,  the underlying theme of Perceptronics' work has been
to enable the process of learning and  collaboration via computers and networks.
Our first product was based on our research into human/machine interactivity for
the military.  It was a tabletop tank gunnery trainer that provided the military
a 97 percent savings over traditional  training methods.  Based on that success,
Perceptronics was awarded a contract to co-develop what is known today as SimNet
(Simulator  Network) - a virtual  reality  training  system  that was one of the
first virtual reality environments.  Over the years,  Perceptronics' R&D results
have  made  and  continue  to make  major  contributions  to  networked  virtual
simulation,  artificial  intelligence,   real-time,  synchronous  collaboration,
real-time   decision   support,   adaptive  process   modeling,   and  cognitive
collaboration.  Its R&D  innovations  have  provided  a solid  computer  science
foundation for Alpha Virtual's OneView products.

OneView Technololgy

Alpha Virtual's  patent-pending  OneView(TM)  product platform meets the growing
demand  for  new  multi-user   interactivity  -  integrating  browser,   Instant
Messaging,  and real-time group collaboration in an on-demand basis.  OneView is
the fastest, most convenient way to collaborate  synchronously over the Internet
today.

On the server side, OneView technology enables Internet developers to easily add
collaboration  functionality  to their Web site projects with minimal Web server
integration - providing  significant new add-on features that provide  solutions
and enhance experiences for a wide range of audiences.

On the user side,  with a standard Web  browser,  OneView  applications  empower
users to instantaneously form peer groups whose members can simultaneously view,
discuss,  and  interact  with  any form of  Web-based  content  in real  time to
significantly  improve the speed and  efficiency  of  collaborative  information
gathering,  knowledge exchange, and decision-making  activities.  Users can also
experience  entertaining  rich  media  content in new and  exciting  ways and be
influenced to buy goods and services through group shopping adventures.  OneView
requires no end user installs and provides a customizable, easy-to-use graphical
user interface.

OneView allows users to immediately  form groups and explore Web sites together,
sharing the same  experience  at the same time,  whether they are located in the
next room or half way around the world.

The ability to enhance user experiences by bringing  together groups of users is
a  breakthrough  that will  change the way people  use the  Internet.  Much like
calling a friend to say,  "Quick,  turn on channel 7, you won't  believe  what's
on," easy-to-use  OneView-enabled  Web sites will encourage users to explore and
enjoy Web experiences together in shared environments for the first time.

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Using  OneView,  buddy groups of teens will cruise the Web together  looking for
new  entertainment.  Educators and researchers will lead each other to new found
knowledge  resources.  Parents will "network" to find the most  appropriate  Web
sites for their toddlers and preview films for themselves. Doctors, lawyers, and
business  executives  will soon be seen  holding  both a phone and a mouse while
reviewing medical images,  scrutinizing  legal documents,  and revising projects
and plans with colleagues online. And sales and customer support representatives
will help clients click  through  volumes of inventory to reach the perfect sale
item.

Alpha  Virtual's  OneView  Web   collaboration   products  have  been  developed
specifically to deliver these capabilities and will inspire developers to create
a whole new genre of Web  applications  expressly  designed to engage  groups of
simultaneous users.

How OneView Works

OneView  makes joining a group,  chatting,  and viewing rich media content quick
and easy. The interactive buttons,  selectors,  and readouts are clearly labeled
in a simple, intuitive graphical interface.  Inviting chat buddies or joining an
existing group is simply a matter of a few mouse clicks.

When users create or join collaborative sessions at OneView-enabled Web sites, a
lightweight  Java  applet is  automatically  sent from the site's  server to the
requesting  client  machine,  which  immediately  connects  the user to  another
individual or group.  Each user can send invites to others via e-mail or instant
message,  and  respondents  simply click on the enclosed link to be connected to
each other. Unlike plug-ins or installation-required downloads, OneView's applet
loads  itself.  In a matter  of  seconds,  the user is ready to create or join a
group collaboration session.

After  creating or joining a group,  each group  member is  empowered to explore
OneView-enabled  Internet sites together. And depending on which OneView modules
are integrated into the site, users can launch and view streaming media, explore
Flash(TM)  and 3D  environments,  fill out  forms,  and chat  interactively  via
instant text messaging.

Each  user sees the same  content  at the same  time.  One or more  members  can
control the navigation while each member is free to comment via the chat window,
keeping the experience lively and collaborative.

OneView Architecture

Over the past two decades, Perceptronics focused on building the core foundation
on top of High Level Architecture (HLA) and Run Time Infrastructure (RTI) layers
through  development  contracts with  government  agencies and the Department of
Defense.  The RTI  implementations  are now in their third  generation as an RTI
subset with essential Java  components  comprising the core.  This core layer is
based on IEEE P1516, supports W3C standards,  and uses SSL (secure socket layer)
as a secure communications option.

Peer-to-Peer Connectivity

All OneView  collaboration  and  messaging  between  users are  handled  through
peer-to-peer  communications and do not require support from the host's servers.
OneView's Java applet makes each user's computer an active peer, able to conduct
direct peer-to-peer communications on its own.

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Further, OneView maintains the traditional  client/server model used by Web site
providers to deliver  content.  The user's  relationship to the Web site and its
content  is  not  modified,   thus  retaining  all  content  security  and  user
authentication.  A site's Web page content is still  requested by each  client's
Web browser and is delivered by the site's Web  servers.  This is important  for
maintaining content control and digital rights management (DRM) compatibility.

The Lobby and Relay Server

In addition  to its  fundamental  P2P  connectivity,  OneView  uses two types of
servers to accommodate initial peer connections and firewall compatibility.

Lobby Server
First, the Lobby Server provides the initial  discovery  services for all peers,
determining  which peers belong to which peer group and  tracking the  "joining"
and "disconnecting" of peers during the process.

Users  create new groups via the invite  process.  Invitees can respond to these
invitations  (clicking  on link) which will send them to the Lobby  Server to be
introduced to the first user. Once they "handshake",  a direct P2P connection is
established   between  each  user.   At  this  point,   no   additional   server
infrastructure  is  needed  and all  collaborative  messaging  happens  directly
between users.  When other invitees join the group,  they are introduced via the
Lobby  Server to the  other  members  of the group in the same way.  When a user
leaves a session, the Lobby Server is notified to update the group roster.

Relay Server
If users are behind firewalls and no direct P2P connection can be made, then the
connection  is handed off to a OneView  Relay  Server which will act as a proxy,
relaying  messages between those peers. This is a standard  client/server  model
for communication and is deployed as a fall-back measure to assure  connectivity
between multiple firewall users.

OneView Modules

OneView Cruising with Forms

OneView Cruising(TM) is one of the primary tools for OneView users. Its friendly
interface  guides  OneView  users to form  collaborative  groups using e-mail or
third-party Instant Messenger services, and helps each member navigate Web sites
together. Full navigation of Web sites is shared by the group, allowing users to
view entire Web sites  synchronously.  Shared scrolling ensures that everyone is
seeing the same thing even within a single Web page,  and remote  cursors  allow
users to see each other's cursors for pointing and natural collaboration.

OneView  Forms(TM)  permits  two or  more  users  to fill  out  HTML  forms  and
questionnaires  together.  Each member sees the text being written in the form's
fields as it is occurring.  When the collaborative  group (or its leader) agrees
on the final version, it is submitted via the normal client/server  connectivity
to the host  system  for  processing  or  storage.  This  functionality  greatly
simplifies and speeds  information  submission for collaborative  group shopping
sessions,  for e-commerce  assistance between a sales agent and a customer,  and
for eCRM at the crucial  shopping cart stage in order to assist shoppers who are
confused or have questions about filling out the forms.


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OneView Media Room

OneView  Media  Room(TM)  provides  synchronous,  interactive  group  viewing of
streaming media in a virtual screening room located within an enabled site. This
module integrates  seamlessly with existing media players,  including  Microsoft
Windows Media Player,  RealNetworks  Player, and Apple QuickTime.  Every user is
able to control the action (play,  stop, pause, fast  forward/rewind) as well as
change the play list  selection  and chat about the  material  with other  group
members.  All  users  see the same  video  frames  in  real-time  for  training,
e-learning, and entertainment applications.

OneView for Flash

Web sites powered by Macromedia Flash(TM) technology offer an extra dimension of
rich media with integrated audio,  graphics, and video that enhances the OneView
user experience with interactive movement and sound.

The Software  Developer's Kit (SDK) for Macromedia Flash(TM) includes all of the
tools  developers  need to easily add  multi-user  functionality  to Flash-based
applications.  The SDK's Flash components allow developers to create  multi-user
experiences without the need to install,  program, or configure servers. This is
a breakthrough  advantage to the process of creating rich multi-user experiences
in Flash.  A developer  can  program in  ActionScript,  or simply  drag-and-drop
pre-made UI components, and OneView handles the rest.

OneView's Hybrid P2P  Collaboration  Advantage
o Client/server  meets P2P in new Web applications.
o Unlike P2P file-sharing systems,  OneView  simultaneously enables peer-to-peer
connections for  collaboration and standard  server-to-browser  content delivery
from Web site  providers.
o OneView is easy to integrate into a Web site and is fully customizable.

OneView's Technology Benefits

Before the  introduction  of  OneView,  creating  true  real-time  collaborative
interaction  via the  Internet  was a  difficult  process due to the expense and
complexity of custom servers, confusing software installation requirements,  and
counter-intuitive  user  interfaces for  collaboration.  Creating Web sites with
full navigational features,  media formats, and programming was difficult enough
without  the  challenge  of  adding  real-time  collaboration.   However,  Alpha
Virtual's  patent-pending  OneView technology now easily enables groups of users
to  share  real-time,   synchronized  Web  experiences  with  standard  Internet
media/data types - streaming video and audio, animation, 3D simulation,  and Web
documents.

Further,  OneView  delivers  several  important  benefits  never  before seen in
combination:

o Efficient,  cost-effective  use of existing content and software allow OneView
capabilities  to be added  non-obtrusively  to Web  sites  and  applications.
o Streamlined communication directly between user machines maintains application
responsiveness and delivers real-time interaction within the collaborative group
o  Efficient  Java-based  coding and Run Time  Infrastructure  (RTI)  components
eliminate the need for special plug-ins or downloads.



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o Natural group formation at the host Web site is potentially as fast as "one or
two clicks and you're together."
o Existing and planned  Internet  standards and protocols ensure ease
of integration with other component technologies.
o When  the  OneView  application is installed on a Web site, it integrates with
existing registration procedures, authentication  schemes,  databases, and other
existing components.

OneView Specifications and Minimum System Requirements

--------------------- --------------------------------------------------------
Processor Speed        350 megahertz (MHz) Pentium processor
--------------------- --------------------------------------------------------
Memory                 64 megabytes (MB) of RAM (Depends on OS used)
--------------------- --------------------------------------------------------
Operating System       Microsoft Windows 98, NT 4.0 (Service Pack 4),2000, XP
--------------------- --------------------------------------------------------
Browser                Microsoft Internet Explorer version 5.5 through 6.0+
--------------------- --------------------------------------------------------
Connection Type        DSL, ISDN, or local area network (LAN), 33K+ Dial-up
--------------------- --------------------------------------------------------
Media Room             Windows Media Player: 7.0+
                       Real Networks Player: 8.0+
                       Apple QuickTime Player: 4.5+
--------------------- --------------------------------------------------------



Copyright  2002,  Alpha Virtual,  Inc. Alpha Virtual,  OneView,  and OneMind are
service  trademarks of Alpha  Virtual,  Inc. All other product and company names
are trademarks of their respective holders.

Target Markets; Marketing

Internet Collaborative Products and Services
--------------------------------------------
OneView  products  are  a  revolutionary  advancement  that  is  propelling  the
popularity of several  clearly defined target markets by bringing users together
for the first time in the same Web environments through shared interactivity and
collaboration. Our products have application in the following markets:

Entertainment  and Media:  The  integration  of the  Internet  with  traditional
entertainment   and  media  content  has  greatly  enhanced  the  attraction  of
collaborative,  real-time sharing of Web experiences,  from video games to movie
marketing,  product  promotions to online dating.  OneView technology lets users
form  live,  interactive  groups  to find  and  explore  entertaining  resources
together synchronously.  This adds an entirely new, high-value dimension - group
participation - to the world of  entertainment on the Web. Each participant then
becomes a potential return visitor, leading a fresh group of collaborative users
back to the site.

eLearning:  Education is changing  rapidly as millions of users log on to access
Web-based  learning  resources that are  complimenting  traditional  classrooms.
However,  as convenient and focused as these online  environments  are - with no



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integrated  collaboration,  they  address  only  one  user at a  time.  OneView,
however,  re-introduces  the real-time  question-and-answer  interactivity  of a
teacher-led, multi-student classroom to virtually any Web-based learning site.

eBusiness: While online shopping is not expected to replace the person-to-person
advantages  of a  brick-and-mortar  business,  OneView  technology  gives online
businesses  the  opportunity  to provide  live sales and service  agents to help
customers make purchase  decisions,  fill out forms, and locate resources within
their existing Web environments.  In addition, group shopping can occur as users
band together to cruise OneView-enabled Web sites during collaborative sessions.

Government:   Faster,   better   decision-making   through  live,  online  group
collaboration  is  a  key  that  will  unlock  the  productivity  potential  and
accelerate   the   traditional   governmental   process.   As  Alpha   Virtual's
Perceptronics  division  has  proven  over and over  again,  OneView  technology
provides the  immediacy of multi-user  information  access,  collaboration,  and
consensus  that  government  workgroups  require for cost  savings and  improved
effectiveness.

The Company  uses its own  personnel  and  marketing  consultants  to market and
distribute its OneView suite of products and services. Our primary marketing and
sales objectives include developing  immediate revenue generating  opportunities
for our products and services within our targeted markets and also  establishing
marketing  contacts and strategic  alliances with major Internet  infrastructure
and  service  companies.  The  company  continues  its  efforts in  establishing
strategic  alliances  with firms in the Internet  area that add to its marketing
reach.


Rights to Technology

The  Company  has  applied  for  patent  protection  related  to its basic  IC3D
Framework  technology,   and  is  in  the  process  of  preparing  a  additional
applications for further developments.  However, the Company generally considers
its business to be primarily  dependent upon proprietary  knowledge and on rapid
assimilation  of  innovations,  but we will  seek  patent  protection  for  such
knowledge and innovations where it is feasible.

The  Company's  technology  developments  are the  result of  internally  funded
projects and  customer-sponsored  contracts.  In the case of  internally  funded
developments,  the Company retains all rights to the development. In the case of
customer-sponsored  contracts,  the  Company's  rights to the  developments  and
requirements to disseminate  the development  data are governed by its agreement
with the customer. Under U.S. Government contracts, the situation depends on the
type of contract and the assertion of  proprietary  rights to technology and /or
data when entering into the contract.



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In  general,  in the past,  the Company has  retained  all rights to  inventions
discovered with Government  funding,  subject to the information  below, and the
company  expects to  continue  this  practice  with  future  Government  funding
contracts.

Our rights  are  subject to the  Government's  non-exclusive,  non-transferable,
non-royalty bearing,  worldwide license to use and sell the invention itself. In
addition,  the Company may be obligated to grant non-royalty bearing licenses to
companies  selected by the  Government in  competitive  procurement  to use such
inventions in the course of performing  their Government  contracts.  Government
contracts usually call for delivery of specific data and software items.  Unless
otherwise  stated in the contract,  the Government  retains  unlimited rights to
such technical data and computer software  developed under the contract.  In the
special case of SBIR (Small Business Innovation Research) contracts, such as the
August 1998 SBIR II contract under which parts of the IC3D development was done,
the  Government  has limited  rights to the delivered  data for five years after
project completion (for evaluation purposes only, release with permission of the
contractor,  or for  emergency  repairs of delivered  equipment),  and unlimited
rights  after five years.  Data  delivered  under the 1998 IC3D SBIR II contract
consisted  of  Quarterly  and Final  Reports,  and the project was  completed in
December 1999.

Under non-Government  development  contracts and/or licenses,  Alpha Virtual and
the customer agree as part of the contract who owns the rights to technology and
products used for the development and also developed under the contract, as well
as how those  rights  are to be  compensated  during  and after the  development
project.  In general,  the Company does not grant any proprietary  rights in its
core IC3D technology as part of a license for  demonstration,  operation  and/or
development using that technology.

Manufacturing

Since the  disposition  of our PGTS and defense  simulator  business in 2001, we
conduct no manufacturing activities.

Competition

Internet Collaborative Products
-------------------------------
In  our   strategic   business   area  of  enabling   technology   for  Internet
collaboration,  we face  several  types of  competitors  who have gained  market
share,  and many of whom have greater  financial and other resources than we do.
In our  analysis,  the  Internet  collaborative  technology  space is  currently
occupied  by  companies  operating  in several  different  market  segments,  as
described below.

Virtual  3D  Communities.   These  typically  provide  end-users  with  assorted
interactive   experiences  in  pre-established  3D  virtual  worlds,  which  are
generally   unstructured  and  may  be  both  realtime  and  non-realtime.   The
application  software  is  tailored  to the  particular  environments.  This  is
currently a very small market segment.  Companies in this segment include Active
World, Blaxxun, HearMe, Avaterra, Paraworld, Geome-trek and others.





                                       10
<PAGE>
3D Games and  Simulations.  Multi-user  online  games  range  from role  playing
fantasy games,  through first person shooter games, to elaborate military battle
simulations  and are typically  marketed  directly to end users.  Game rules are
superimposed on structured environments using proprietary 3D engines and largely
point-solution  MU  services   providing   limited  realtime   interactivity  to
relatively small groups of simultaneous users. Companies in this segment include
Sony Online (EverQuest),  Electronic Arts (Ultima Online), Microsoft (Asherton's
Call), Heat, Mak Technologies, Lionhearth, and others.

Teleconfering/Telecasting.  This is a relatively specialized  collaborative area
directed  primarily  toward   one-to-many   Webcasts  of  streaming  live  video
presentations  with limited  auxiliary  media.  Marketing is almost  entirely to
enterprises.  MU interaction,  if any, is individual  participants back to video
source and not within groups of participants.  Companies in this segment include
IVT, Rotor, Centra, Videoscape and other TC system and service suppliers.

Meeting Environments.  This is the best defined market area in terms of business
applications.  The intent is a total solution,  usually site-based, for enabling
real time Web meetings  and  person-to-person  contact as well as non-real  time
performance of multi-person work tasks in business,  engineering, etc. Marketing
is to end-users and enterprises. MU interaction is based primarily on text chat,
with   voiceover  in  some  cases,   shared  charts  and  shared   applications.
Capabilities  for dynamic media are limited.  Set-up is  frequently  complex and
time consuming,  including  downloads.  Companies in this segment include WebEx,
Webline, Groove, Centra, VRTelecom, Tribal Voice, Gooey, Ichat, IContact, iKena,
Mimio,  LivePerson,  The Palace,  Crowdburst,  Parallel  Graphics,  OriginalSim,
Extempo, Learning Space, Webscope, Cocreate and others.

C-Commerce  . A new market area  termed  C-Commerce  ("collaborative  commerce")
focuses on  collaborative  interactions  at various  points along the industrial
supply chain,  such as purchasing,  processing,  sales,  support,  etc. Customer
relations  management  (CRM),  and  particularly  online sales  support,  is the
sub-area most involved  with  realtime  applications.  Companies in this segment
include   Centra   Software,   PeopleSupport,   OSC   Teleservices,   Smartpeer,
HelloNetwork, Brightware and others.

We  have  a  two-fold  significant  competitive  advantage.  We  offer  superior
peer-to-peer  technology and we can position our software as a subcomponent with
a focus on marketing and sales effort on developers and service providers rather
than end users.

Because  our  technology   allows  customers  to  create  unique   collaborative
applications involving all types of media, singly and in combination, with reuse
of content and minimal or no interference to current  operating  software,  each
customer  effectively creates a new enabling technology that can also be used by
others,  thus  exponentially  expanding our customer base and greatly increasing
the  sales  potential.  The end  user is able  to  access  OneView  capabilities
directly from a large number of different Web applications  without any prior or
separate  download,  so the ability to  collaborate  within each  particular Web
application comes simply,  easily and transparently.  By its focus on developers
and service providers,  Alpha Virtual avoids marketing to end-users,  and avoids
the requirement for the end-user to choose Alpha Virtual.  This is a substantial
differentiating factor and marketing advantage, and is in direct contrast to the




                                       11
<PAGE>
major Meeting Environment and C-Commerce companies, such as WebEx and Groove and
others.  Such  companies,  and Groove in  particular,  are  primarily  trying to
position themselves as the virtual meeting space that appeals most to end users.
In contrast,  we are positioning  our products as the technology  behind the Web
applications  that  appeal most to end users.  We believe  that  developers  and
service  providers will choose OneView  because of its technical and performance
advantages,  and because it allows them to increase  their  capabilities  and/or
meet specific market needs.

R&D Services
------------
In the  case of  competitively  bid  defense  contracts  the  Company's  typical
competitors for R&D and system development contracts have included SAIC, Litton,
Lockheed Martin, and TRW.  Competitors for training and command support products
include Lockheed Martin,  General Electric Company, ECC International,  CAE, and
such  foreign  companies as Wegmann,  SAAB and  Giravions  Dorand.  All of these
companies have substantial  financial,  technological  and marketing  resources,
which enables them to bid on larger  contracts.  There can be no assurance  that
the Company will be able to compete successfully in the future.

Strategic Partnering and Teaming Agreements

In the area of Internet  products and services,  the Company intends to minimize
investment risk by entering into a series of business alliances with established
suppliers  of  Internet  tools and content and with major  and/or  leading  edge
developers  of  Internet  Web sites.  Utilizing  such  alliances  will allow the
Company to minimize the amount of capital investment  required to enter into the
market,  and would help bring new  know-how  into the  Company.  The Company has
already  established and is actively exploring alliances with companies involved
with online games and entertainment,  e-commerce,  education and communications,
as well as developers and suppliers of tools for multi- media experiences on the
Internet.


Description of the Business of EssTec,Inc.

EssTec was  incorporated  on February 11, 2000 as a  wholly-owned  subsidiary of
Converge  Global,  Inc.,  with separate  operations,  employees,  facilities and
management.  EssTec was  incorporated in the state of Nevada as "Essential Tech,
Inc.".  Essential  Tech (Pvt.) Ltd, a 98%-owned  sister  subsidiary  of Converge
based in Pakistan, became its direct subsidiary in February 2000. Essential Tech
(Pvt.) Ltd was  incorporated  in August 1999 to take  advantage  of the benefits
offered by the Pakistan  labor  force,  but prior to February  2000,  it had not
commenced operations and there had been no material activity in the company. 80%
of  its  software  development  is  conducted  through  EssTec's  subsidiary  in
Pakistan. The remaining 20% of development, and 100% of its sales and marketing,
are conducted directly through its US office.

On October 6, 2000,  EssTec  changed its name to EssTec,  Inc. In December 2000,
both Converge and EssTec executed a debt conversion agreement, in which Converge
agreed to settle an  outstanding  debt to EssTec in the amount of  $800,000  for
services  performed,  in exchange for which EssTec  received  255,782  shares of
common stock, which was subsequently cancelled. Converge then distributed all of




                                       12
<PAGE>
its  remaining  shares  of  EssTec's  common  stock to a number  of  outstanding
debtholders of Converge,  retaining no interest in EssTec.  EssTec does not have
any current relationship with Converge.

Through the year ended December 31, 2001, EssTec conducted business  exclusively
as a technology  consulting  service,  providing  general  software  development
services  for   businesses,   and  focusing  on  the   development  of  wireless
applications  for  mobile  devices  such  as  mobile  phones,  personal  digital
assistants and handheld  computers to streamline the business  operations of our
clients.  Commencing  in  2002,  EssTec  refocused  its  business  to a  mix  of
consulting services and product-based  technology  development,  focusing on the
creation of proprietary software platforms.  All of EssTec's product development
work  for  both its  proprietary  applications  and its  consulting  clients  is
conducted through its off-shore development center in Lahore,  Pakistan.  EssTec
uses this center to employ skilled  software  developers and technicians who are
proficient in the major programming  languages,  but at substantially lower cost
than an  on-shore  competitor  would have to pay for a similar  level of skilled
labor.  EssTec U.S.  operations  consist  primarily  of  management  and project
managers,  who serve as liaisons between EssTec's clients and its developers and
technicians in Pakistan.

While EssTec still  maintains  its  wireless  and project  consulting  business,
EssTec has also begun research and development on several different  proprietary
applications and products that EssTec believes will experience  market demand in
several industry segments.  EssTec intends to focus on mobile  technologies that
complement its existing suite of products, and anticipates both developing these
technologies as well as acquiring  companies with  technologies  that complement
EssTec's and are financially advantageous.


Product Development

         EssFlow

In 2001,  following the downturn in the economy, and particularly the technology
sector,  EssTec decided to shift its business  focus from  consulting to product
development.  The sale of consulting services is generally considered a far less
scalable  and  profitable  enterprise  than  sales  of  products.   EssTec  then
determined  that  it  would  be  in  its  best  interests  to  develop  specific
technologies  based on its  consulting  knowledge and  experience,  which EssTec
could then use to move into  direct  product  sales.  With this in mind,  EssTec
started  working  on the  development  of a software  platform  that can then be
customized for each client's needs. This platform was named EssFlow Systems.

EssFlow  Systems can be modified based on client and industry  needs.  The first
suite of products  based on EssFlow  Systems was  completed  in April 2002.  The
particular benefit of EssTec's  technology is that it allows individuals who are
not organized  under one company  structure to share and collaborate on the same
information.  If all  participants  were under the same company  structure,  the
issue of a central database could be handled  internally by a company  intranet.
However,  many projects require  individuals from various  companies to interact
with and  manipulate  the same  information  from one  database,  which  becomes
complicated and complex without a central intranet. EssFlow endeavors to resolve
this  issue  by  allowing  outside  collaborators  to have the  same  access  to
information as internal intranet users. EssFlow allows outsiders in.


                                       13
<PAGE>
The EssFlow platform essentially consists of the following components:

   o   A  complex  registration system registering permitted users and levels of
       access,

   o   An information  sharing  system  which  allows  work product to be shared
       among registered users,

   o   A scheduling  system  to provide both communal and individual calendaring
       of work and meetings,

   o   A  billing  system which allows all registered  users to be put into  one
       system,  either  manually  or automatically,  and provide access   to the
       billing lists to all registered users, and

   o   A collection system notifying registered users of outstanding collectable
       bills due by other registered users, and automatically submitting letters
       of notice, or other desired responses, as set up by the billing party.

Application and usage of EssFlow  System's  functions would differ from industry
to industry,  and company to company.  This necessitates  development of product
suites specific to different  industries.  EssTec  customizes the  registration,
information, scheduling, billing, and collection systems to meet these different
needs.  EssTec has found,  however,  that  industries  tend to require  specific
customizations of these systems,  which EssTec can further modify according to a
specific  client's  needs.  EssTec  decided  to  initially  concentrate  on  two
industries, namely the healthcare and entertainment industries.


         MedFlow

MedFlow is EssTec's suite of products targeted for the healthcare industry.  The
entire  suite is  completed  using the EssFlow  Systems.  The MedFlow  system is
designed to replace the traditional paper-based communication and filing systems
endemic to the health care industry with an electronic  system,  allowing health
care providers, insurance representatives, hospital or clinic agents and billing
services to electronically integrate communications,  files and billing into one
secure  location  accessible via the Internet.  MedFlow has an easily  navigated
user  interface,  which  permits  individuals  with  only a  minimal  amount  of
technical  skill to use the product.  As the needs of each MedFlow client grows,
the  system  is  scalable,  in that  new  features  can be  added  or  modified,
preventing costly system replacements.

On December 2, 2001, EssTec was retained by Crescent Diagnostic Medical Group, a
related party, to develop a customized version of MedFlow,  targeted towards the
worker  compensation  industry.  The President and Medical  Director of Crescent
Diagnostic,  Dr. Sana Khan, is also a director of EssTec. This agreement expired
in April 2002. On July 15, 2002, EssTec entered into a two-month  agreement with
Crescent  Diagnostics to enhance the system EssTec  developed for Crescent,  for
which EssTec was paid an  additional  $28,000.  EssTec has not  experienced  any
significant  adverse  consequences  as a  result  of  its  completion  of  these
agreements, and does not anticipate experiencing any such consequence.





                                       14
<PAGE>
On November 15, 2002, EssTec was retained by Medflow Solutions,  Inc., a related
party, to customize  Medflow product as per their needs. The Director of Medflow
Solutions,  Inc.,  Mr.  Abdul L.  Saquib,  is also an  officer  of  EssTec.  The
agreement expired in February 2003 but was extended through December 2003.


         EnterFlow

EssTec is also pursuing an EnterFlow  platform based on the EssFlow  Systems for
the entertainment  industry.  EssTec has entered into agreements in principle to
develop three niche products in the EnterFlow platform.


Film and Television Industry and Production
This industry typically involves a number of different departments and personnel
working  from  different  locations  to  produce a film or  television  project.
EssTec's  product is intended to permit all of the  individuals  involved in the
production  access to the  project  through a  user-friendly  interface  via the
Internet  and/ or a  wireless  personal  digital  assistant,  each of  which  is
password-protected.  EssTec's  system is intended to also allow each producer to
access multiple  different  production  projects within the system with a single
mouse  click.  EnterFlow  is  designed  to store and access  all  aspects of the
production  project,  including  budgets,  scripts,  and  digital  pictures  for
casting,  streaming  dailies  (footage of film shot on any  particular  day) and
information from web cameras deployed on the project set.

EssTec intends to market its EnterFlow  product to clients in the  entertainment
industry,  ranging from  independent  producers and studios to large studios and
networks  that  want to  monitor  entire  production  slates  and keep an online
archive of easily referenced materials.


Recording Industry and Production
EssTec also intends to market its EnterFlow  product to the recording  industry,
particularly record companies and individual record producers.  This industry is
similar to the film and television industry in that it involves multiple parties
and departments for record production.  EnterFlow is intended to enable users in
the  industry in the various  stages of  pre-production  (including  rehearsal),
track selection,  producer selection, studio selection, and session musician and
equipment  hire to access  information  regarding  budget  updates,  scheduling,
travel,  equipment  hire,  rough mixes,  and other  creative and  administrative
elements which are continuously updated in real time.


Post-Production and Distribution Industry
EssTec  intends  to market  its  EnterFlow  product  to a third  segment  of the
entertainment  industry,  the  post-production  and  distribution  aspect of the
industry. Once a recording project is delivered to a record company, a myriad of
departments get involved in taking the finished product to market. This includes
manufacturing,  promotion,  domestic and international  marketing and promotion,
and may require additional editing including the addition or revision of musical
tracks  or  remixing  of  existing  tracks.  Each  of  these  processes  must be
coordinated  between the record company,  the artist, the producer,  and various
attorneys, managers,  publishers,  merchandisers and touring personnel. EssTec's
product  intended  to be further  developed  to address  the needs of the record
companies to manage the progress and workflow of completed.

                                       15
<PAGE>
Consulting Services
EssTec  intends to  continue to provide  its  consulting  services to small- and
mid-size  companies both  domestically  and  internationally.  EssTec's  general
consulting services, which previously generated 100% of its revenues, consist of
identification and resolution of the company's information technology needs.

As a result of EssTec's  new business  focus,  EssTec also  provides  consulting
services  to  its  software  customers.  EssTec's  EssFlow  product  is  not  an
"off-the-shelf"  product which is simply purchased in a store and installed in a
company's system. The EssFlow suite of products provide general templates for an
industry,  and EssTec  uses its  consulting  services to  customize  the product
purchased  for both the  industry  needs of the client,  as well as the specific
needs of the company.


Acquisition Strategy
In  addition  to  EssTec's   consulting  work  and  developing  its  proprietary
applications and products,  EssTec may acquire businesses with technologies that
complement  its  existing  suite of products  or  technologies.  EssTec's  ideal
targets would share its target client base, which EssTec believes may reduce its
costs of business  development  costs.  EssTec may also seek out companies  with
technologies in an advanced state of development, which it believes may mitigate
its research and development costs, as well as its time to market.

EssTec intends to focus any  acquisitions to maximize its off-shore  development
model to acquire  target  companies that have viable  products,  but are not yet
profitable.   EssTec  believes  it  may  be  able  to  purchase  these  "revenue
generating,  money losing" operations in the information  technology industry at
currently  depressed  valuations.  EssTec then would restructure these companies
into profitable  enterprises  primarily by supplementing the acquired  company's
development team with  cost-effective,  skilled basic programming teams.  EssTec
believes  this may  substantially  reduce the cost of  development,  which would
provide a stream of revenue. EssTec intends to fund any acquisitions with either
cash, stock or a combination of both, as EssTec deems appropriate at the time.


International Expansion
EssTec  also  believes  that an  opportunity  for  growth  exists in a number of
regions  outside the US which other  companies  have abandoned or withdrawn from
due to perceived  conditions of high  competition and  over-saturation.  To this
end,  EssTec has begun its  international  expansion in the United Arab Emirates
("UAE").

EssTec  has  decided to begin its Middle  Eastern  focus in the UAE for  several
reasons.  EssTec  believes that the support of the  governments of Dubai and the
UAE have created an environment which promotes and encourages the development of
technology and technology-related industries. EssTec believes that its proximity
to Pakistan will allow it to more effectively  manage its development  resources
in the region.  Finally,  EssTec believes that it has a number of  relationships
and  contacts  within this region that make it most logical for it to market its
products  and  services  to this  region,  and to begin  EssTec's  international
expansion with the UAE.





                                       16
<PAGE>
Marketing And Distribution
EssTec's  MedFlow  product has been  marketed in the United  States,  and EssTec
intends to market it in the future in the Middle  East and  Europe.  EssTec does
not have any current  marketing  arrangements  for this product in these regions
currently.

EssTec's EnterFlow product is not currently being marketed,  but hopes to launch
it within the next fiscal year in the United States and Europe.  EssTec does not
have any  current  marketing  arrangements  for  this  product.  Any  additional
products EssTec  develops from its EssFlow  technology will be marketed based on
the region or regions  which EssTec  predicts will have the highest usage of its
product.

EssTec's  consulting  services are generally  paired with its product sales, and
provided as a means of  customizing  a product for a niche  market or  business,
rather than as an independent service.

EssTec does not maintain a specific system or contractual  relationship with any
other entity to engage in mass or systematic  distribution  of its products,  as
each individual purchaser will require its customization of the product to their
particular business.


Competition
The software consulting and product development industries are very competitive.
The consulting  industry is characterized by several large companies,  including
IBM and CSC, as well as a large number of small companies serving niche markets.
The product development industry is characterized  primarily by a few very large
companies,  such as Sun Microsystems and Microsoft, with a large number of small
companies serving niche markets. Although there are several competitors offering
various segments of EssTec's overall approach, to the best of its knowledge,  no
single company exists that is providing all of the individual facets of EssTec's
business plan and  strategy.  The following  table  summarizes  the positions of
EssTec's chief competitors. The check marks indicate competing industries.

-------------------- ------------- -------- ------- --------
                     COLLABORATIVE  MOBILE
                       WORKFLOW    SERVICES
   COMPANY NAME        PRODUCT      FOCUS   PORTALS OFFSHORE
-------------------- ------------- -------- ------- --------
EssTec                    X           X        X       X
-------------------- ------------- -------- ------- --------
Action Technologies,
Inc                       X                    X
-------------------- ------------- -------- ------- --------
e-flexx                   X                    X
-------------------- ------------- -------- ------- --------
CDIT                      X                    X
-------------------- ------------- -------- ------- --------
Itouch                                X
-------------------- ------------- -------- ------- --------
MobileWay                             X
-------------------- ------------- -------- ------- --------




                                       17
<PAGE>
Due to the changing nature and size of the software consulting business,  EssTec
believes  that  neither it nor any of its chief  competitors  has a  significant
market  share with respect to the  software  products  and services  development
industry.

EssTec's  primary  method of  competing  in this arena is its ability to provide
technology  development  services and consulting  through an off-shore facility
which it believes has a cheaper cost of labor then its major competitors.


Customers And Suppliers
As of December 31, 2001,  83% of EssTec's  revenues  have been  generated by two
customers,  International  Wireless and Control  Systems,  Inc.  and  Physicians
Mobile Medical Group, Inc. As of December 31, 2002,  Crescent Diagnostic Medical
Group, a related party,  accounted for approximately  22% of EssTec's  revenues,
Medflow Solutions, Inc., a related party, accounted for approximately 20% of its
revenues,  and 1st Step, Inc., a related party,  accounted for approximately 10%
of its revenues. Mr. Shaun Edwardes, EssTec's former Chief Executive Officer, is
a director of 1st Step,  and Mr. Bill Cheung,  a director,  also serves as Chief
Executive  Officer and a director to 1st Step. The remaining 48% of its revenues
were generated by nine non-affiliated  parties, of which one customer,  Doctor's
Business  Services,  accounted for approximately 10% of revenues EssTec does not
have any other  customers  generating over 10% as of December 31, 2002, and none
of its other customers are affiliates.  EssTec does not rely on any supplier for
a material  amount of its raw  materials,  and EssTec  purchases all supplies at
fair market prices.


Intellectual Property
Although  each  of  EssTec's  subsidiaries  produces  proprietary  software  and
wireless   technology  and  applications,   due  to  the  high  cost  of  patent
applications  and  enforcement,  as well as the ease with which other technology
companies can avoid patent  enforcement,  all of EssTec's companies have elected
not to apply for patent  protection.  Should the nature of the  industry  change
such that it  becomes  financially  and  operationally  advisable  for EssTec to
pursue patent  protection and  enforcement,  EssTec may reconsider this business
decision.


Research And Development
EssTec has conducted most of its research and development on behalf of customers
that have paid for its  services.  In addition to any research  and  development
that has been done at the expense of its customers,  EssTec spent zero in fiscal
2000, $65,975 in 2001, and $99,570 for the nine month period ended September 30,
2002 on research and development  activities,  predominantly for the development
of its EssFlow System.  EssTec has spent $165,545 on research and development in
the past two fiscal years, 51% of which has been borne by its customers.


Facilities And Equipment
EssTec's  headquarters  are  located in a facility  in  Bellflower,  California.
EssTec has been  permitted to use these  premises  rent-free for the duration of
its contract with  Crescent  Diagnostics,  which  expired in October  2002.  The




                                       18
<PAGE>
contract has since expired, but Crescent has verbally agreed to permit EssTec to
remain in its present facility on present terms indefinitely. EssTec also leases
a 2500 square foot office space in Lahore,  Pakistan. The lease on this facility
is for a term through July 31, 2002,  but has been extended until July 31, 2003.
The rental payment is approximately $460 per month. EssTec believes that it will
be able to extend the lease terms or find alternative  space without incurring a
material cost.


Employees
As of the date of this report, EssTec has a total of 12 employees,  all of which
are full-time.  Two employees work in its United States facility, and 10 work in
its Pakistan facilities.

Employees

As of March 31, 2003, the Company had one employee.

ITEM 2. PROPERTIES

The Company's offices are located at 10345 W. Olympic Boulevard,  Suite 102, Los
Angeles,  CA 90064. The Company terminated its lease of Suite 300 and moved into
Suite 102 in August, 2002. Our rental agreement is on a month-to month basis and
covers  approximately 3,000 square feet at a basic monthly rent of $5,000, which
has been paid by Global Alpha  Corporation  through  June 30, 2003.  The current
space is adequate for the company's requirements.

The Company has no  significant  investments  or interests in real estate,  real
estate mortgages, or securities of or interests in entities primarily engaged in
real estate activities.

ITEM 3. LEGAL PROCEEDINGS

On March 28, 2003 Alpha Virtual,  Inc. and Global Alpha Corporation,  one of the
company's main shareholders filed a lawsuit in Superior Court against Dan Mapes,
a former CEO of Alpha  Virtual,  Inc. The lawsuit  alleges a breach of fiduciary
duty,  negligence,  fraud and  breach of  contract  claiming  that Mapes did not
devote his efforts to Alpha Virtual's product  development and market strategies
or  maximize  the  profit of the  business.  An amount of  damages  has not been
determined and the outcome of this lawsuit cannot be determined at this time.

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

On  September  24,  2002, a majority of the  Company's  shareholders  approved a
one-for-five reverse stock split. After required filings with the Securities and
Exchange  Commission  and  notice  to  all  shareholders  of  the  Company,  the
one-for-five  reverse  stock split  became  effective  on October 31,  2002.  In
connection with the reverse stock split, the Company's common stock traded under
the trading symbol: "AVUL."

On  April  14,  2003,  a  majority  of the  Company's  shareholders  approved  a
one-for-seven  reverse stock split.  After required  filings with the Securities
and Exchange  Commission  and notice to all  shareholders  of the  Company,  the
one-for-seven  reverse  stock  split  became  effective  on April 14,  2003.  In
connection with the reverse stock split,  the Company's  common stock now trades
under the new trading symbol: "AVRT."

                                       19
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The  Company's  Common Stock is currently  traded on the over the counter  (OTC)
Bulletin Board under the symbol "AVRT".  The following table sets forth the high
and low prices for the Common  Stock as reported by the NASDAQ  Bulletin  Board,
for the three-month  periods listed.  The  over-the-counter  quotations  reflect
inter-dealer prices,  without retail mark-up,  markdown or commissions,  and may
not represent actual transactions. The quotations below are actual, as reported,
for the  respective  three month  periods  listed and have not been adjusted for
either of the 1:5 or 1:7 reverse stock splits which took place in November, 2002
and April, 2003.


Fiscal Year 2001                High       Low

June 30, 2000                 $   1.34   $   0.69
September 30, 2000                0.78       0.32
December 31, 2000                 0.47       0.13
March 31, 2001                    0.30       0.14

Fiscal Year 2002                High       Low

June 30, 2001                 $   0.23   $   0.23
September 30, 2001                0.16       0.15
December 31, 2001                 0.36       0.30
March 31, 2002                    0.15       0.15

Fiscal Year 2003                High       Low

June 30, 2002                 $   0.10   $   0.10
September 30, 2002                0.07       0.01
December 31, 2002                 0.40       0.01
March 31, 2003                    0.47       0.17


As of March 31, 2003, the Company had  approximately  325 shareholders of record
of its Common Stock.

We  have  never  paid  dividends  and we do not  expect  to  declare  or pay any
dividends in the foreseeable future.


Sales of Unregistered Securities

Global Alpha Corporation

On April 5, 2001 we entered into a  Securities  Purchase  Agreement  with Global
Alpha  Corporation,  a British Virgin Islands company ("Global Alpha"),  wherein
the Company agreed to sell up to  14,616,444(pre  the two reverse splits) shares
of its common stock to Global Alpha for total purchase  price of $3,226,200.  In
fiscal 2002, we received  $2,400,000 of the purchase price,  and the balance had
been received as of June 30, 2002.



                                       20
<PAGE>
In accordance with the Agreement,  the shares are being purchased, at the option
of Global Alpha, over a six-month period.  The first installment of $100,000 was
paid on April 6, 2001 for 500,000 shares.  Subsequent  installments of $100,000;
$150,000 and $150,000  were paid on May 5, June 5, and July 3, 2001 for 500,000;
750,000;  and 750,000  shares,  respectively.  Additional  monthly  installments
increasing to $1,332,809 on August 3, 2001,  and  $1,393,391 on October 2, 2001,
were paid at the option of Global Alpha.

On August 3, 2001,  the  Securities  Purchase  Agreement  with Global  Alpha was
amended  to cancel  the  August 3, 2001 and  October  2, 2001  installments  and
replace  them with nine other stock  purchase  installments.  Under the terms of
this  amendment,  Global  Alpha  purchased  in  monthly  installments,  at their
discretion,  12,116,442  shares of the  Company's  common  stock  for  aggregate
consideration of $2,726,000 as follows:

August 7, 2001 1,363,636  shares at an exercise  price of $300,000  September 7,
2001 1,363,636 shares at an exercise price of $300,000 October 5, 2001 1,363,636
shares at an exercise price of $300,000  November 9, 2001 1,363,636 shares at an
exercise  price of  $300,000  December 7, 2001  1,330,593  shares at an exercise
price of  $300,000  January 4, 2002  1,304,348  shares at an  exercise  price of
$300,000  February 8, 2002  1,304,348  shares at an  exercise  price of $300,000
March 8, 2002  1,304,348  shares at an exercise  price of $300,000 April 5, 2002
1,418,261  shares at an exercise  price of $326,200 As of June 30, 2002,  Global
Alpha has purchased  14,616,444  (417,613 after the two reverse splits of common
shares)  shares of the  Company's  common  stock as required  by the  Securities
Purchase Agreement.

On October 29, 2002,  the Company issued  2,482,843  pre-split  shares  (496,570
post- the 1:5 split of November  2002,  70939 after the reverse  split of April,
2003) of its common stock to Global Alpha  Corporation  ("GAC") upon exercise of
warrants exercised in May and June 2002 in the aggregate amount of $425,000. GAC
is the Company's  principal  shareholder and is an accredited and  sophisticated
investor.

On December 20, 2002 the Company issued 1,088,890 pre-split shares of its common
stock to Global Alpha Corporation ("GAC") upon exercise of warrants exercised in
June and July 2002 in the aggregate amount of $245,000.  The Company should have
issued  217,778(31,111 after the reverse split of April, 2003) post-split shares
and has requested that GAC return  871,112 shares to the Company.  No adjustment
has been made  pending  return of the  shares.  As of March  31,2003  GAC is the
Company's principal shareholder and is an accredited and sophisticated investor.

Manhattan Capital Partners

On November 6, 2002, the Company  entered into a Securities  Purchase  Agreement
("Purchase  Agreement") and a Registration Rights Agreement ("Rights Agreement")
with certain  accredited  investors to be named by Manhattan  Capital  Partners,
LLC, a venture capital limited liability company.  Under the Purchase Agreement,
the Company has agreed to sell  $310,000 of its common stock,  as amended,  at a
purchase price based upon the lower of (i) $0.10 per share,  or (ii) the average
price per share  between  the  "bid"  and  "ask"  price on the  Over-the-Counter


                                       21
<PAGE>
Bulletin Board at the close of business for the five (5) business days preceding
the closing  date.  The offer  closed and  3,100,000  post-split  shares(442,857
shares  after the 1:7  reverse  split of April,  2003) were issued at a price of
$0.10 per share.

Upon the sale of the Company's common stock to the investors,  and in accordance
with the  Rights  Agreement,  the  Company  has  agreed  to file a  registration
statement with the Securities and Exchange Commission ("SEC") registering all of
the common stock purchased by the investors. To date, the registration statement
has not been filed.

Also,  on November  6, 2002,  and in  connection  with the  Purchase  and Rights
Agreements with certain investors, the Company agreed to enter into a Consulting
Agreement and Registration Rights Agreement with Manhattan Capital Partners, LLC
("Manhattan")  upon the receipt by the  Company of  $310,000.  In  exchange  for
general business consulting  services,  the Company granted warrants to purchase
an  aggregate  of  2,000,000  shares of its common stock at a price of $0.10 per
share.  The warrants expire five years after the date of grant. The Registration
Rights Agreement requires the Company to file a registration  statement with the
SEC,  registering  the  underlying  common  stock  of the  warrants  granted  to
Manhattan. To date, a registration statement has not been filed.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

Prior to our refocus on Internet  collaboration  product design, our company had
historically   engaged  in  the   design,   development   and   manufacture   of
computer-based  simulation  systems for  training and  decision  support.  These
systems  include both  hardware and software and are used to train  personnel in
the  use of  various  military  and  commercial  equipment,  including  weapons,
vehicles and aircraft.  Much of the company's simulator business has been in the
foreign  defense   industry  where  the  company  has  built  an   international
reputation.  The  tightening  of defense  budgets  worldwide,  combined with the
continuing  consolidation and intense  competition in the defense industry,  had
negatively impacted the growth and profit opportunities for small companies such
as Alpha Virtual. As a result, in July 2000, the Company sold the assets related
to the PGTS product line to Eidetics  Corporation,  a developer and manufacturer
of  specialized  defense  simulation  products.  From the  disposition  of those
assets, the company will earn certain royalties.

From fiscal 2001 through October 2002, our business refocus has been entirely on
developing new commercial  products in the area of Internet  collaboration.  Our
patent-pending  OneView(TM)  product  platform  meets the growing demand for new
multi-user interactivity - integrating browser, Instant Messaging, and real-time
group  collaboration in an on-demand basis.  OneView allows users to immediately
form groups and explore Web sites  together,  sharing the same experience at the
same  time,  whether  they are  located  in the next room or half way around the
world.  As  such,  it  is  the  fastest,  most  convenient  way  to  collaborate
synchronously over the Internet today.

In October 2002, we licensed  substantially all of our proprietary  software and
systems  to  our  principal  shareholder,   Global  Alpha  Corporation  ("GAC").


                                       22
<PAGE>
Effective October 31 2002, the Company entered into a License Agreement with its
principal shareholder,  Global Alpha Corporation ("GAC") wherein GAC was granted
an exclusive license to the Company's  software and systems commonly referred to
as the "IC3D Framework" (the "System). The System encompasses  substantially all
of the Company's  software  including  software  developed to support multi-user
online collaborative  interactivity in a broad variety of applications employing
a variety of virtual media over a number of networks  including the Internet and
intra-nets.  Under the  Agreement,  GAC will pay to the Company a license fee of
ten  percent of the revenue  generated  from the sale or use of the System up to
$1,000,000,  nine percent up to $2,000,000,  eight percent up to $3,000,000 and,
thereafter,  seven percent of the revenue generated.  A minimum,  annual license
fee of $25,000 for the year ending  December 31, 2002 and December 31, 2003 must
be paid to maintain the exclusive license.

On October 31, 2002, the Company  terminated  all but one of its employees;  and
except  for  its  license  agreement,  it  ceased  all  of its  prior  operating
activities.  Its principal  activities are directed to reducing its  liabilities
and seeking  possible  acquisitions.  In view of the above,  our activities were
reduced to paying our  liabilities  and to seeking  business  combinations.  Our
objective is to acquire operating companies that have experienced management and
the  potential  for  profitable  growth in  exchange  for our  securities.  Such
transaction may result in a change in control of the Company.

Acquisition of Esstec,Inc.

On April 28, 2003, Alpha Virtual,  Inc. (the  "Registrant") and EssTec,  Inc., a
privately-held Nevada corporation, entered into an Agreement and Plan of Merger.
In  accordance  with the Merger,  on May 8, 2003,  the  Registrant,  through its
wholly-owned subsidiary,  Alpha Acquisition  Corporation,  a Nevada corporation,
acquired  EssTec in exchange for  4,276,162  shares of the  Registrant's  Common
Stock.  The  transaction  contemplated  by the  Agreement  was  intended to be a
"tax-free"  reorganization  pursuant  to  the  provisions  of  Section  351  and
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.

The stockholders of EssTec (aggregating approximately 100) now own approximately
74% of the  Registrant's  common stock  outstanding as of May 8, 2003 (excluding
any additional  shares  issuable upon  outstanding  options,  warrants and other
securities convertible into our common stock).

Description of the Business of EssTec,Inc.

EssTec was  incorporated  on February 11, 2000 as a  wholly-owned  subsidiary of
Converge  Global,  Inc.,  with separate  operations,  employees,  facilities and
management.  EssTec was  incorporated in the state of Nevada as "Essential Tech,
Inc.".  Essential  Tech (Pvt.) Ltd, a 98%-owned  sister  subsidiary  of Converge
based in Pakistan, became its direct subsidiary in February 2000. Essential Tech
(Pvt.) Ltd was  incorporated  in August 1999 to take  advantage  of the benefits
offered by the Pakistan  labor  force,  but prior to February  2000,  it had not
commenced operations and there had been no material activity in the company. 80%
of  its  software  development  is  conducted  through  EssTec's  subsidiary  in
Pakistan. The remaining 20% of development, and 100% of its sales and marketing,
are conducted directly through its US office.





                                       23
<PAGE>
On October 6, 2000,  EssTec  changed its name to EssTec,  Inc. In December 2000,
both Converge and EssTec executed a debt conversion agreement, in which Converge
agreed to settle an  outstanding  debt to EssTec in the amount of  $800,000  for
services  performed,  in exchange for which EssTec  received  255,782  shares of
common stock, which was subsequently cancelled. Converge then distributed all of
its  remaining  shares  of  EssTec's  common  stock to a number  of  outstanding
debtholders of Converge,  retaining no interest in EssTec.  EssTec does not have
any current relationship with Converge.

Through the year ended December 31, 2001, EssTec conducted business  exclusively
as a technology  consulting  service,  providing  general  software  development
services  for   businesses,   and  focusing  on  the   development  of  wireless
applications  for  mobile  devices  such  as  mobile  phones,  personal  digital
assistants and handheld  computers to streamline the business  operations of our
clients.  Commencing  in  2002,  EssTec  refocused  its  business  to a  mix  of
consulting services and product-based  technology  development,  focusing on the
creation of proprietary software platforms.  All of EssTec's product development
work  for  both its  proprietary  applications  and its  consulting  clients  is
conducted through its off-shore development center in Lahore,  Pakistan.  EssTec
uses this center to employ skilled  software  developers and technicians who are
proficient in the major programming  languages,  but at substantially lower cost
than an  on-shore  competitor  would have to pay for a similar  level of skilled
labor.  EssTec U.S.  operations  consist  primarily  of  management  and project
managers,  who serve as liaisons between EssTec's clients and its developers and
technicians in Pakistan.

While EssTec still  maintains  its  wireless  and project  consulting  business,
EssTec has also begun research and development on several different  proprietary
applications and products that EssTec believes will experience  market demand in
several industry segments.  EssTec intends to focus on mobile  technologies that
complement its existing suite of products, and anticipates both developing these
technologies as well as acquiring  companies with  technologies  that complement
EssTec's and are financially advantageous.

Letter of Intent to Acquire Veridicom

On July 10th,  2003,  Alpha Virtual,  Inc.  announced that it has entered into a
binding  Letter of Intent to acquire  all key assets of  Veridicom,  Inc.  for a
combination of cash and shares of common stock.  The closing of the  transaction
is  anticipated  within  the  next 30 days and  subject  to a  definitive  asset
purchase  agreement.  The asset  purchase  will  include the  purchase of all of
Veridicom's intellectual property, patents and patent applications, methodology,
and other key  technologies.  Under the terms of the asset purchase,  Veridicom,
Inc. will retain certain licensing rights to use the technology.

Veridicom  designs,  manufactures  and  distributes  the FPS200 digital  silicon
fingerprint  sensor and  matching  fingerprint  algorithms,  used by PC OEMs and
other makers of personal security devices.  Veridicom also provides sensors to a
variety of hardware PC peripherals engineered to protect information accessed on
a PC or remotely through a network.  Based on security and biometric  standards,
these devices  include USB  peripherals,  PCMCIA cards and  smart-card  readers.
Veridicom also provides (SDK Software Development Kits) and application software
that  complements  its  authentication  devices,  enabling a  complete  personal
security solution.



                                       24
<PAGE>
Going Concern Qualification

The following  discussion is based on the audited financial statements contained
elsewhere in this report. The audited financial statements have been prepared in
conformity with generally  accepted  accounting  principals,  which  contemplate
continuation of the Company as a going concern.  The financial statements do not
include  any   adjustments  to  reflect  the  possible  future  effects  on  the
recoverability and  classification of assets or the amounts and  classifications
of the liabilities that may result from the possible inability of the Company to
continue as a going concern. See Note A of Notes to Financial Statements.


Results of Operations

Our  business  activities  in fiscal  2003 have been  primarily  focused  on the
completion of the OneView product suite and marketing activities associated with
its commercial  introduction.  In October 2002, we licensed substantially all of
our proprietary software and systems to our principal shareholder,  Global Alpha
Corporation  ("GAC"). On October 31, 2002, the Company terminated all but one of
its employees; and except for its license agreement (above) it ceased all of its
prior  operating  activities.  Its  principal  activities  will be  directed  to
reducing its liabilities and seeking possible acquisitions.

Net Sales.  Net sales for the fiscal year 2003 of $135,106  increased by $85,864
compared to fiscal 2002 due to anticipated  royalty revenue from the sale of the
PGTS  training  system  to  Eidetics,  Inc.  Nominal  other  revenues  came from
consulting services.

Cost of Sales.  Cost of sales for fiscal 2003 is based on the cost of  providing
consulting services and certain costs of field testing the OneView software.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses decreased by $569,430 in fiscal 2003 compared to fiscal
2002. On October 31, 2002, the Company  terminated all but one of its employees;
and  except  for its  license  agreement  (above)  it  ceased  all of its  prior
operating  activities.  Its principal  activities have been directed to reducing
its liabilities and seeking possible  acquisitions.  The major components of the
decrease were a decrease in salaries  ($618,464) and website expenses  ($98,127)
offset by an increase in legal and professional fees ($92,007).

Interest  Expense.  Interest  expense  increased  in fiscal 2003 to $30,685 from
$1,678 in fiscal  2002 due to the  accrued  interest  on the  $435,000  multiple
advance convertible note with Global Alpha Corporation.

Liquidity and Capital Resources

The Company  has  experienced  continuing  liquidity  problems  due to a lack of
revenues  and the absence of cash  reserves.  At March 31, 2003,  the  Company's
unrestricted  cash and cash  equivalent  balance  of  $39,327  was the result of
equity investments made during the third quarter of fiscal 2003. The Company had
negative working capital of $892,653 at March 31, 2003 and $457,313 at March 31,
2002.  The  increase  in  negative  working  capital  was due  primarily  to the
continued  operating losses the Company sustained .The Company continues to have




                                       25
<PAGE>
difficulty in meeting all of its obligations as they come due. In addition,  the
Company  paid  approximately  $203,000 of payroll  taxes in the last  quarter of
fiscal 2003 and may not have sufficient capital to pay payroll taxes of $108,512
still owed at the end of fiscal 2003.  The lack of  sufficient  working  capital
continues to restrict the Company's  ability to market its OneView  products and
to expand its revenue base.

The Company requires  significant  additional financing from external sources to
be able to fund the development of enhancements to its OneView product suite and
to provide for marketing and sales personnel and related expenses to gain market
acceptance of its commercial  software products.  Although we were successful in
fiscal 2002 and part of fiscal 2003 in obtaining  private equity  financing that
fulfilled our capital  requirements at planned  expense levels,  we could not be
sure that the company would be able to raise the additional  monies  required to
fund operations in fiscal 2003 and thereafter.  Accordingly, the Company decided
to license  the future  development  of its OneView  software  program to Global
Alpha Corporation in October, 2002. Global Alpha Corporation has paid all of the
development  costs of the OneView  software from November 1, 2002 until June 30,
2003.

Also,  the  terms of any  financing  could be  unfavorable  to the  Company  and
dilutive to its shareholders.  The Company  continues to pursue U.S.  Government
sponsored  development  contracts  that have  provided  technical  inputs to the
commercial  software  products as well as  providing  revenue  and  income.  The
Company is also exploring  strategic  business  alliances and potential business
combinations in order to meet our short and long-term objectives.

The Company's  operating  activities  used cash of $1,541,000  during the fiscal
year ended March 31, 2003  resulting  primarily from the operating loss incurred
during the period due to costs  associated  with the  development and commercial
introduction of the its commercial software products.

The Company's financing activities provided cash of $1,561,000 during the fiscal
year ended March 31,  2003 as a result of loans  ($435,000)  and selling  common
stock ($1,135,000).

On  July  9,  2002,  the  Company  entered  into  a  Restated  Multiple  Advance
Convertible Promissory Note (the "Note") with its principal shareholder ("GAC").
The Note provides up to $425,000 of term debt to the Company maturing on July 9,
2003 at an interest rate of 11.5 percent.  As of December 31, 2002,  the Company
amended the note and had borrowed an aggregate  of $435,000  from GAC,  $110,000
during the three month period ended December 31, 2002. The Note is  convertible,
at the  election of GAC,  into the  Company's  common stock at a price per share
equal to 30% of the average  trading  price for the twenty  business  day period
prior  to date of  conversion.  The  Note is  secured,  pursuant  to a  Security
Agreement,  by all of the Company's computer software programs. The terms of the
note require  repayment on demand,  but in no event,  earlier than July 9, 2003.
The Company  recorded  accrued  interest of $33,850 at March 31, 2003 related to
the note.  The Company  has not repaid the note and is in  advanced  discussions
with the noteholder to sell its OneView product in exchange for  cancellation of
the $435,000 note.

The Company's  financing  activities  provided an amount of $825,000  during the
fiscal  year  ended  March  31,  2003  from  its  main  investor,  Global  Alpha
Corporation.


                                       26
<PAGE>
On November 6, 2002, we entered into several  agreements with Manhattan  Capital
Partners,  LLC wherein we sold  $310,000  of our common  stock and granted up to
2,000,000(285,714 warrants after the 1:7 reverse split) warrants to purchase our
common stock at a price of $0.10 per share.  Upon the successful  closing of the
sale  of our  securities,  we  commenced  to  resolve  all  of  our  outstanding
liabilities,  including  federal and state payroll taxes.  In addition,  we have
been negotiating with our principal shareholder and licensee,  GAC, for the sale
to GAC of substantially all of our technology,  including  software and systems,
in  exchange  for the  cancellation  of all debt  owed to GAC in the  amount  of
approximately $435,000 as of December 31, 2002.

On October 31, 2002, the Company  terminated  all but one of its employees;  and
except for a license agreement, it ceased all of its prior operating activities.
Its  principal  activities  have been directed to reducing its  liabilities  and
seeking possible acquisitions.

On April 28, 2003, Alpha Virtual, Inc. and EssTec, Inc., a privately-held Nevada
corporation,  entered into an Agreement and Plan of Merger.  In accordance  with
the Merger, on May 8, 2003, the Registrant, through its wholly-owned subsidiary,
Alpha Acquisition Corporation, a Nevada corporation, acquired EssTec in exchange
for 4,276,162 shares of the Registrant's Common Stock. On July 10th, 2003, Alpha
Virtual,  Inc.  announced that it has entered into a binding Letter of Intent to
acquire all key assets of Veridicom,  Inc. for a combination  of cash and shares
of common stock.  The closing of the transaction is anticipated  within the next
30 days and subject to a definitive asset purchase agreement. The asset purchase
will include the purchase of all of Veridicom's  intellectual property,  patents
and patent applications, methodology, and other key technologies.

The Company continues to seek  opportunities to sell Common stock and has raised
$535,000 since year end.

Critical Accounting Policies

On October 31, 2002, the Company  terminated  all but one of its employees;  and
except for a license agreement, it ceased all of its prior operating activities.
Its  principal  activities  have been directed to reducing its  liabilities  and
seeking possible  acquisitions.  The operations of the Company are minimal,  all
research and development costs have been expensed and potential  royalties to be
received from the sale of the PGTS training system have been full reserved.  The
Company  believes that there are no alternative  accounting  policies  which, if
implemented,  would change the  presentation  of the  financial  statements,  as
presented.

FORWARD LOOKING

Forward Looking Statements

Except for the historical  information  contained  herein,  this report contains
forward-looking  statements  (identified  by the  words  "estimate,"  "project,"
"anticipate,"  "plan," "expect,"  "intend,"  "believe,"  "hope,"  "strategy" and
similar  expressions) which are based on Management's  current  expectations and
speak only as of the date made. These forward-looking  statements are subject to
various risks, uncertainties and factors, including,  without limitation,  those
described below,  that could cause actual results to differ  materially from the
results anticipated in the forward-looking statements.



                                       27
<PAGE>
RISK FACTORS

Going Concern Issue and Severe Liquidity Problems.
The Company's financial statements for the fiscal year ended March 31, 2003 have
been prepared in conformity with generally accepted accounting principals, which
contemplate  continuation of the Company as a going concern. See the Independent
Auditors'  Report  and  Note A of  Notes to  Consolidated  Financial  Statements
contained  elsewhere  herein.  The  financial  statements  do  not  include  any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result  from the  possible  inability  of the Company to continue as a going
concern.  The Company's  revenue levels have  significantly  declined during the
fiscal  years  ended March 31,  2002 and 2003.  The  Company has also  sustained
operating  losses in recent  years and requires  substantial  amounts of working
capital in its  operations.  As a result,  the Company suffers from limited cash
resources that restrict its ability to market its commercial  software products.
Even if the Company overcomes its liquidity problems,  there can be no assurance
that in the future the  Company  will be able to  increase  revenues  or operate
profitably. The Company's liquidity problem could also result in vendors seeking
legal recourse should the Company continue to have  insufficient cash to pay its
debts as and when due.

Business Strategy: Internet Software Products and Services.
The Company's  long term business  strategy was to focus on the  development  of
commercial   software  products  derived  from  the  Company's  defense  related
technology  and  expertise in order to expand its  customer  base and reduce its
historical dependence on defense contracts.  The Company will require additional
equity funding to be able to fully commercialize, market and exploit the OneView
line of products. There can be no assurance that all future funding requirements
will be  obtained  and at  terms  that  will be  advantageous  from an  economic
standpoint.  Furthermore,  there can be no  assurance  that the Company  will be
successful in its development efforts, or that the OneView product suite will be
a  commercially   feasible  product,  or  that  the  Company  will  be  able  to
successfully market its software products.

Product Development and Technological Change.
The Internet  software markets are characterized by rapid  technological  change
and are highly competitive. The Company's success is dependent on its ability to
develop new  products  and product  enhancements  to keep up with  technological
advances and to meet customer needs. Any failure by the Company to anticipate or
respond adequately to technological  developments and customer requirements,  or
any  significant  delays in product  development or  introduction,  could have a
material  adverse  effect on the  Company's  financial  condition and results of
operations. The Company has limited manufacturing and marketing capabilities and
financial  resources and will be dependent upon establishing  relationships with
strategic and marketing partners to be able to fully exploit the OneView product
suite and other commercial products.  There can be no assurance that the OneView
product suite  software or future new products will achieve  market  acceptance,
result in increased  revenues,  or be  profitable.  Such products  could also be
subject to  technological  obsolescence  and intense  competition from companies
with greater resources than the Company.






                                       28
<PAGE>
Management of Growth.
Successful  expansion of the  Company's  operations  will depend on, among other
things,  the ability to develop and commercialize  new products,  to continue to
effectively market existing  products,  to attract and retain skilled management
and other personnel and to secure adequate  sources of capital to finance growth
at  reasonable  terms.  To manage growth  effectively,  the Company will have to
continue  to improve  its  operational,  financial  and  management  information
systems,  procedures and controls.  As the Company expands,  it may from time to
time experience  constraints  that will adversely  affect its ability to satisfy
customer demand in a timely fashion.  Failure to manage growth effectively could
adversely affect the Company's financial condition and results of operations.

Competition.
The Company  expects to encounter  intense  competition in the area of networked
on-line  computer  software  products  from  companies  that have  substantially
greater  financial,  manufacturing and marketing  capabilities than the Company.
The Company could also experience competition from emerging companies. There can
be no assurance that the Company's products will be competitive with existing or
future  products,  or that the Company  will be able to  establish or maintain a
profitable  price  structure  for its  products.  The Company  also  experiences
intense competition for U.S. and foreign government R&D contracts from companies
such as SAIC, Litton,  Lockheed Martin and TRW, which have substantially greater
resources than the Company.  The Company's size and financial  condition impedes
its ability to compete in many areas.

Protection of Intellectual Property.
The Company relies on a combination of patents,  trademarks,  trade secrets, and
other intellectual property law,  nondisclosure  agreements and other protective
measures to preserve its  proprietary  rights  pertaining to its  technology and
products. Such protection, however, may not preclude competitors from developing
products or technology  similar or superior to the Company's.  In addition,  the
laws of certain foreign countries do not protect intellectual property rights to
the same extent as the laws of the United States. Although the Company continues
to implement protective measures and intends to defend its proprietary rights to
the extent it has the  financial  resources  to do so, there can be no assurance
that these efforts will be  successful.  Furthermore,  there can be no assurance
that the Company's  products or technologies are not or will not be in violation
of the patent rights of third parties.

ITEM 7.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's  Consolidated  Financial  Statements  are contained in this report
beginning at page F-l.

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

None









                                       29
<PAGE>
                                    PART III

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

 Name                         Age                        Title

 Faysal Al-Zarooni            35       Chairman of the Board, Director

 Charles A. Lesser            56       Interim President,   Chief   Financial
                                       Officer, Director

 Saif Mansour                 25       Director
 Bill Cheung                  31       Director
 Wajid A. Mirza               42       Director

Mr. FAYSAL  AL-ZAROONI is Chairman and a Director of the Company since April 24,
2003.  Mr.  Al-Zarooni is the Managing  Director and Chairman of the  Al-Zarooni
Group of Companies, a United Arab Emirates based conglomerate of Companies.  Mr.
Al-Zarooni  belongs to one of the oldest  landlord  families  in the United Arab
Emirates and has  significant  business  investments  in Real Estate,  Textiles,
Automotive and several other business sectors in the United Arab Emirates.

Mr.  CHARLES A.  LESSER is Interim  President,  Chief  Financial  Officer  and a
Director of the Company since March,  2003..  Prior to joining the Company,  Mr.
Lesser was Chief Financial Officer of CBCom, Inc. from 1997 to 2002. Previously,
Mr.  Lesser  was Chief  Financial  Officer of Weider  Sporting  Goods,  Inc.,  a
manufacturer  and distributor of health and fitness  products.  He has worked as
both a  management  consultant  and auditor  with  Alder,  Green & Hasson in Los
Angeles,  KPMG Peat  Marwick in Houston and  Deloitte & Touche in  Johannesburg,
South Africa.  He holds an M.B.A.  from the University of the  Witwatersrand  in
South  Africa and a B.A. in  Economics  from the  University  of  Pittsburgh  in
Pennsylvania.

MR.  SAIF  MANSOUR is a Director  of the Company  since  2001.  Mr.  Mansour was
President  of the  Company  until  March  6,  2003 and  prior to that,  was Vice
President of Strategic Planning of the Company.  Previously,  Mr. Mansour worked
in the Venture Capital industry. Mr. Mansour holds a B.A. from Brown University.

MR.  BILL  CHEUNG is a Director  of the Company  since  2002..  Mr.  Cheung is a
Principal of Manhattan  Capital  Partners,  Inc. an investment  advisory company
since 2002. Previously, Mr. Cheung, spent ten years in industrial manufacturing,
as a partner of National Plastics Color(China) and Sino Energy(Hong Kong). He is
a partner of Sun Coast Packaging,  a family owned plastics manufacturer and sits
on the Board of  Directors  of Esstec,  Inc.,  currently a  subsidiary  of Alpha
Virtual., Inc.

MR. WAJID A MIRZA is a Director of the Company since April, 2003. Mr. Mirza is a
Director at Answerthink Inc., a global provider of Management, Benchmarking, and
Information  Technology consulting services.  Mr. Mirza is part of Answerthink's
Technology  Integration practice where he specializes in IT & Business Strategy,
and Finance Transformation Services. Prior to Answerthink, Mr. Mirza was part of
Accenture's Process Architect Center of Excellence group Mr. Mirza has a Masters
in Business  Administration  from  Northwestern  University's  Kellogg School of
Management  and a Bachelors  of Science in  Computer  Information  Systems  from
California State University.

                                       30
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

The following table summarizes the compensation for the three most recent fiscal
periods  ended March 31,  2003,March  31, 2002,  and March 31, 2001 of our Chief
Executive  Officer and the three most highly  compensated  other  executives and
officers whose total annual salary and bonus exceed $100,000.

                           SUMMARY COMPENSATION TABLE
                                 ANNUAL COMPENSATION    LONG TERM COMPENSATION
                        ------------------------------- -----------------------
                                                 OTHER                SECURITIES
                                                ANNUAL  RESTRICTED
                                                COMPEN- STOCK         UNDERLYING
 NAME AND PRINCIPAL                       BONUS SATION  AWARDS         OPTIONS/
 POSITION(1)            YEAR SALARY($)     ($)   ($)    SARS      ($)
----------------------- ---- ---------    ----- ------- ------- --------
Dan Mapes, (4)          2003  $59140      $-0-     0    $-0-
Chief Executive Officer 2002  $192,421    $-0-     0    $-0-
                        2001  $  -0-      $-0-    -0-   $-0-

Dr. Gershon Weltman,    2003  $   0       $-0-     0    $ 0
President(1)            2002  $   0       $-0-     0    $ 0
                        2001  $136,000(2) $-0- -100,000 $10,000

Richard Moskowitz,      2003  $101,500    $-0-          $-0-
Chief Executive Officer 2002  $150,000    $-0-          $-0-
                        2001  $95,000(3)  $-0-          $-0-
                                                100,000-

(1)
  Dr. Weltman ceased to be an executive officer of Alpha Virtual, Inc., on
August 6, 2001..

(2)
  Includes  225,000 shares of the Company's Common Stock received in lieu of
$45,000 owed to Dr. Weltman in salary.

(3)
   Includes  475,000 shares of the Company's Common  Stock  received  in lieu of
$95,000  owed  to Mr.  Moskowitz  in  salary.  Mr.  Moskowitz  served  as  Chief
Executive Officer  from  January  2000 to July, 2001;  thereafter  Mr. Moskowitz
served as V.P. business  Development from August, 2001 to  July,  2002 In  July,
2002 Mr.  Moskowitz  received  50,000  pre-split options at $0.10 per share.

(4)
   Mr. Dan Mapes served as Chief Executive  Officer of Alpha  Virtual  Inc. from
August 2001 to July,  2002. Mr. Saif Mansour became Interim President from July,
2002 until March 6, 2003 and earned compensation of $68,415 Mr. Mansour received
50,000  stock  options  at  $1.33  per  share. Mr. Charles Lesser became interim
President on March 6, 2003 and earned compensation of $9,000.







                                       31
<PAGE>
                     Fiscal Year 2003 Option/Warrant Grants

                           Number of   % of Total
                           Securities  Options          Exercise
                           Underlying  Granted to       Price
                           Options     Employees        Per        Expiration
Name                       Granted(1)  in Fiscal Year   Share      Date
-----------------          ----------  --------------   ---------  -----------
Saif Mansour               50,000      50               $ 1.33     03/08

Richard Moskowitz          50,000      50               $ 0.10     07/07

(1)
   The options  granted to Saif Mansor are post both reverse splits. The options
granted to Richard  Moskowitz  are  subject to  adjustment  according to the 1:7
reverse split of April, 2003.

Option Exercises and Fiscal Year-End Option Values

Shares that may be Exercised        Weighted Life      Weighted Exercise Price
----------------------------        -------------      -----------------------
Range $1.33-$3.85     51,601        5.07 years         $1.73

Range $6.30-$8.75    20,005         5.12 years         $8.13

Range $10.50-$18.55   4,186         6.70 years         $17.33

Range $21.88-$28.60  18,129         5.40 years         $26.47

Range $40.46-$105.00  1,609         6.19 years         $45.32

                     95,528

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

5% Owners

   The  following  table sets forth  certain  information,  as of March 31, 2003
(1,498,952  shares  taking into account the 1:7 reverse  split of April,  2003),
with  respect to ownership of shares of Common Stock by each person who is known
by the Company to own  beneficially  5% or more of the Common Stock,  each Named
Officer,  each director of the Company and all executive  officers and directors
of the Company as a group.

--------------------------------------------- ------------------------- -------
NAME AND ADDRESS                              SHARES BENEFICIALLY OWNED PERCENT
--------------------------------------------- ------------------------- -------
--------------------------------------------- ------------------------- -------
Global Alpha Corporation                             622,440             41.5%
c/o Janofsky & Walker, LLP
695 Town Center Drive, #1700
Costa Mesa, CA  92626
--------------------------------------------- ------------------------- -------
All Officers and Directors as a Group (1) (2)        336,038             18.3%
--------------------------------------------- ------------------------- -------
--------------------------------------------- ------------------------- -------

                                       32
<PAGE>
     (1) Mr. Mansour resigned as interim President on March 6, 2003. Mr. Mansour
     owns 314 common  shares and 50,000 stock  options exercisable  at $0.10 per
     share.


     (2) Includes (i) warrants  to  purchase 285,714 shares exercisable at $0.70
     per share, owned by Manhattan Capital Partners,LLC of which Mr. Bill Cheung
     is a partner .



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Bill Cheung,  a Director of Alpha Virtual,  Inc. and Esstec,  Inc. is also a
partner of Manhattan  Capital  Partners,  LLC. On November 6, 2002,  the Company
entered  into a  Securities  Purchase  Agreement  ("Purchase  Agreement")  and a
Registration  Rights  Agreement  ("Rights  Agreement")  with certain  accredited
investors  to be named by Manhattan  Capital  Partners,  LLC, a venture  capital
limited liability company. Under the Purchase Agreement,  the Company has agreed
to sell $310,000 of its common stock, as amended, at a purchase price based upon
the lower of (i) $0.10 per share,  or (ii) the average  price per share  between
the "bid" and "ask" price on the Over-the-Counter Bulletin Board at the close of
business for the five (5) business days  preceding  the closing date.  The offer
closed and 3,100,000  post-split  shares  (442,857  shares after the 1:7 reverse
split of April, 2003) were issued at a price of $0.10 per share.

Also,  on November  6, 2002,  and in  connection  with the  Purchase  and Rights
Agreements with certain investors, the Company agreed to enter into a Consulting
Agreement and Registration Rights Agreement with Manhattan Capital Partners, LLC
("Manhattan")  upon the receipt by the  Company of  $310,000.  In  exchange  for
general business consulting  services,  the Company granted warrants to purchase
an aggregate of 2,000,000 (285,714 shares after the 1:7 reverse split) shares of
its common stock at a price of $0.10 per share.  The warrants  expire five years
after the date of grant. The Registration  Rights Agreement requires the Company
to file a registration statement with the SEC, registering the underlying common
stock of the warrants  granted to Manhattan.  To date, a registration  statement
has not been filed.




















                                       33
<PAGE>
                                    PART IV

INDEX TO EXHIBITS

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit Index (Management contracts, compensation plans and arrangements are
    identified by (*).

   3.1    Certificate of Incorporation, as amended (1)
   3.2    By-Laws amended. (1)
* 10.1    1992 Stock Option Plan (8)
* 10.2    Employment Agreement  with  Gershon Weltman dated August 1, 1989
          and First Amendment dated October 22, 1991. (9)
* 10.3    1988 Directors' Stock Option Plan. (8)
* 10.4    Second  Amendment  to  Employment Agreement with Gershon Weltman
          dated August 27, 1996. (2)
* 10.5    Employment  agreement  with  Thomas Lubaczewski dated January 1,
          1997. (3)
  10.6    Loan  Agreement  and  note  dated September 23, 1997 between the
          Company and The Pacific Bank. (4)
  10.7    1999 Stock Option Plan (5)
  10.8    1999 Stock Option Plan for Non-Employee Directors (5)
  10.9    Employment Agreement with Richard Moskowitz dated January 3,2000
          and Memorandum of Agreement dated November 19, 1999. (6)
 10.10    Employment Agreement with Andreas Kemkes dated February 4, 2000.
          (10)
 10.11    Stock Compensation Plan for Consultants (7)
 10.18    Securities  Purchase  Agreement  entered  into between the Company and
          certain investors to be named by Manhattan Capital Partners, LLC dated
          November 6, 2002.
 10.19    Registration  Rights  Agreement  entered  into between the Company and
          certain investors to be named by Manhattan Capital Partners, LLC dated
          November 6, 2002.
 10.20    Consulting  Agreement  to be entered  into  between  the  Company  and
          Manhattan  Capital  Partners,  LLC upon the  receipt of the Company of
          $300,000 pursuant to a Securities  Purchase  Agreement  (Exhibit 10.18
          above).
 10.21    Registration  Rights  Agreement to be entered into between the Company
          and Manhattan Capital Partners, LLC upon the signing of the Consulting
          Agreement (Exhibit 10.20 above).
 10.22    License  Agreement  entered  into between the Company and Global Alpha
          Corporation.
 10.23    Restated Multiple Advance Convertible  Promissory Note entered into by
          the Company and Global Alpha Corporation, Dated July 9, 2002.
 10.24    Security  Agreement  entered into between the Company and Global Alpha
          Corporation, dated July 9, 2002.


(b) The Registrant did not file any report s on Form-8K during the quarter ended
March 31, 2003.

(1)
Incorporated  by reference to the Company's  Registration  Statement on Form S-8
filed on March 9, 2000.

(2)
Incorporated  by reference to the Company's Form 10-KSB for the year ended March
31, 1996.

(3)
Incorporated  by reference to the Company's Form 10-KSB for the year ended March
31, 1997.

(4)
Incorporated by reference to the Company's Form 10-QSB for the quarterly  period
ended September 30, 1997.

(5)
Incorporated by reference to the Company's Form 10-QSB for the quarterly  period
ended September 30, 1999.

(6)
Incorporated by reference to the Company's Form 10-QSB for the quarterly  period
ended December 31, 1999.

                                       34
<PAGE>
(7)
Incorporated  by reference to the Company's  Registration  Statement on Form S-8
filed on October 15, 1999.

(8)
Incorporated  by reference to the Company's Form 10-KSB for the year ended March
31, 1993.

(9)
Incorporated  by reference to the Company's Form 10-KSB for the year ended March
31, 1992.

(10)
Incorporated  by reference to the Company's Form 10-KSB for the year ended March
31, 2000.









































                                       35

<PAGE>
                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

Dated: July 15, 2003 ALPHA VIRTUAL, INC.





By:     /s/  Charles A. Lesser
        ---------------------------------
        Charles A. Lesser
        Acting President and Chief
        Financial Officer



Pursuant to the requirements of 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.




       Signature                       Title                              Date


/s/ Charles A. Lesser      Acting President  Chief                 July 15, 2003
----------------------    Financial Officer and Director
Charles A. lesser




/s/ Bill Cheung
----------------------    Director                                 July 15, 2003
Bill Cheung


/s/ Saif Mansour
----------------------    Director                                 July 15, 2003
Saif Mansour




                                       36
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Alpha Virtual, Inc.

We have audited the  accompanying  balance sheets of Alpha  Virtual,  Inc. as of
March 31, 2003 and 2002, and the related statements of operations, shareholders'
deficit, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing standards
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements are free of material  misstatement.  An audit includes examining on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Alpha Virtual, Inc. as of March
31, 2003 and 2002,  and the results of its operations and its cash flows for the
years then ended in conformity with accounting  principles generally accepted in
United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the  Company had net losses of  $1,832,000  and  $2,957,000  for the years ended
March 31, 2003 and 2002. As of March 31, 2003, the Company's current liabilities
exceeded current assets by $893,000 and total liabilities  exceeded total assets
by $878,000. These factors and the others described more fully in Note A to the
financial  statements,  raise  substantial  doubt about the Company's ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.

Agoura Hills, California
July 5, 2003


















                                      F-1
<PAGE>
                               ALPHA VIRTUAL, INC.
                                 BALANCE SHEETS



                                                            March 31,
                                               --------------   ---------------
                                                      2003             2002
                                               --------------   ---------------
ASSETS
CURRENT ASSETS
    Cash and cash equivalents                  $       39,327   $        19,807
    Receivables, net of allowance of $105,117               0            27,070
    and $3,000 as of March 31, 2003 and
    2002 - Note B
    Prepaid expenses                                   40,833            24,481
                                               --------------   ---------------
TOTAL CURRENT ASSETS                                   80,160            71,358

EQUIPMENT & LEASEHOLD IMPROVEMENTS, at cost
    Note C                                             13,725            45,850
    Less accumulated depreciation and
    amortization                                        4,545            28,038
                                               --------------   ---------------
                                                        9,180            17,812

DEFERRED TAXES--Note F                                      0                 0
OTHER ASSETS                                            5,000            21,825
                                               --------------   ---------------

                      TOTAL ASSETS             $       94,340   $       110,995
                                               ==============   ===============




See notes to financial statements


















                                       F-2


<PAGE>
                               ALPHA VIRTUAL, INC.
                           BALANCE SHEETS (Continued)


                                                           March 31,
                                               --------------   ---------------
                                                      2003             2002
                                               --------------   ---------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
    Accounts payable                           $      237,951  $        111,546
    Payroll taxes payable                             108,512           138,167
    Accrued compensation                               30,000            47,853
    Other accrued liabilities                          33,350            49,929
    Short term debt--Note D                           435,000            50,000
    Current portion of obligation under capital lease       0             3,176
    Loans payable to shareholders--Note D              28,000            28,000
    Rate reserve - DCAA--Note E                       100,000           100,000


                    TOTAL CURRENT LIABILITIES          972,813          528,671

LONG TERM DEBT


    Obligation under capital lease                          0             5,813


COMMITMENTS AND CONTINGENCIES--NOTE E
                                               --------------   ---------------
Total Liabilities                                     972,813           534,484

SHAREHOLDERS' DEFICIT
    Common stock--par value $.001;
    authorized 60,000,000 shares;                       1,499               604
    1,498,952 and 604 shares issued
    and outstanding
    Additional paid-in capital                     17,783,832        16,407,328
    Accumulated deficit                           (18,663,804)      (16,831,421)
                                               --------------   ---------------
                    TOTAL SHAREHOLDERS' DEFICIT      (878,473)         (423,489)
                                               --------------   ---------------
                    TOTAL LIABILITIES &
                    SHAREHOLDERS' DEFICIT      $       94,340 $         110,995
                                               ==============   ===============



See notes to financial statements






                                       F-3


<PAGE>
                               ALPHA VIRTUAL, INC.
                            STATEMENTS OF OPERATIONS



                                                     Year Ended March 31,
                                               --------------   ---------------
                                                    2003              2002
                                               --------------   ---------------
Net sales                                    $       135,106    $       49,242
Cost of sales                                         47,058            27,482
                                               --------------   ---------------
Gross profit                                          88,048            21,760

Cost and expenses:
Selling, general and administrative                1,444,222         1,519,692
Research and development                             505,640           933,312
                                               --------------   ---------------
Operating loss                                    (1,861,814)       (2,431,244)

Forgiveness of debt---Notes A and D                   68,000           409,596
Net loss on sale of assets--Note A                    (7,087)                0
Interest income                                            3                 0
Interest expense                                     (30,685)           (1,678)
                                               --------------   ---------------

Loss before taxes                                 (1,831,583)       (2,023,326)
Income tax provision--Note F                             800           933,366
                                               --------------   ---------------

Net loss                                     $    (1,832,383)   $   (2,956,692)
                                               ==============   ===============
Earnings per share:
                 Basic:
                              Net loss       $         (1.84)   $        (6.64)
                 Diluted:
                              Net loss       $         (1.84)   $        (6.64)
Weighted average common and common
  equivalent shares:
                 Basic                               996,687        445,749
                 Diluted                             996,687        445,749





See notes to financial statements










                                       F-4
<PAGE>
                               ALPHA VIRTUAL, INC.
                       STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<S>                                       <C>        <C>       <C>           <C>            <C>

                       Common Stock Additional Accumulated
                                          --------------------    Paid In       Deficit
                                             Shares    Amount     Capital                       Total
                                          ---------- --------- ------------- -------------  -------------
Balance at March 31, 2000                    220,922 $     221 $  13,538,031 $ (13,002,685) $     535,567

Exercise of options                              757         1        12,164                       12,165
Common shares issued for cash                 31,907        32       283,227                      283,259
Common shares issued for services             11,593        11       136,845                      136,856
Net loss                                                                          (872,044)      (872,044)
                                          ---------- --------- ------------- -------------  -------------
Balance at March 31, 2001                    265,179 $     265 $  13,970,267 $ (13,874,729) $      95,803

Common shares issued for cash                334,041       334     2,399,666                    2,400,000
Common shares issued for services              3,000         3        27,397                       27,400
Common shares issued for debt conversion       1,905         2         9,998                       10,000
Net loss                                                                        (2,956,692)    (2,956,692)
                                          ---------- --------- ------------- -------------  -------------
Balance at March 31,2002                     604,125 $     604 $  16,407,328 $ (16,831,421) $    (423,489)


Common shares issued for cash                731,256       731     1,134,269                    1,135,000
Common shares issued for services            163,571       164       242,235                      242,399
Net loss                                                                        (1,832,383)    (1,832,383)
                                          ---------- --------- ------------- -------------  -------------

Balance at March 31, 2003                  1,498,592 $   1,499 $  17,783,832 $ (18,663,804) $   (878,473)
                                          ========== ========= ============= =============  =============
</TABLE>

The Statements of  Shareholders'  deficit has been adjusted to account for a 1:5
reverse  split of common  shares in  November,  2002 and a 1:7 reverse  split of
common shares in April, 2003. See Note H.

                        See Notes to Financial Statements



                                       F-5


<PAGE>
                               ALPHA VIRTUAL, INC.
                            STATEMENTS OF CASH FLOWS

                                                        Year Ended March 31,
                                                        2003           2002
CASH FLOWS FROM OPERATING ACTIVITIES:              -------------  --------------
Net income                                         $ (1,832,383)  $  (2,956,692)
    Adjustments to reconcile net income to
    net cash used in operating activities:

               Depreciation and amortization               1,545          5,190
               Stock issued for services                 242,399              0
               Debt forgiveness                          (68,000)             0
               Loss on disposal of assets                  7,087              0
    Changes in assets and liabilities:
               Receivables                                27,070          3,951
               Prepaid expenses                          (16,352)       (23,131)
               Deferred taxes                                  0        932,566
               Other assets                               16,825        (17,745)
               Accounts payable                          126,405       (215,322)
               Accrued compensation                      (17,853)      (250,439)
               Other accrued liabilities                 (28,234)       148,252
               Other long term liabilities                     0              0
                                                    ------------   ------------
        NET CASH USED IN OPERATING ACTIVITIES         (1,541,491)    (2,373,370)
CASH FLOWS FROM INVESTING ACTIVITY:
    Capital additions/disposition                              0        (16,350)
                                                    ------------   ------------
        NET CASH USED IN INVESTING ACTIVITIES                  0       (16,350)
CASH FLOWS FROM FINANCING ACTIVITIES:

    Payments on debt                                           0        (39,306)
    Proceeds from capital lease obligation                     0         10,000
    Principal payments on capital lease                   (8,989)        (1,011)
    Proceeds from note payable                           435,000              0
    Loans from shareholders                                    0        (10,000)
    Proceeds from sale of common stock                 1,135,000      2,437,400
                                                    ------------   ------------
        NET CASH PROVIDED BY FINANCING ACTIVITIES      1,561,011      2,397,083
        NET INCREASE (DECREASE) IN CASH AND CASH          19,520          7,363
        EQUIVALENTS
        CASH AND CASH EQUIVALENTS AT THE BEGINNING        19,807         12,444
        OF THE YEAR
        CASH AND CASH EQUIVALENTS AT END OF YEAR    $     39,327   $     19,807
                                                    ============   ============
        CASH PAID DURING PERIOD
                                 Interest           $        458   $     15,407
                                 Income Taxes       $        800   $        800


Supplemental Disclosure of Non-Cash Activity:

During the year ended March 31, 2003 the Company  received  forgiveness  of debt
and  accrued  interest  of $68,000  and issued  stock for  services  rendered of
$242,399.
                        See Notes to Financial Statements

                                       F-6
<PAGE>
                               ALPHA VIRTUAL, INC.
                      NOTES TO AUDITED FINANCIAL STATEMENTS

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Company:  Alpha Virtual,  Inc., (the "Company") developed and
marketed innovative, real-time Web collaboration products for business, consumer
entertainment,  education,  and government markets. The Company's patent pending
OneViewTM   product  platform  meets  the  growing  demand  for  new  multi-user
interactivity-integrating   browser,  Instant  Messaging,  and  real-time  group
collaboration in an on-demand basis. On October 31, 2002, the Company terminated
all but one of its employees.  The Company is in advanced discussions  regarding
sale  and  license  back of its One  View  product.  Except  for  this  sale and
re-license  agreement,  it ceased  all of its prior  operating  activities.  Its
principal  activities  are  directed to  reducing  its  liabilities  and seeking
possible acquisitions.

On April 28, 2003, Alpha Virtual, Inc. and EssTec, Inc., a privately-held Nevada
corporation entered into an Agreement and Plan of Merger. In accordance with the
Merger,  on May 8, 2003, the Registrant,  through its  wholly-owned  subsidiary,
Alpha Acquisition Corporation, a Nevada corporation, acquired EssTec in exchange
for  4,276,162  shares  of  the  Registrant's   Common  Stock.  The  transaction
contemplated  by the  Agreement  was intended to be a "tax-free"  reorganization
pursuant to the  provisions  of Section  351 and  368(a)(1)(A)  of the  Internal
Revenue Code of 1986, as amended. See note N.

On July 10th,  2003,  Alpha Virtual,  Inc.  announced that it has entered into a
binding  Letter of Intent to acquire  all key assets of  Veridicom,  Inc.  for a
combination of cash and shares of common stock.  The closing of the  transaction
is  anticipated  within  the  next 30 days and  subject  to a  definitive  asset
purchase  agreement.  The asset  purchase  will  include the  purchase of all of
Veridicom's intellectual property, patents and patent applications, methodology,
and other key  technologies.  Under the terms of the asset purchase,  Veridicom,
Inc. will retain certain licensing rights to use the technology.

Veridicom  designs,  manufactures  and  distributes  the FPS200 digital  silicon
fingerprint  sensor and  matching  fingerprint  algorithms,  used by PC OEMs and
other makers of personal security devices.  Veridicom also provides sensors to a
variety of hardware PC peripherals engineered to protect information accessed on
a PC or remotely through a network.  Based on security and biometric  standards,
these devices  include USB  peripherals,  PCMCIA cards and  smart-card  readers.
Veridicom also provides (SDK Software Development Kits) and application software
that  complements  its  authentication  devices,  enabling a  complete  personal
security solution.

Basis of Presentation:  The accompanying financial statements have been prepared
in conformity with generally accepted accounting  principles,  which contemplate
continuation  of the  Company as a going  concern.  The  Company  has  sustained
operating losses during the fiscal years ended March 31, 2003 and March 31, 2002
and requires  substantial  amounts of working capital to support its operations.
At March 31, 2003 current  liabilities  exceed current  assets by $892,653.  The
Company  continues to have  difficulty in meeting its obligations as they become
due. The ability of the Company to operate its business and generate  sufficient
positive  cash flows is dependent on raising  additional  investment  capital to
fund development of commercial  software products and make  acquisitions.  Since


                                      F-7
<PAGE>
September  30,  1999,  the  Company  has  raised  approximately   $4,500,000  of
investment capital,  which has been the primary source of funding for continuing
operations. The Company's financial statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.

 The Company  disposed of various  furniture  and  equipment  during the current
fiscal year resulting in a book loss of $7,087.


Settlement of Liabilities

During the fiscal year ended March 31,  2002,  the  Company  was  forgiven  over
$235,000 of  liabilities  from  various  suppliers  and  lenders.  Additionally,
Richard  Moskowitz  and Dr.  Gershon  Weltman  entered into general  release and
waiver  agreements  with the Company  whereby  Moskowitz  and Weltman  agreed to
cancel  previously  booked  obligations of  approximately  $179,000 and $65,000,
respectively,  arising from accrued  salary,  vacation and loans to the Company,
and to accept payment of $100 each as full and final payment of the obligations.

As of  December  31, 2002 and March 31,  2002,  there is a loan  outstanding  of
$50,000 and $18,000 of accrued  interest with a foreign  customer.  The note has
been written off at March 31, 2003 as the note was due in 1996,  the  noteholder
cannot be located  and the statute of  limitations  has past.  Accordingly,  the
Company has recognized $68,000 as forgiveness of debt.

Cash Equivalents: All highly liquid investments maturing in three months or less
when purchased are considered as cash equivalents.

Equipment and Leasehold  Improvements:  Equipment and leasehold improvements are
stated at cost.  Depreciation of equipment is provided for by the  straight-line
method  over  their  estimated  useful  lives,  which  range  from 3 to 5 years.
Amortization  of leasehold  improvements  is provided  for by the  straight-line
method over the shorter of the useful lives or the terms of the leases.

Revenue Recognition: Sales of services are recorded when performed in accordance
with  contracts.  Revenues  from  long-term  contracts  are  recorded  using the
percentage-of-completion (cost-to-cost) method of accounting. Under this method,
sales are recorded as costs (including general and  administrative  expenses) as
incurred,  plus a portion of the profit expected to be realized on each contract
in the  ratio  that  costs  incurred  to date  bear to total  estimated  cost at
completion.  Revenues  from software  sales are recorded in accordance  with SOP
97-2 "Software Revenue Recognition", which requires that revenue recognized from
software  arrangements  be allocated to the various  elements of the arrangement
based on the  relative  fair  value  values of the  elements,  such as  software
products, upgrades,  enhancements,  post contract customer support, installation
or training.  Revenue from product  services are recognized at the time services
are provided.

Income Taxes:  Provisions  for federal and state income taxes are  calculated on
reported  financial  statement  income  based  on  the  current  tax  law.  Such
provisions  differ from the amounts  currently  payable because certain items of
income and expense, known as temporary differences,  are recognized in different



                                      F-8
<PAGE>
tax periods  for  financial  reporting  purposes  than for income tax  purposes.
Deferred  income taxes are the result of the  recognition  of tax benefits  that
management  expects  to  realize  from the  utilization  of net  operating  loss
carryforwards. The amounts recorded are net of valuation allowance and represent
management's estimate of the amount that is more likely than not to be realized.

Use of  Estimates:  Company  management  has  made a  number  of  estimates  and
assumptions relating to the reporting of assets and liabilities and the reported
amounts  of  revenues  and  expenses,  in  conformity  with  generally  accepted
accounting principles. Actual amounts could differ from these estimates.

Earnings  (Loss) per Share:  Effective  December 31, 1997,  the Company  adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128").  This statement  replaces the previously  reported  primary and fully
diluted  earnings  per share with basic and diluted  earnings  per share.  Basic
earnings per share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares  outstanding during
the   period.   Diluted   earnings   per   share   is   very   similar   to  the
previously-reported primary earnings per share in that it includes the effect of
the additional common shares which would have been outstanding if dilutive stock
options had been exercised. All earnings per share amounts have been restated to
conform to the SFAS No. 128 requirements.

The following table summarizes the calculation of basic and diluted earnings per
share for the years ended March 31:


                                                 2003           2002
Numerator
  Basic and diluted earnings per
  share-- net income (loss)                $  (1,832,383)  $  (2,956,692)
Denominator
  Basic earnings per share-- Weighted            996,687      445,74915,601,215
  average number of common shares
  outstanding during the year
Incremental common shares attributable                 -               -
to assumed exercise of outstanding stock
options
Denominator for diluted earnings per share       996,687      445,74915,601,215

Basic earnings (loss) per share            $       (1.84)  $       (6.64)0.19)
Diluted earnings (loss) per share          $       (1.84)  $       (6.64)0.19)


The calculations of earnings  excluded the effect of the assumed exercise of the
following numbers of outstanding common stock options and warrants because their
effect was anti-dilutive: 193,080 for the fiscal year ended March 31, 2003 and
133,080 for the fiscal year ended March 31, 2002.

Stock Based Compensation
------------------------
The Company  accounts for employee stock options in accordance  with  Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees."  Under APB Opinion No. 25, the Company  recognizes  no  compensation



                                      F-9
<PAGE>
expense  related to employee  stock  options,  as no options  are granted  below
market  price on the grant  date.  SFAS No.  123,  "Accounting  for  Stock-Based
Compensation,"  requires the  recognition of  compensation  expense based on the
fair value of options  on the grant  date,  but  allows  companies  to  continue
applying APB Opinion No. 25 if certain pro forma  disclosures  are made assuming
hypothetical fair value method application.

HAD COMPENSATION  EXPENSE FOR THE COMPANY'S STOCK OPTIONS BEEN BASED ON THE FAIR
VALUE AT THE GRANT DATE UNDER THE  METHODOLOGY  PRESCRIBED  BY SFAS NO. 123, THE
COMPANY'S  INCOME FROM  CONTINUING  OPERATIONS AND EARNINGS PER SHARE WOULD HAVE
BEEN IMPACTED AS FOLLOWS:

(In thousands, except per share amounts           March 31, 2003  March 31, 2002
Net loss, as reported                                $  (1,832)      $  (2,957)
Add:  Stock-based expense reported in net income,
       Net of related tax effects                            0               0
Deduct:  Total stock-based compensation expense
           Determined under fair value method for
           all Awards, net of related tax effects         (189)           (430)
                                                     ---------       ---------
Pro forma net loss                                   $  (2,021)      $  (3,387)
                                                     ---------       ---------
Earnings per share:
Reported earnings per share - Basic                  $   (1.84)      $    (6.64)
Pro forma earnings per share - Basic                     (2.03)           (7.70)
Reported earnings per share - Diluted                    (1.84)           (6.64)
Pro forma earnings per share - Diluted                   (2.03)           (7.35)

THE FAIR VALUE OF OPTIONS AND WARRANTS  GRANTED,  WHICH ARE AMORTIZED TO EXPENSE
OVER THE VESTING PERIOD IN DETERMINING THE PRO FORMA IMPACT, IS ESTIMATED AT THE
DATE OF GRANT USING THE  BLACK-SCHOLES  OPTION-PRICING  MODEL WITH THE FOLLOWING
WEIGHTED AVERAGE ASSUMPTIONS:

                                        March 31, 2003          March 31, 2002
Expected life of option                    5 years                  5 years
Risk-free interest rate                       1.25%                    5.43%
Expected volatility of stock                 71.38%                   26.38%
Expected dividend yield                          0%                       0%


NOTE B--RECEIVABLES

At March 31, 2002 there were $27,070 of  receivables  that  represented  amounts
from services  performed and royalties from the Eidetics sale. At March 31, 2003
there were $105,117 of  receivables  from  royalties  from the Eidetics  sale. A
reserve equal to 100% of the receivable has been taken due to the uncertainty of
collection.

NOTE C--EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following at March 31:







                                      F-10
<PAGE>
                                                    2003          2002
                                                -----------    ----------
Computers and other equipment                   $    10,725    $   23,750


Office furniture & fixtures                           3,000        12,100
Property held under capital lease                         0        10,000
                                                -----------    ----------
                                                     13,725        45,850
Accumulated depreciation & amortization               4,545        28,038
                                                -----------    ----------
                                                $     9,180    $   17,812
                                                ===========    ==========

Depreciation  expense was $1,545 and $5,190 for the fiscal years ended March 31,
2003 and 2002,  respectively.  The company  defaulted  on its capital  lease and
converted  the lease to an accounts  payable.  The  company  disposed of certain
computers and office furniture and recorded a loss on disposal of $7,087.

NOTE D--SHORT TERM DEBT

As of  December  31, 2002 and March 31,  2002,  there was a loan  outstanding of
$50,000 and $18,000 of accrued  interest with a foreign  customer.  The note has
been written off at March 31, 2003 as the note was due in 1996,  the  noteholder
cannot be located and the statute of limitations has past.

As of March 31,  2003 and March 31,  2002    the  Company  had loans
outstanding of $28,000  to various shareholders. $10,000 of the notes
were  converted  into 66,665 shares (13,333 shares after the November 2002 stock
split) in the fiscal year ending March 31, 2002.  These loans are past due as of
March 31, 2002. The loans are  convertible to common stock at $0.15 per share at
the option of the note holders  ($0.75 per share after the  November  2002 stock
split/$5.25 after the April 2003 stock split..

On  July  9,  2002,  the  Company  entered  into  a  Restated  Multiple  Advance
Convertible Promissory Note (the "Note") with its principal shareholder ("GAC").
The Note provides up to $425,000 of term debt to the Company maturing on July 9,
2003 at an interest rate of 11.5 percent.  As of December 31, 2002,  the Company
amended the note and had borrowed an aggregate  of $435,000  from GAC,  $110,000
during the three month period ended December 31, 2002. The Note is  convertible,
at the  election of GAC,  into the  Company's  common stock at a price per share
equal to 30% of the average  trading  price for the twenty  business  day period
prior  to date of  conversion.  The  Note is  secured,  pursuant  to a  Security
Agreement,  by all of the Company's computer software programs. The terms of the
note require  repayment on demand,  but in no event,  earlier than July 9, 2003.
The Company  recorded  accrued  interest of $33,850 at March 31, 2003 related to
the note.  The Company  has not repaid the note and is in  advanced  discussions
with the noteholder to sell its OneView product in exchange for  cancellation of
the $435,00 note.

NOTE E--LEASES AND COMMITMENTS

DCAA--Audit: The Company's books and records are subject to audit by the Defense
Contract Audit Agency (DCAA). At March 31, 2003. there is a DCAA audit open of a
large multi-year  contract which was completed in 1994. The Company believes the


                                      F-11
<PAGE>
costs charged to this contract should not result in adjustments in excess of the
$100,000 reserved for possible contract price adjustments at March 31, 2003. The
amount  reserved  is  believed  to  be  adequate  and  is  included  in  current
liabilities.

NOTE F--INCOME TAXES

           Provision For Income Taxes:
                                                       Year Ended March 31,
                                                        2003          2002
Current:                                              $       -   $         -
  Federal                                                   800           800
                                                      ---------   -----------
  State                                                     800           800

Deferred:
  (Increase) decrease in benefit of NOL carryforwards  (761,172)    4,755,566
  Increase (decrease) in valuation allowance            761,172    (3,823,000)
                                                      ---------   -----------
                                                      $     800   $   933,366
                                                      =========   ===========

                                                            -0-        46.13%
                                                      =========   ===========

Unused net operating  losses of  approximately  $20,000,000  are available as of
March 31,  2003 to offset  future  years'  federal  taxable  income,  and expire
through  2023.  Under  Internal  Revenue Code Section 382,  certain  significant
changes in  ownership of the Company may restrict  future  utilization  of these
carryforwards.  On April 5, 2001 and on May 8, 2003 (see Note N), significant
ownership  changes did occur.  Based on the guidelines  stipulated by this code,
these ownership  changes will limit the annual  utilization of the net operating
loss carryforwards.





                                      F-12
<PAGE>
SFAS 109 requires  that the tax benefit of such NOLs be recorded  using  current
tax rates as an asset to the extent management  assesses the utilization of such
NOLs to be more likely than not.  Management has determined  that future taxable
income of the Company will more likely than not be  insufficient  to realize the
deferred tax asset as of March 31, 2003 of $6,930,000 and has therefore  taken a
valuation allowance of $6,930,000.

Realization of the future tax benefits of the NOL  carryforwards is dependent on
the Company's ability to generate taxable income within the carryforward period.
In assessing  the  likelihood  of  utilization  of existing  NOL  carryforwards,
management  considered the historical results of continuing  operations over the
last three  years and the  current  economic  environment  in which the  Company
operates.  Management did not consider any non-routine transactions in assessing
the likelihood of realization of the recorded deferred tax asset.


Federal  income tax NOL  carryforwards  will expire between fiscal 2021 and 2022
and state income tax operating  loss  carryforwards  will expire  between fiscal
2004 and 2012 if not used to offset taxable income.

                                                        2003            2002
                                                   -------------   -------------
Rate reconciliation:
Federal statutory rate                                 34.00%          34.00%
Increase (reductions) in taxes due to:
        State income taxes (net of federal benefit)     5.83%           5.83%
        Negative valuation allowance adjustment and
        reduction of NOL carryforwards                -39.87%         -85.96%
                                                   -------------   -------------
                                                       -0.04%         -46.13%
                                                   =============   =============

Income  taxes paid  amounted  to $800 and $800 in for the years  ended March 31,
2003 and 2002.

NOTE G--EMPLOYEE BENEFITS

The Company has a combined profit sharing and retirement/savings plan qualifying
for treatment under Internal Revenue Code Section 401(k).  All employees aged 21
and older,  except  those  covered by a  collective  bargaining  agreement,  are
eligible  following  six  months of  employment  in which at least 500 hours are
paid.  Under the profit sharing portion of the plan,  contributions  to the plan
are  determined  by the Board of  Directors  and are  allocated  among  eligible
participants in proportion to their salaries.  There were no contributions  made
by the  Company  during  the  years  ended  March 31,  2003 and 2002.  Under the
retirement/savings  portion of the plan,  the  Company may match 75% of eligible
employees' voluntary contributions to a maximum of 4.5% of their salaries. There
were no Company matching  contributions made under the  retirement/savings  plan
portion in years ended March 31, 2003 and 2002.






                                      F-13
<PAGE>
NOTE H--SHAREHOLDERS' DEFICIT

At the Annual Meeting of  Shareholders  of the Company held on October 10, 2001,
the shareholders  voted to approve an amendment to the Company's  Certificate of
Incorporation to increase the number of common shares authorized from 30,000,000
to 60,000,000.

The Company's 1982 Employee Incentive Stock Option Plan, as amended,  authorized
the issuance of options to purchase  690,000 shares of common stock which may be
granted to  employees,  including  officers,  of the Company.  No options may be
granted  under this plan after  November  1992.  Options to purchase  3,800 (108
options after the two reverse splits of common  shares) shares were  outstanding
and exercisable under this plan at March 31, 2003 and 2002.

In September  1992,  the Company's  shareholders  approved the 1992 Stock Option
Plan which  authorizes  the issuance of incentive and  non-qualified  options to
purchase  300,000  shares of Common  Stock  which may be granted  to  employees,
directors, consultants and advisors. The exercise price of the incentive options
may not be less than 100% of the fair  market  value of the common  stock on the
date of grant (110% with respect to optionees  who are 10% or more  shareholders
of the Company).  The exercise price of  non-qualified  stock options may not be
less than 85% of fair market value.  Options become  exercisable in installments
as determined at the time of grant.  Options expire no later than ten years from
date of grant (five years with respect to incentive options granted to optionees
who are 10% or more  shareholders).  Options to  purchase  217,500  shares  were
outstanding(options  to purchase  6,214 shares  after the two reverse  splits of
common  stock) and  exercisable  under this plan at March 31, 2003 and March 31,
2002.

The 1988  Directors'  Option Plan authorizes the issuance of options to purchase
100,000 shares of common stock. The options are  automatically  granted on April
1st of each year and expire five years after the date of grant.  The options are
fully vested and  exercisable at date of grant.  The exercise  prices may not be
less than 100% of fair  market  value of the common  stock on the date of grant.
Options to purchase  12,000  shares were  outstanding  (343 shares after the two
reverse  splits of common  stock) and  exercisable  under this plan at March 31,
2003 and 2002. No options can be granted under this plan after July 1998.

In September  1999,  the Company's  shareholders  approved the 1999 Stock Option
Plan for Non Employee Directors. The Non Employee Director's plan authorizes the
issuance  of options to purchase  250,000  shares of common  stock.  Options are
automatically  granted under the plan on September 14, 1999 and on April 1 st of
each year thereafter and expire five years after the date of grant.  The options
are fully vested and exercisable at date of grant. The exercise price may not be
less than 100% of fair  market  value of the common  stock on the date of grant.
Options to  purchase  87,500(options  to  purchase  2,500  shares  after the two
reverse splits of common stock) and 50,000 shares were  outstanding on March 31,
2003 and 2002, respectively.

In September  1999,  the Company's  shareholders  approved the 1999 Stock Option
Plan which  authorizes  the issuance of incentive and  non-qualified  options to
purchase  500,000  shares of Common Stock which may be granted to employees  and
consultants and advisors. The exercise price of the incentive options may not be
less than 100% of the fair market  value of the common  stock on the date of the
grant (110% with respect to optionees  who are 10% or more  shareholders  of the


                                      F-14
<PAGE>
Company). The exercise price of non-qualified stock options may not be less than
85% of the fair market value.  Options  become  exercisable in  installments  as
determined at the time of grant. Options expire no later then 10 years from date
of grant (five years with respect to incentive  options granted to optionees who
are 10% or more shareholders).  Options to purchase  1,541,000(92,601  after the
two reverse  splits of common  stock) and  805,000(50,337  after the two reverse
splits of common stock) shares of common stock were outstanding  under this plan
at March 31, 2003 and 2002,  respectively.  Of those options,  52,670 and 44,099
were exercisable at March 31, 2002 and 2001, respectively.

Effective  September  29, 1999 the  Company's  Board of  Directors  approved the
adoption  of  a  stock   compensation  plan  to  compensate   certain  qualified
consultants.  The plan allows for the issue of 700,000  shares of common  stock.
Under the plan the Board of Directors makes a determination  of the value of the
services rendered by the consultant and authorizes the issuance of shares valued
at 100% of the fair market  value at the date the shares are  granted.  At March
31, 2003 and 2002, 552,500 and 447,500 shares of common stock had been issued to
qualified consultants.

On July 21, 2000, the Company granted incentive stock options to an employee for
outstanding business contributions. The qualified stock options for the issuance
of 100,000  shares of common  stock were  issued to the  employee at an exercise
price of $0.75.

In September 2000, the Company's  shareholders approved an amendment to the 1999
Stock  Option Plan which  increases  the number of incentive  and  non-qualified
options to purchase to 1,000,000  shares of Common Stock which may be granted to
employees and consultants and advisors. At the Annual Meeting of Shareholders of
the  Company  held on October 10,  2001,  the  shareholders  voted to approve an
amendment to the Company's 1999 Stock Option Plan that would increase the number
of options authorized for grant from 1,000,000 to 3,000,000.

On January 4, 2001, the Company granted  non-qualified stock options pursuant to
an employment  agreement with an employee.  The non-qualified  stock options for
the issuance of 240,000 shares of common stock were issued to the employee at an
exercise price of $0.20.


Changes in the status of options  are  summarized  as follows  for fiscal  years
ended March 31:

                                           2003               2002
Outstanding at beginning of year           50,337             31,094
Granted                                    51,429             19,243
Canceled or expired                        0                  0
Exercised                                  0                  0
                                           ------------------ -----------------
Outstanding at end of year                 101,766            50,337
Available for grant at end of year         3,464,034          51,543
Price range of options:
Outstanding at end of year                 $1.33 - $105.00    $3.85 - $105.00
                              Exercised    $             0    $             0

At March 31, 2003 and 2002, options for the purchase of 95,528 and 44,099 shares
were exercisable.


                                      F-15
<PAGE>
At March  31,  2003 the  following  warrants  to  purchase  common  shares  were
outstanding:

             Quantity                    Exercise Price       Expiration Date
             2,143                   $   17.50                April 22, 2003
             1,293                   $   25.90                April 28, 2003
             1,905                   $   26.25                June 5, 2003
             1,587                   $   26.25                June 10, 2003
             12,698                  $   24.50                June 17, 2003
             5,714                   $   26.25                June 17, 2003
             1,587                   $   26.25                July 1, 2003
             5,714                   $   17.50                July 27, 2003
             1,473                   $   18.55                July 28, 2003
             7,143                   $   7.00                 October 13, 2003
             1,552                   $   16.45                October 26, 2003
             6,349                   $   19.60                December 2, 2003
             1,071                   $   26.25                January 29, 2004
             1,071                   $   26.25                February 5, 2004
             1,429                   $   28.35                April 6, 2004
             143                     $   33.95                May 4, 2004
             5,714                   $   38.15                July 6, 2004
             1,714                   $   15.40                October 31, 2004
             571                     $   17.50                November 3, 2004
             571                     $   17.50                November 3, 2004
             1,143                   $   17.50                November 3, 2004
             2,143                   $   .35                  March 27, 2006
             285,714                 $   .70                  November 20, 2007


The Company applies APB 25 in accounting for its Stock Option Program  described
above.  The option  price under the Stock Option  Program  equals or exceeds the
fair market value of the common shares on the date of grant and, accordingly, no
compensation  cost has been recognized  under the provisions of APB 25 for stock
options.  Under SFAS 123,  compensation cost is measured at the grant date based
on the  value of the award  and is  recognized  over the  service  (or  vesting)
period.  Had compensation  cost for the Company's Stock Option Program and other
stock  based  compensation  been  determined  under SFAS 123,  based on the fair
market value at the grant dates,  the  Company's  pro forma net earnings and net
earnings per share would have been reflected as follows:

(In thousands, except per share amount)         2003            2002
----------------------------------------     ----------     -----------
Net earnings
                       As reported           $   (1,832)    $    (2,957)
                       Pro forma             $   (2,021)    $    (3,387)
Net earnings per share
                       As reported           $    (1.84)    $     (6.64)0.19)
                       Pro forma             $    (2.03)    $     (6.64)0.19)

The fair value of each  option and  warrant  grant is  estimated  on the date of
grant  using  the   Black-Scholes   option  pricing  model  with  the  following
weighted-average  assumption  used for those  options  granted in 2003 and 2002,
respectively:  dividend  yield of 0% and 0%,  expected  volatility of 71.38% and
26.38%, risk-free interest rates of 1.25% and 5.43%, and expected lives equal to
the life of the option or warrant and 5 years.


                                      F-16
<PAGE>
NOTE I--SALES OF COMMON STOCK

On April 5, 2001 the Company entered into a Securities  Purchase  Agreement with
Global Alpha  Corporation,  a British Virgin Islands company  ("Global  Alpha"),
wherein the Company  agreed to sell up to 14,616,444  shares of its common stock
to Global Alpha for aggregate  consideration  of $3,226,200.  In accordance with
the Agreement,  the shares are being  purchased,  at the option of Global Alpha,
over a six-month period.  The first installment of $100,000 was paid on April 6,
2001 for 500,000  shares.  Subsequent  installments  of  $100,000;  $150,000 and
$150,000 were paid on May 5, June 5, and July 3, 2001 for 500,000;  750,000; and
750,000 shares,  respectively.  Additional  monthly  installments  increasing to
$1,332,809 on August 3, 2001, and $1,393,391 on October 2, 2001, were to be paid
at the option of Global Alpha.

On August 3, 2001,  the  Securities  Purchase  Agreement  with Global  Alpha was
amended  to cancel  the  August 3, 2001 and  October  2, 2001  installments  and
replace  them with nine other stock  purchase  installments.  Under the terms of
this amendment,  Global Alpha would purchase in monthly  installments,  at their
discretion,  12,116,442  shares of the  Company's  common  stock  for  aggregate
consideration of $2,726,000 as follows:

August 7, 2001 1,363,636  shares at an exercise  price of $300,000  September 7,
2001 1,363,636 shares at an exercise price of $300,000 October 5, 2001 1,363,636
shares at an exercise price of $300,000  November 9, 2001 1,363,636 shares at an
exercise  price of  $300,000  December 7, 2001  1,330,593  shares at an exercise
price of  $300,000  January 4, 2002  1,304,348  shares at an  exercise  price of
$300,000  February 8, 2002  1,304,348  shares at an  exercise  price of $300,000
March 8, 2002  1,304,348  shares at an exercise  price of $300,000 April 5, 2002
1,418,261 shares at an exercise price of $326,200

As of June 30, 2002,  Global Alpha has purchased  14,616,444  (417,613 after the
two reverse  splits of common  shares)  shares of the Company's  common stock as
required by the Securities Purchase Agreement.

On October 29, 2002,  the Company issued  2,482,843  pre-split  shares  (496,570
post- the 1:5 split of November  2002,  70,939 after the reverse split of April,
2003) of its common stock to Global Alpha  Corporation  ("GAC") upon exercise of
warrants exercised in May and June 2002 in the aggregate amount of $425,000. GAC
is the Company's  principal  shareholder and is an accredited and  sophisticated
investor.

On December 20, 2002 the Company issued 1,088,890 pre-split shares of its common
stock to Global Alpha Corporation ("GAC") upon exercise of warrants exercised in
June and July 2002 in the aggregate amount of $245,000.  The Company should have
issued  217,778(31,111 after the reverse split of April, 2003) post-split shares
and has requested that GAC return  871,112 shares to the Company.  No adjustment
has been made  pending  return of the  shares.  GAC is the  Company's  principal
shareholder and is an accredited and sophisticated investor.

On November 6, 2002, the Company  entered into a Securities  Purchase  Agreement
("Purchase  Agreement") and a Registration Rights Agreement ("Rights Agreement")
with certain  accredited  investors to be named by Manhattan  Capital  Partners,
LLC, a venture capital limited liability company.  Under the Purchase Agreement,
the Company has agreed to sell  $310,000 of its common stock,  as amended,  at a



                                      F-17
<PAGE>
purchase price based upon the lower of (i) $0.10 per share,  or (ii) the average
price per share  between  the  "bid"  and  "ask"  price on the  Over-the-Counter
Bulletin Board at the close of business for the five (5) business days preceding
the closing date.  The offer closed and  3,100,000  post-split  shares  (442,857
shares  after the 1:7  reverse  split of April,  2003) were issued at a price of
$0.10 per share.

Upon the sale of the Company's common stock to the investors,  and in accordance
with the  Rights  Agreement,  the  Company  has  agreed  to file a  registration
statement with the Securities and Exchange Commission ("SEC") registering all of
the common stock purchased by the investors. To date, the registration statement
has not been filed.

Also,  on November  6, 2002,  and in  connection  with the  Purchase  and Rights
Agreements with certain investors, the Company agreed to enter into a Consulting
Agreement and Registration Rights Agreement with Manhattan Capital Partners, LLC
("Manhattan")  upon the receipt by the  Company of  $310,000.  In  exchange  for
general business consulting  services,  the Company granted warrants to purchase
an aggregate of 2,000,000 (285,714 shares after the 1:7 reverse split) shares of
its common stock at a price of $0.10 per share.  The warrants  expire five years
after the date of grant. The Registration  Rights Agreement requires the Company
to file a registration statement with the SEC, registering the underlying common
stock of the warrants  granted to Manhattan.  To date, a registration  statement
has not been filed.


NOTE J--RECENT ACCOUNTING PROUNCEMENTS

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations,"  effective  for  years  beginning  after  June  15,  2002,  or the
Company's  fiscal year 2004.  SFAS No. 143 addresses  financial  accounting  and
reporting for obligations  associated with the retirement of tangible long-lived
assets  and  the  associated  asset  retirement   costs.  It  applies  to  legal
obligations associated with the retirement of long-lived assets that result from
the  acquisition,  construction,  development and (or) the normal operation of a
long-lived  asset,  except for certain  obligations of lessees.  The adoption of
this  Statement  will not have a significant  impact on the Company's  financial
statements.


In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for years beginning after December 15,
2001, or the Company's  fiscal year 2003.  SFAS No. 144 superseded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and the accounting  and reporting  provisions of APB Opinion No.
30,  "Reporting  the  Effects  of  Disposal  of a  Segment  of a  Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 retains the requirements of SFAS No. 121 to recognize an impairment loss
only if the carrying amount of a long-lived  asset is not  recoverable  from its
undiscounted  cash  flows and to measure an  impairment  loss as the  difference
between the  carrying  amount and the fair value of the asset.  The  adoption of
SFAS No. 144 in fiscal 2003 did not have a  significant  impact on the Company's
financial statements.




                                      F-18
<PAGE>
In April 2002, the FASB issued SFAS No. 145,  "Rescission of SFAS Nos. 4, 44 and
64,  Amendment  of  SFAS  No.  13,  and  Technical   Corrections."  Among  other
provisions,  SFAS No. 145 rescinds both SFAS No. 4, "Reporting  Gains and Losses
from  Extinguishment  of Debt,"  and the  amendment  of SFAS No. 4, SFAS No. 64,
"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145
also amends SFAS No. 13,  "Accounting for Leases," to eliminate an inconsistency
between the accounting for  sale-leaseback  transactions  and the accounting for
certain lease modifications that have economic effects similar to sale-leaseback
transactions.   SFAS  No.  145  also   amends   other   existing   authoritative
pronouncements  to make various  technical  corrections,  clarify  meanings,  or
describe their applicability  under changed  conditions.  The provisions of SFAS
No. 145 are applicable for fiscal years beginning  after,  transactions  entered
into after and financial statements issued on or subsequent to May 15, 2002. The
Company does not believe that SFAS No. 145 will have a significant impact on its
financial statements.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." SFAS No. 146 addresses financial  accounting
and  reporting  for  costs  associated  with  exit or  disposal  activities  and
nullifies  Emerging  Issues Task Force Issue No. 94-3 ("EITF 94-3"),  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity  (including Certain Costs Incurred in a  Restructuring)."  SFAS No. 146
requires  that a  liability  for a cost  associated  with an  exit  or  disposal
activity be  recognized  when the  liability  is  incurred.  Under EITF 94-3,  a
liability for an exit cost, as defined in EITF 94-3,  was recognized at the date
of commitment to an exit or disposal plan.  SFAS No. 146 also  establishes  that
fair value is the  objective  for  initial  measurement  of the  liability.  The
provisions  of SFAS  No.  146 are  effective  for  exit or  disposal  activities
initiated  after  December 31, 2002.  The Company does not believe that SFAS No.
146 will have a significant impact on its financial statements.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others." FIN 45 clarifies the  requirements  for a
guarantor's  accounting  for and  disclosures of certain  guarantees  issued and
outstanding. It also specifies that a guarantor is required to recognize, at the
inception of the  guarantee,  a liability  for the fair value of the  obligation
undertaken in issuing the  guarantee,  although it does not prescribe a specific
approach for subsequently  measuring the guarantor's  recognized  liability over
the term of the guarantee. FIN 45 also specifies certain disclosures required to
be made in interim and annual financial  statements  related to guarantees.  The
recognition  and  measurement  provisions of FIN 45 are effective for guarantees
issued or modified after December 31, 2002. The accounting for guarantees issued
prior to this date is not affected.  Disclosure  requirements  are effective for
financial statements of interim or annual period ending after December 15, 2002.
The  adoption  of FIN 45 does not have a  significant  impact  on the  Company's
financial statements.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  -  Transition  and   Disclosure,"   which  amends  SFAS  No.  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 employee  compensation.  The Statement also amends
the  disclosure  provisions of SFAS No. 123 to require  prominent  disclosure in



                                      F-19
<PAGE>
both annual and  interim  statements  of the  effects on reported  results of an
entity's  accounting  policy  decisions  with  respect to  stock-based  employee
compensation.  The  disclosure  provisions  of SFAS No.  148 are  effective  for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
Company has included the  required  disclosures  elsewhere in this note and will
include  the  disclosures  required  in  interim  statements  in  its  financial
statements for the first quarter of fiscal 2004. Currently, the Company does not
intend to change its accounting for stock-based compensation.

In  January   2003,   the  FASB  issued   Interpretation   No.  46  ("FIN  46"),
"Consolidation of Variable Interest Entities," which addresses the consolidation
of  business  enterprises  (variable  interest  entities),  to which  the  usual
condition of consolidation,  a controlling  financial interest,  does not apply.
FIN 46 requires an entity to assess its equity  investments to determine if they
are variable  interest  entities.  As defined in FIN 46, variable  interests are
contractual,  ownership or other interests in an entity that change with changes
in the entity's net asset value.  Variable interests in an entity may arise from
financial   instruments,   service  contracts,   guarantees,   leases  or  other
arrangements  with the variable  interest  entity.  An entity that will absorb a
majority of the variable  interest entity's expected losses or expected residual
returns,  as defined in FIN 46, is  considered  the primary  beneficiary  of the
variable  interest  entity.  The primary  beneficiary  must include the variable
interest  entity's  assets,   liabilities  and  results  of  operations  in  its
consolidated  financial  statements.  FIN 46 is  immediately  effective  for all
variable interest entities created after January 31, 2003. For variable interest
entities created prior to this date, the provisions of FIN 46 must be applied no
later than the  beginning of the  Company's  third  quarter of fiscal 2004.  The
Company  does not  believe  that FIN 46 will  have a  significant  impact on its
financial statements.

NOTE K--REVERSE STOCK SPLIT

On October 31, 2002 the Company consummated a 1-for-5 reverse stock split of its
outstanding  common  shares.  The par value of the stock  remained  at $.001 per
share. All references in these notes to the financial statements to common stock
or average number of common shares outstanding reflect the value of common stock
after the effects of the 1-for-5 reverse split. The Company's common stock began
trading on the OTCBB under the symbol "AVUL" at that time.

On April 14, 2003, the Company  consummated a 1-for-7 reverse stock split of its
outstanding  common  shares.  The par value of the stock  remained  at $.001 per
share. All references in these notes to the financial statements to common stock
or average number of common shares outstanding reflect the value of common stock
after the effects of the 1-for-7  reverse  split.  The  Company's  common  stock
currently is trading on the OTCBB under the symbol "AVRT".


NOTE L -LICENSE AGREEMENT
-------------------------
Effective October 31 2002, the Company entered into a License Agreement with its
principal shareholder,  Global Alpha Corporation ("GAC") wherein GAC was granted
an exclusive license to the Company's  software and systems commonly referred to
as the "IC3D Framework" (the "System). The System encompasses  substantially all
of the Company's  software  including  software  developed to support multi-user



                                      F-20
<PAGE>
online collaborative  interactivity in a broad variety of applications employing
a variety of virtual media over a number of networks  including the Internet and
intra-nets.  Under the  Agreement,  GAC will pay to the Company a license fee of
ten  percent of the revenue  generated  from the sale or use of the System up to
$1,000,000,  nine percent up to $2,000,000,  eight percent up to $3,000,000 and,
thereafter,  seven percent of the revenue generated.  A minimum,  annual license
fee of $25,000 for the year ending  December 31, 2002 and December 31, 2003 must
be paid to maintain the exclusive license.  At March 31, 2003 the annual license
fee of $25,000 for 2002 had not been paid and the Company has waived the license
fee based on discussions  with GAC setting off the license fee against the short
term debt of  $435,000  owed by the  Company to GAC.  The Company is in advanced
discussions  with  GAC  to  sell  the  IC3D/OneView   product  in  exchange  for
cancellation of the $435,000  convertible  note owed by Alpha Virtual,  Inc. and
the $25,000  license fee owed by GAC.  Accordingly,  the $25,000 license fee was
not accrued in the books of the Company.

NOTE M--OPERATING EXPENSES OF THE COMPANY

On October 31, 2002, the Company  terminated  all but one of its employees;  and
except for a license  agreement  of its  OneView  product,  it ceased all of its
prior operating activities.  The licensee,  Global Alpha Corporation ("GAC") has
paid all software related and overhead expenses including rent, telephone,  etc.
The  Company  continues  to  pay  professional  fees  and  expenses  related  to
administration of a public company.  The Company's principal  activities will be
directed to reducing its liabilities and to seeking possible acquisitions.

NOTE N--SUBSEQUENT EVENTS

Acquisition of Esstec

On April 28, 2003, Alpha Virtual,  Inc. (the  "Registrant") and EssTec,  Inc., a
privately-held Nevada corporation, entered into an Agreement and Plan of Merger.
In  accordance  with the Merger,  on May 8, 2003,  the  Registrant,  through its
wholly-owned subsidiary,  Alpha Acquisition  Corporation,  a Nevada corporation,
acquired  EssTec in exchange for  4,276,162  shares of the  Registrant's  Common
Stock.  The  transaction  contemplated  by the  Agreement  was  intended to be a
"tax-free"  reorganization  pursuant  to  the  provisions  of  Section  351  and
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.

The stockholders of EssTec (aggregating approximately 100) now own approximately
74% of the  Registrant's  common stock  outstanding as of May 8, 2003 (excluding
any additional  shares  issuable upon  outstanding  options,  warrants and other
securities convertible into our common stock).

Description of EssTec

EssTec was  incorporated  on February 11, 2000 as a  wholly-owned  subsidiary of
Converge  Global,  Inc.,  with separate  operations,  employees,  facilities and
management.  EssTec was  incorporated in the state of Nevada as "Essential Tech,
Inc.".  Essential  Tech (Pvt.) Ltd, a 98%-owned  sister  subsidiary  of Converge
based in Pakistan, became its direct subsidiary in February 2000. Essential Tech
(Pvt.) Ltd was  incorporated  in August 1999 to take  advantage  of the benefits
offered by the Pakistan  labor  force,  but prior to February  2000,  it had not
commenced operations and there had been no material activity in the company. 80%
of  its  software  development  is  conducted  through  EssTec's  subsidiary  in
Pakistan. The remaining 20% of development, and 100% of its sales and marketing,
are conducted directly through its US office.
                                      F-21
<PAGE>
On October 6, 2000,  EssTec  changed its name to EssTec,  Inc. In December 2000,
both Converge and EssTec executed a debt conversion agreement, in which Converge
agreed to settle an  outstanding  debt to EssTec in the amount of  $800,000  for
services  performed,  in exchange for which EssTec  received  255,782  shares of
common stock, which was subsequently cancelled. Converge then distributed all of
its  remaining  shares  of  EssTec's  common  stock to a number  of  outstanding
debtholders of Converge,  retaining no interest in EssTec.  EssTec does not have
any current relationship with Converge.

Through the year ended December 31, 2001, EssTec conducted business  exclusively
as a technology  consulting  service,  providing  general  software  development
services  for   businesses,   and  focusing  on  the   development  of  wireless
applications  for  mobile  devices  such  as  mobile  phones,  personal  digital
assistants and handheld  computers to streamline the business  operations of our
clients.  Commencing  in  2002,  EssTec  refocused  its  business  to a  mix  of
consulting services and product-based  technology  development,  focusing on the
creation of proprietary software platforms.  All of EssTec's product development
work  for  both its  proprietary  applications  and its  consulting  clients  is
conducted through its off-shore development center in Lahore,  Pakistan.  EssTec
uses this center to employ skilled  software  developers and technicians who are
proficient in the major programming  languages,  but at substantially lower cost
than an  on-shore  competitor  would have to pay for a similar  level of skilled
labor.  EssTec U.S.  operations  consist  primarily  of  management  and project
managers,  who serve as liaisons between EssTec's clients and its developers and
technicians in Pakistan.

While EssTec still  maintains  its  wireless  and project  consulting  business,
EssTec has also begun research and development on several different  proprietary
applications and products that EssTec believes will experience  market demand in
several industry segments.  EssTec intends to focus on mobile  technologies that
complement its existing suite of products, and anticipates both developing these
technologies as well as acquiring  companies with  technologies  that complement
EssTec's and are financially advantageous.

Letter of Intent to Acquire Veridicom

On July 10th,  2003,  Alpha Virtual,  Inc.  announced that it has entered into a
binding  Letter of Intent to acquire  all key assets of  Veridicom,  Inc.  for a
combination of cash and shares of common stock.  The closing of the  transaction
is  anticipated  within  the  next 30 days and  subject  to a  definitive  asset
purchase  agreement.  The asset  purchase  will  include the  purchase of all of
Veridicom's intellectual property, patents and patent applications, methodology,
and other key  technologies.  Under the terms of the asset purchase,  Veridicom,
Inc. will retain certain licensing rights to use the technology.

Veridicom  designs,  manufactures  and  distributes  the FPS200 digital  silicon
fingerprint  sensor and  matching  fingerprint  algorithms,  used by PC OEMs and
other makers of personal security devices.  Veridicom also provides sensors to a
variety of hardware PC peripherals engineered to protect information accessed on
a PC or remotely through a network.  Based on security and biometric  standards,
these devices  include USB  peripherals,  PCMCIA cards and  smart-card  readers.
Veridicom also provides (SDK Software Development Kits) and application software
that  complements  its  authentication  devices,  enabling a  complete  personal
security solution.



                                      F-22
<PAGE>
                                INDEX TO EXHIBITS




                                      F-23



<PAGE>
                        [ALPHA VIRTUAL, INC. LETTERHEAD]

302 Certification
-----------------
                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

         I, Charles A. Lesser, President and Chief Financial Officer of Alpha
         Virtual, Inc. (the registrant"), certify that:

         1. I have reviewed this annual report on Form 10-KSB of Alpha
         Virtual, Inc.;

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

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

         4. The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

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

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

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

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

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



<PAGE>

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


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

Date:  July 14, 2003



/s/   Charles A. Lesser
-----------------------
Charles A. Lesser
President and
Chief Financial Officer




































<PAGE>
Exhibit 99.1

                        [ALPHA VIRTUAL, INC. LETTERHEAD]


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Alpha Virtual, Inc. (the "Company") on
Form 10-KSB for the period ending March 31, 2003 as filed with the Securities
And Exchange Commission on the date hereof (the "Report"), I, Charles A. Lesser,
President and Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:


    (1)    The Report fully complies with the requirements of section 13(a) or
           15(d) of the Securities Exchange Act of 1934; and

    (2)    The information contained in the Report fairly presents, in all
           material respects, the financial condition and result of operations
           of the Company.

         /s/ Charles A. Lesser
         -------------------------
         Charles A. Lesser
         President and
         Chief Financial Officer

         Date:  July 14, 2003


         The foregoing certification is being furnished solely pursuant to 18
         U.S.C. ss.1350 and is not being filed as part of the Report or as a
         separate disclosure document.