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

                                    ---------

                                   FORM 10-KSB
(Mark One)
  [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
           EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 2004

  [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number 000-12382

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

                          VERIDICOM INTERNATIONAL, INC.
                         (formerly Alpha Virtual, Inc.)

                 (Name of small business issuer in its charter)

               Delaware                                    95-2577731
   (State or other jurisdiction of                     (I.R.S. Employer
    incorporation or organization)                   Identification Number)
          3800-999 3rd Avenue                              98104-4023
          Seattle, Washington                              (Zip Code)
(Address of principal executive offices)

                                 (206) 224-6206
                          (Issuer's telephone number)
                             -----------------------

Securities registered under Section 12(b) of the Exchange Act:   None
Securities registered under Section 12(g) of the Exchange Act:   Common Stock,
                                                                 $.001 Par Value

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     No    X
                                                               ---      ---

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

      Issuer's revenues for its most recent fiscal year: $384,853

      Aggregate market value of the voting stock held by non-affiliates computed
by  reference  to the  closing  price at which the Common  Stock was sold on the
Over-the-Counter on March 17, 2005:  $32,505,025.   The  voting  stock  held  by
non-affiliates on that date consisted of 8,892,186 shares of Common Stock.

      Number of shares  outstanding  of each of the  issuer's  classes of common
stock at March 17, 2005: Common Stock: 15,856,110

      Documents   incorporated  by  reference:   Portions  of  the  Registrant's
Definitive  Proxy Statement  filed pursuant to Schedule 14A are  incorporated by
reference into Part III of this Annual Report.

      Transitional Small Business Disclosure Format (check one) Yes |_| No |X|

<PAGE>

                                FORM 10-KSB INDEX

PART I........................................................................3
     ITEM 1.  DESCRIPTION OF BUSINESS.........................................3
     ITEM 2.  DESCRIPTION OF PROPERTIES......................................14
     ITEM 3.  LEGAL PROCEEDINGS..............................................15
     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............15
PART II......................................................................15
     ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......15
     ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......16
     ITEM 7.  FINANCIAL STATEMENTS...........................................40
     ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURES......................................40
     ITEM 8A. CONTROLS AND PROCEDURES........................................40
     ITEM 8B. OTHER INFORMATION..............................................41
PART III.....................................................................41
     ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT..............41
     ITEM 10. EXECUTIVE COMPENSATION.........................................42
     ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.................42
     ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................42
     ITEM 13. EXHIBITS.......................................................42
     ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................44
SIGNATURES...................................................................45
POWER OF ATTORNEY............................................................45

--------------------------------------------------------------------------------
<PAGE>

Special Note Regarding Forward Looking Statements
-------------------------------------------------

      This report contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, including the plans and
objectives of management for the business,  operations, and economic performance
of  Veridicom   International,   Inc.  (the  "Company"  "we"  and  "us").  These
forward-looking  statements  generally  can be  identified by the context of the
statements or the use of words such as the Company or its management "believes,"
"anticipates,"  "intends,"  "expects,"  "plans"  or  words of  similar  meaning.
Similarly,  statements that describe the Company's future operating performance,
financial results, plans, objectives,  strategies,  or goals are forward-looking
statements.  Although  management  believes that the assumptions  underlying the
forward-looking   statements  are   reasonable,   these   assumptions   and  the
forward-looking   statements   are  subject  to  various   factors,   risks  and
uncertainties, many of which are beyond the control of the Company. Accordingly,
actual  results  could  differ   materially  from  those   contemplated  by  the
forward-looking statements.

      The risks and  uncertainties  are  detailed  from time to time in  reports
filed by us with the Securities and Exchange  Commission,  including  Forms 8-K,
10-QSB,  and 10-KSB, and include,  among others,  the following:  our ability to
obtain  additional  capital to fund operations;  our ability to respond to price
fluctuations  and  volatility  in the stock market in general and the market for
technology  stocks in  particular;  our  ability  improve  profitability  and to
generate  additional  sources of revenue;  compliance  with recent  legislation,
including the  Sarbanes-Oxley Act of 2002; our ability to respond to competitive
pressures;  international,  national and local general  economic,  political and
market   conditions;   our  ability  to  respond  to  changes  in  technological
developments in the biometrics industry;  our ability to successfully market new
products in the marketplace; our ability to protect our reputation by delivering
quality products;  our ability to manage inventory levels and to protect against
manufacturing errors, delays or shortages; our ability to protect and secure our
intellectual  property;  our ability to retain and attract  key  personnel;  our
ability  to  increase   brand   awareness;   proper   management  of  sales  and
implementation cycles; development of marketing distribution channels; and other
factors  referenced  or  incorporated  by  reference  in this  report  and other
reports.

      The risks included here are not exhaustive.  Other sections of this report
may include  additional  factors,  which could adversely impact our business and
financial  performance.  Moreover,  we operate in a very competitive and rapidly
changing  environment.  New risk factors  emerge from time to time and we cannot
predict  all such risk  factors,  nor can we assess  the impact of all such risk
factors on our  business or the extent to which any factor,  or  combination  of
factors,  may cause actual results to differ  materially from those contained in
any forward looking statements.  Given these risks and uncertainties,  investors
should not place undue reliance on forward-looking statements as a prediction of
actual  results.  Investors  should also be aware that while we do, from time to
time,  communicate  with  securities  analysts,  we do not disclose any material
non-public  information or other  confidential  commercial  information to them.
Accordingly,  individuals  should not assume that we agree with any statement or
report issued by any analyst,  regardless of the content of the report. Thus, to
the extent that reports issued by securities  analysts  contain any projections,
forecasts or opinions, such reports are not our responsibility.


                                       2
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Overview
--------

      Veridicom   International,   Inc.,  a  Delaware  corporation  (hereinafter
sometimes  referred  to as the  "Company,"  "we,"  and  "us"),  incorporated  on
September 9, 1987, under the name Perceptronics, Inc. From our inception through
fiscal  2000,  we were engaged in the design,  development  and  manufacture  of
computer-based  simulation  systems for  training and  decision  support.  These
systems  included both hardware and software and are used to train  personnel in
the use of various  military and  commercial  equipment.  Much of our  simulator
business was in the foreign defense industry.  The tightening of defense budgets
worldwide,  combined with the continuing  consolidation  and  competition in the
defense industry,  negatively  impacted the growth and profit  opportunities for
small  companies  such as ours.  As a result,  in July 2000,  we  refocused  our
business.  In  connection  with the refocus,  we sold the assets  related to our
computer  based   simulation   system  line  of  business  to  a  developer  and
manufacturer  of  specialized  defense  simulation  products.  We then commenced
development of commercial products in the area of Internet collaboration.

      However,  we lacked the funds necessary to exploit our developed products.
As a result,  in October 2002, we entered into a license agreement with our then
principal  stockholder,  Global Alpha Corporation  ("GAC") pursuant to which GAC
was granted an exclusive  license to our software and systems commonly  referred
to as the "IC3D Framework" (the "System"). The System encompassed  substantially
all of our 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 license agreement,  GAC agreed to pay us a license fee of
10% of the  revenue  generated  from  the sale or use of the  System  up to $1.0
million, 9% up to $2.0 million, 8% up to $3.0 million and, thereafter, 7% of the
revenue generated.

      In connection  with the license  agreement,  in October 2002 we terminated
substantially all of our employees, and except for our license agreement, ceased
all of our prior operating activities.  Our principal activities became directed
to reducing our  liabilities  and seeking  possible  acquisitions.  Management's
objective was to acquire an operating  company that has  experienced  management
and the potential for profitable growth in exchange for our securities.

      On April 28, 2003,  we entered  into an Agreement  and Plan of Merger with
EssTec, Inc., a privately-held Nevada corporation ("EssTec"). In accordance with
the merger,  on May 8, 2003,  we,  through our  wholly-owned  subsidiary,  Alpha
Acquisition Corporation,  a Nevada corporation,  acquired EssTec in exchange for
4,276,162  shares of our  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.

      On May 8, 2003,  in  connection  with the EssTec  merger,  we changed  our
fiscal year end from March 31 to December 31.

      On November 25, 2003, we entered into an Agreement and Plan of Merger with
Veridicom,  Inc., a  privately-held  California  corporation  ("Veridicom").  In
accordance with the merger,  on November 25, 2003, we, through our  wholly-owned
subsidiary,  A/V  Acquisition  Corporation,   a  Nevada  corporation,   acquired
Veridicom in exchange for 3,500,000 shares of our common stock; 3,250,000 shares
were issued to the  holders of  Veridicom  stock and 250,000  shares were issued


                                       3
<PAGE>

into escrow to cover  indemnification  obligations,  if any, of  Veridicom.  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.

      On January 16, 2004,  we entered into an Agreement and Plan of Merger with
Cavio Corporation, a privately-held Washington corporation ("Cavio"). The merger
became  effective  on February 20, 2004  following a special  meeting of Cavio's
stockholders.  In accordance with the merger,  on February 20, 2004, we, through
our  wholly-owned   subsidiary,   A/VII   Acquisition   Corporation,   a  Nevada
corporation,  acquired  Cavio in  exchange  for  5,119,140  shares of our 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  members of our Board of  Directors  now  consist  of Paul Mann,  Saif
Mansour,  Bill Cheung,  Gyung Min Kim,  Jeremy Coles and Shannon  McCallum.  The
following individuals constitute our officers, key employees and advisors:

      Paul Mann,  President  and Chief  Executive  Officer.  Mr. Mann has held a
variety of international posts throughout Europe including:  Sales and Marketing
Manager,  Erith PLC, England;  National Sales and Marketing  Director,  Eurodata
Limited,  UK;  and Sales and  Marketing  Director  ASB  Grunland,  Ludwigsburgh,
Germany.  In  Canada,  Mr.  Mann has  served as  President  of an  international
business referral service linking global trade opportunities,  and has worked to
spearhead  the  international  sales and marketing  initiatives  of The Business
Development  Corporation.  Mr.  Mann's  background  in  international  trade and
international  business  development  led to the creation of Cavio and since its
inception in 1998, he has been its Chief Executive Officer.

      Bashir Jaffer,  Chief Financial  Officer.  Mr. Jaffer has been a member of
the Canadian Institute of Chartered  Accountants since 1976. He is also a Fellow
of the  Institute of Chartered  Accountants  of England and Wales.  From 1998 to
2003,  Mr.  Jaffer was the owner and President of a travel  management  company.
From 1983 to 1998,  Mr. Jaffer was a partner at a firm of chartered  accountants
located in Vancouver,  British Columbia.  Prior to that, Mr. Jaffer worked for a
public company and an  international  firm of chartered  accountants  located in
London,  England.  Mr. Jaffer also worked at KPMG (formerly  Thorne Riddell) and
PricewaterhouseCoopers  (formerly  Coopers & Lybrand) both located in Vancouver,
British Columbia.

      Terry Laferte, VP, Technical Operations.  Mr. Laferte has a 20-year track
record in IT team  leadership  and project  management.  From 2000 to 2004,  Mr.
Laferte was responsible  for leading the development of technology  applications
for Cavio.  From 1993 to 2000, Mr. Laferte managed all software  development for
the Canadian  Securities  Registration  Systems  located in  Vancouver,  British
Columbia. From 1986 to 1993, Mr. Laferte was a senior consultant with SHL System
house Ltd. Located in Edmonton, Alberta.

      Cameron Adams, VP, Strategic Development and Sales. From 2001 to 2004, Mr.
Adams guided the product and marketing  strategies of Cavio.  From 2000 to 2001,
Mr. Adams served as VP, Marketing at Aerovistas.net, Inc., an Internet start-up,
located in Vancouver,  British  Columbia,  serving  transportation  and aviation
clients.  Since 1998,  Mr. Adams has also served as President of his own private
consulting  practice,  Airport  Financial  Services,  Ltd.,  where  he  provides
business development and planning services.

      Hamid Baradaran,  VP, Hardware Development & Manufacturing.  Mr. Baradaran
has over twenty-one  years of diverse  research and development  experience with
leading telecommunication/ data communication  corporations.  Mr. Baradaran also
has over 15 years  direct  experience  in  hardware  design  and  manufacturing,


                                       4
<PAGE>

including IC and systems level design.  Mr.  Baradaran has previously  developed
new products and has particular strengths in high-speed digital design,  printed
circuit board design, high-speed signal integrity, high-speed PCB layout, system
electromechanical  design & mechanical  design.  Mr. Baradaran has a Bachelor of
Science  in  Electrical  Engineering,  received  in 1982 from  California  State
University,  Fullerton,  California.  He has also been the  recipient of several
patents and awards.

Recent Events
-------------

      We  officially  changed our name from Alpha  Virtual,  Inc.  to  Veridicom
International, Inc. on February 23, 2004.

      Following the name change, shares of our common stock are traded under the
symbol "VRDI" on the OTC Bulletin Board (the "OTCBB").

      In April 2004,  Messrs.  Al-Zarooni  and Mirza  resigned from the Board of
Directors.

      In June 2004,  Messrs.  McCallum and Coles were  appointed to the Board of
Directors.

      During  September  2004 and October 2004, we exhibited our products at two
industry trade show: the Biometrics Consortium in Washington,  DC and Biometrics
2004 in London, UK. These shows were the first trade shows that we exhibited our
products at  post-merger  and we believe that they were generally well received.
We will continue to evaluate additional exhibition  opportunities as they become
available.

      On September 28, 2004,  we announced  that we had retained the services of
Carpe DM, Inc.  for  investor  relations  services.  We intend to maintain  good
communication channels with our investor base.

      On August 25, 2004,  we announced  the  development  of Cavio 3.0 Identity
Server.  The Cavio 3.0 Identity  Server is a robust  authentication  solution of
enterprises or for offering hosted authentication services over the Internet.

      On August 23,  2004,  we  announced  an  agreement  to provide the Potomac
Institution for Policy Studies with our biometric authentication  technology. We
believe that this agreement will generate  additional interest in our technology
in the  government  and NGO markets due to the nature of work  performed  by the
Institute.

      During the third quarter, we also announced  significant sales orders with
customers in Turkey and Korea, and announced additional patent opportunities for
our technology in Europe.

      On October 12, 2004 we  announced  a new product  called VKI.  VKI will be
available  in variety  of  configurations,  but will be  primarily  designed  as
multi-factor  authentication  device incorporating  fingerprint  authentication,
secure USB storage, file encryption, and optional Radio Frequency Identification
("RFID") integration.  It is intended that VKI will be marketed to both consumer
and enterprise markets.

      On October 25, 2004 we signed an agreement  with Optimiser Pty Ltd to form
a venture focused on secure digital entertainment content management.  Utilizing
our biometric  technology and Optimiser's  digital content management  platform,
the new joint  venture  will market a service to allow users to download and pay
for   content  at  a  wide   variety  of  remote   locations   based  on  users'
individually-defined  preferences.  The device will allow only the  purchaser of
the content to access and open the entertainment files.


                                       5
<PAGE>


      On December 14, 2004, we announced the intention of the Examining Division
of the European  Patent Office to grant Veridicom a European patent for its high
security biometric authentication process using trusted sensors.

      On December 15, 2004,  we announced  expanded  business  opportunities  in
Brazil with a leading Brazilian technology integrator, Inteligencia Informatica

      On February 25, 2005,  we completed the first of three rounds of a private
placement  whereby we will issue up to an aggregate of  $5,100,000  worth of 10%
callable secured notes  convertible into shares of common stock, and warrants to
purchase up to an aggregate of 10,200,000  shares of our common stock to certain
accredited  investors.  The first of three equal  installments of $1,700,000 was
received in February,  2005 and the two subsequent  closings of $1,700,000  each
are  contingent  upon  triggering  events set forth in the  Securities  Purchase
Agreement.

      On March 8,  2005,  we  announced  that MCP Asia Ltd,  an  investment  and
consulting  firm from Hong Kong,  together  with Fook Vo Holding Ltd ("Fook Vo")
based in Macau,  are in  discussions  to provide the Company with  marketing and
sales services in the Hong Kong, Macau and China regions.

      From  March  10 to March  16,  2005,  we  exhibited  at CeBIT  2005 at the
Hannover  Fairgrounds  in  Hannover,  Germany.  CeBIT  offers  the a  forum  for
business-to-business, "B2B", solutions.

      On  March  14,  2005 we  announced  the  appointment  of two new  European
representatives to expand our growing presence in the European marketplace.  Mr.
Theo Musallam is based in Zurich and will be  representing us in Switzerland and
Mr. Guenther Klix is based in Munich and will be representing us in Germany.

Description of the Company Post-Merger
--------------------------------------

General

      Following  the merger with Cavio,  we realigned  our business  strategy to
leverage  the  core  operations  of  each  of our  subsidiaries.  We  have  five
operational  subsidiaries:  EssTec, Esstec Pakistan,  Veridicom Inc., Cavio, and
Veridicom Canada.

      Since March 1, 2004,  we have  undertaken  a  comprehensive  review of all
pre-merger  operations.   This  on-going  review  has  included  all  facets  of
operations, including the supply chain, product development,  previous sales and
marketing  agreements,  internal controls and reporting  systems.  Based on this
review,  we have decided that a thorough  reorganization of all of the companies
is  warranted,  including  a  re-evaluation  of  the  supply  chain,  method  of
manufacture,  product  strategy and other  organizational  procedures.  Although
distracting in the  short-term,  we believe that this review is in the long-term
best   interests  of  the  Company  and  our   stockholders.   As  part  of  the
reorganization, we closed our Sunnyvale, California offices on April 15, 2004 in
favor of a more cost  effective and  efficient  development  environment  in the
Pacific Northwest.

      Our core  strategy  is to build a  comprehensive  authentication  suite of
products and services, with market-specific  applications that leverage the core
identity management  infrastructure.  We believe there is a significant need for
an auditable,  scalable  product  solution capable of linking an individual to a
specific  electronic  event or transaction -- a strong  authentication  solution
that safeguards legitimate interests and adheres to emerging electronic commerce
legislation.  Our identity management solutions employ public key infrastructure
and a "virtual  token"  based  technology  to  control,  audit and  monitor  the
identification processes for electronic events and transactions.


                                       6
<PAGE>

      We will focus on  transforming  the market for  biometrics and growing the
market beyond traditional  security  applications.  In particular,  the strategy
will be to expand the  traditional  security  offerings to include  security and
convenience value propositions for commercial or point-of-sale transactions.  By
developing customizable  applications as well as authentication  technology,  we
are  endeavoring  that our brand become  synonymous  with secure,  authenticated
transactions.

      We offer a solution that we believe not only  addresses an  organization's
current   requirements  for  stronger  and  more  scalable   authentication  and
authorization,   but  also  addresses  a  future  vision  for  security,  via  a
combination  of  centralized   and   distributed   identity   repositories   and
administration tools.  Utilizing biometric technology,  we provide organizations
with  an  authentication  solution  that  also  provides  users  with  increased
convenience by reducing the reliance on passwords.

      We have a strong  management  team with  combined  experience in sales and
marketing,  vertical  market  knowledge,  technology  development,  and hardware
integrated  circuit  design.  In  addition,  we will have access to a network of
advisors and consultants with significant  expertise in technology,  government,
security, and financial services.  These advisors will be invited to form a more
formal advisory board to provide strategic  direction for products and services,
and, they may be leveraged to provide targeted business  development contacts in
key target markets.

      There are  several  factors  that  management  believes  will  provide new
opportunities  or present new  challenges  for us. We believe  that  regulatory,
technological, and cultural changes will create new opportunities. International
distribution  arrangements are currently in place,  while new channels are being
developed.

Product and Services Overview

      We provide a suite of identity management products, including hardware and
software  that  utilize  public key  infrastructure  (PKI),  secure  token-based
technology,  and  fingerprint  biometrics to  authenticate  and manage  personal
identities for a wide variety of applications  and  transactions.  This platform
provides a biometrically authenticated digital signature for financial,  travel,
and other  applications.  Veridicom's  patented  authentication  and transaction
technology enables real-time  authentication of individuals  anytime,  anywhere,
via the Internet, point-of-sale, security kiosk, and mobile devices.

Identity Management Infrastructure

      Our core  strategy  is to build a  comprehensive  authentication  suite of
products and services, with market-specific  applications that leverage the core
identity management infrastructure.

      We believe that there is a significant  need for an auditable and scalable
product solution capable of linking an individual to a specific electronic event
or transaction -- a strong  authentication  solution that safeguards  legitimate
business  interests.   Our  identity  management  solutions  employ  public  key
infrastructure  and a "virtual  token" based  technology  to control,  audit and
monitor the  identification  processes for  electronic  events.  We believe this
provides organizations with several benefits:

     o    Deployments of biometric technology provide strong  authentication and
          validation of a user's  identity  eliminating the sole reliance on the
          vulnerable password/PIN infrastructure;


                                       7
<PAGE>

     o    Enterprise  middleware systems can move authenticated  events securely
          in real-time over the Internet through a "trusted path";

     o    Creates a non-reputable and legally recognized "card-present" scenario
          for events  conducted for previously  anonymous  Internet  credit card
          transactions;

     o    Allows  for the audit and  assignment  of a digital  signature  to any
          electronic  event proving  without  question the time and origin of an
          event and actual event occurrence;


      We believe that our product  portfolio  allows  organizations  to leverage
investments in existing IT infrastructure.

      We have an extensive portfolio of products and services that are currently
available to  customers,  or that are  available  subject to  customization  and
specific  requirements  definition.  However, we realize the need to continue an
aggressive product development strategy to meet the needs of the marketplace and
advance the  adoption of  biometrics.  Management  believes  that in general the
industry faces continuous  pressures to reduce the cost of devices and solutions
in order to provide a greater  ROI to  organizations.  As such,  we  endeavor to
deliver   additional   products  that  provide  a  high  degree  of  application
flexibility  to the end user.  It is expected that we will build our products to
meet the needs of both current and future  state-of-the-art  technology and will
incorporate third party technology solutions where needed.

      The following table outlines our current and short-term product portfolio:

          Product                     Description
          -------                     -----------
          FPS200                      Solid state silicon fingerprint
                                      sensor, 256 x 300 array

          VKI                         Portable identity device with USB
                                      connectivity, on board fingerprint
                                      sensor, flash memory, and security
                                      software

          Middleware

          Product                     Description
          -------                     -----------
          Cavio 3.0 Identity Server   Robust Enterprise level
                                      authentication server for
                                      Windows, Linux platforms.


          VAS Hosted Service          Hosted authentication service
                                      from our data center

          SDK                         SDK's available for customer
                                      customization and OEMs.


                                       8
<PAGE>


          Applications

          Product                     Description
          -------                     -----------
          Digital Signature           Biometric signature
                                      attached to transactions or
                                      events. This provides
                                      significantly more secure
                                      signing capabilities than
                                      current PIN-based certificates.

          VPAS                        Veridicom Personal
                                      Authentication Suite. This
                                      application is a bundled
                                      solution that allows PC or
                                      network logon, and secure logon
                                      to web site or web applications.

Intellectual Property

      With a pedigree  born out of Lucent  Technologies  and Bell Labs,  we have
several  international  patents for our  technology,  as well as several pending
patent applications.

U.S. Patents Issued

U.S. Patent No.     Title
---------------     ------------------------------------------------------------

5,991,408           Identification and Security Using Biometric Measurements

6,016,355           Capacitive Fingerprint Acquisition Sensor

6,049,620           Capacitive Fingerprint Sensor With Adjustable Gain

6,330,345           Automatic Adjustment Processing For Sensor Devices

6,331,452           Method  of  Fabricating   Integrated  Circuit  Package  with
                    Opening Allowing Access to Die

6,546,122           Method  For  Combining  Fingerprint  Templates  Representing
                    Various   Sensed  Areas  of  a  Fingerprint  to  Derive  One
                    Fingerprint Template Representing The Fingerprint

6,538,456           Capacitive Fingerprint Sensor with Adjustable Gain

6,535,622           Method  for  Imaging   Fingerprints  and  Concealing  Latent
                    Fingerprints

6,538,456           Capacitive Fingerprint Sensor with Adjustable Gain


Patent Applications

    U.S. Patent
    App. Serial     Title
    -----------     ------------------------------------------------
    10/089,987      Spoof Detection for Biometric Sensing Systems

    10/288,554      Method & System for Capturing Fingerprints from
                    Multiple Swipe


                                       9
<PAGE>


Market Overview

Industry Overview

      We believe  that in the wake of the tragic  events of September 11 and the
heightened  security  risks posed by the  prospect of random acts of  terrorism,
biometrics  and  the  field  of  identity  management  are at the  forefront  of
technological  development.  However,  we believe that the tendency  to-date has
been for vendors to develop  proprietary  software and hardware  that focuses on
one segment of the identity  verification  and management  equation.  Because of
their proprietary nature,  many biometric  technology products are inconsistent,
impractical  or  incompatible  with not only the existing `real world' needs and
systems, but also other biometric products.

      Fingerprint  recognition  technology  continues to dominate the market for
biometric  authentication,  and management  believes that this will continue for
the foreseeable future due to its combination of accuracy, ease of use, and cost
effectiveness.

      We believe that there are several increasingly important trends positively
affecting the need for biometric technology:

      o     the need to protect  increasing  amounts of  sensitive  and  private
            information.  Increased digitization of travel,  medical,  financial
            and security information  requires stronger,  less fallible modes of
            user authentication;

      o     the increased amount of information has resulted in increased access
            requirements  for corporate and personal uses.  Physical and logical
            access requirements  demands a more streamlined approach to identity
            management;

      o     increased   travel   security   requirements   demand  leading  edge
            identification technology to improve security while streamlining the
            travel process; and

      o     information access  requirements have increased the proliferation of
            passwords.  Unfortunately,  as password requirements  increase,  the
            costs of managing passwords becomes prohibitive.

      Given the trends  described  above,  we believe that there are  inevitably
going to be  organizations  that believe they can offer a variety of services or
products that incorporate biometrics and may compete with our technology.

Competitive Overview

      As the opportunities for strong  authentication  solutions  increases,  so
will the competition. With significant brand recognition,  patent portfolio, and
technology  solutions,  we believe that we are well protected  against increased
competition.  Furthermore,  we believe  that  increased  competition  indirectly
validates  the  business  model and  market  potential  for our  solutions.  The
following  companies have been identified as potential  competitors due to their
biometric  focus and  product  mix:  Identix,  Bioscrypt,  SAGEM,  UPEK,  Atrua,
Authentec,

      In addition to the  above-mentioned  entities,  it is conceivable  that we
could face future indirect  competition and market  encroachment  from companies
such as  VeriSign  International  and RSA,  which  currently  offer  alternative
security and digital identity solutions not based on biometrics.  However, these
organizations  could  also  present  interesting  partnering  opportunities  via
bundled service offerings.


                                       10
<PAGE>


Market Influences

      There are several  factors  that the  Company  believes  will  provide new
opportunities  or present  new  challenges  for us. We believe  that the primary
market influences relate to regulatory, technological and cultural changes.

Regulatory Changes

      Regulatory   issues  will   continue  to  change  the  landscape  for  our
technology.  We believe  that many of these  legislative  changes  will  present
significant opportunities, such as:

      o     HIPA - Health Insurance  Portability and  Accountability Act governs
            the  privacy  of health  information,  and  securing  access to that
            information. We believe that biometrics is well suited to this task.

      o     US-VISIT - The US Government  is mandating  that all visitors to the
            US  be  fingerprinted  and  have  a  digital  photo  taken.  The  US
            Government will soon require a biometric template  (fingerprint) and
            digital photo in passports.

      o     Department  of  Defense  - The US and  other  defense  agencies  are
            increasing  security   requirements  at  facilities  and  increasing
            security surrounding  information assets. We believe that biometrics
            is well suited to meeting this challenge.

      o     National ID cards - Canada,  UK, US, Italy,  Australia,  Bosnia, and
            other  nations are  evaluating  national ID card  programs.  Many of
            these  nations  are  also   considering   adding   biometrics,   and
            fingerprints in particular, as components of that ID card program.

      o     Electronic   Voting  -  Many  municipal,   regional,   and  national
            governments are contemplating and/or implementing  electronic voting
            systems  to  avoid  the  voting  debacle  that  plagued  the 2000 US
            presidential   election.   As  such,  there  is  a  strong  need  to
            authenticate voters for onsite and remote electronic voting.

Technological Changes

      The  biometrics  industry is rapidly  changing and we aim to remain at the
leading edge of technology. In addition, we will focus on inventing, developing,
and commercializing those technologies that we believe offer additional value to
our customers.

Cultural Changes

      Biometrics  is still a new  technology  to the majority of  consumers  and
employees around the world. However, we believe that recent mandates by the U.S.
government  requiring biometrics in passports and other security initiatives are
facilitating  public  acceptance  and rollout of  biometrics.  In  addition,  as
information  security becomes  increasingly  important to an organization's risk
management  policies,  we believe that biometrics is getting increased attention
for implementation at workplaces.  As workplace enrolment increases,  we believe
that personal use of  biometrics  will increase  accordingly.  In addition,  our
suite  of  applications  is  targeted  to  drive  more  rapid  adoption  rate of
biometric-based solutions.


                                       11
<PAGE>

Market Segments

Financial Services

      The  financial  services  industry has been slow to adopt  biometrics as a
core  service  offering.  We  believe  that this is due to a number of  factors,
including  cost,   customer  demand,   risk  vs.  ROI  of  implementation,   and
availability  of  applications.  We aim to  change  this  scenario  by  offering
financial  services firms a variety of solutions  aimed at increasing  security;
increasing  convenience  and offering a variety of  authentication  applications
suitable for a broad organizational rollout.

      We will initially target those financial  institutions that have the scale
and market  influence  to push  biometrics  to their  markets,  as well as those
institutions  that are known  for  differentiating  their  service  offering  by
providing  leading  edge  technology  and  services.  The  strategy  will  be to
concurrently  encourage use of biometrics by other  industries,  encouraging the
financial institutions to take notice.

Travel & Transportation

      Travel providers are looking for new ways to generate revenue and increase
both safety and the convenience aspects of travel for their passengers. We plant
to propose our solution as a business opportunity, not just a security solution.
It is expected that  travelers will be charged user and/or  transaction  fees by
the travel  provider in exchange  for  additional  benefits  gained by using the
system.  Target  customers  within this market  segment  include  travel agents,
travel  reservations,  airlines,  airports,  hotels,  and other  travel  service
providers.

      We  currently  have  an  agreement  with  Uniglobe,  which  is  part of an
international travel service provider,  to pilot its technology for the purposes
of confirming  individual  client  itineraries  and to approve the processing of
travel service purchases with client customized payment instructions.  Following
the  successful  rollout,  it is planned  that this model  will be  expanded  to
include other industry travel partners such as airlines, hotels, etc.

Public Sector

      We  believe  that  there  are many  opportunities  in the  public  sector,
including  eGovernment,   health  care,  and  education.  We  believe  that  the
authentication  product suite has far reaching  implications for members of this
unique but broad-based environment.

      Specifically,  we believe that our  products  are ideally  suited to mimic
traditional  dynamic  environments,  for  example,  in the fields of  electronic
education,  and industry  accreditization.  The  authentication  suite overcomes
previously  unaddressed  variables including  geographic  diversity,  can handle
multiple  users  interacting  in  real-time  and can control  varying  levels of
clearance and access to allow for the appropriate flow of information.

      While we recognize  that  government  opportunities  offer  potential  for
future sales,  we also recognize that they generally  yield a longer sales cycle
to close. To that end, we are focusing on establishing  strategic  relationships
and  partnerships  with a variety  of public  sector  organizations  and  allied
complementary markets to further our efforts within this market.

Retail

      We  intend  to  actively   pursue   partnerships   with   leading   retail
organizations for product  distribution  purposes.  It is expected that selected
retailers will have the ability to sell components of the Authentication Service


                                       12
<PAGE>

bundle and accordingly to share in revenues  generated from the  product/service
sale. It is expected that additional transaction related fees will generally not
be shared with partners as support and ongoing  customer  relationships  will be
managed by us.

      The strategy in pursuing the retail market is twofold:  First,  we believe
that  customers  will be  attracted  to the VPAS product as a means of improving
security  and  convenience  for PC and web  logon.  As  their  comfort  with the
technology  increases,  we believe that these users will gravitate towards using
other services within the Veridicom  Authentication Service (digital signatures,
authenticated  payment,  etc).  Second,  as more  scanners get deployed into the
market,  we believe  that other  organizations  could be  inclined  to adopt the
Veridicom International solution to keep up with the demands of their customers.

Distribution

      We will  approach  our  markets  via a  combination  of  direct  sales and
partnerships  with  international   systems  integrators  and  resellers.   Some
distributors  are  already  in place as they were  inherited  from our  previous
structure,  and, as such,  we are  currently  in the process of  evaluating  the
performance and suitability of those partners as we move forward.

Direct Sales

      We have a number of direct sales representatives in various regions around
the world.  These  representatives  will be responsible for both direct sales to
strategic  customers as well as supporting  the network of channel  partners and
OEM relationships in various geographic regions.

Development and Distribution Partners

      Distribution  partners will be evaluated based on  performance,  strategic
value, future potential and/or additional  value-add.  Software Development Kits
will be available to enable  integration  partners,  development  partners,  and
OEM's to develop  specific  applications  or other  devices  around our  product
family.

OEM Integration

      We will also endeavor to integrate our sensors and authentication software
with OEM's and  computer  manufacturers.  In  addition,  we believe that further
opportunities  exist by  integrating  sensor  chips with mobile  devices such as
PDA's and mobile phones.

Promotion

      A variety of  strategies  will be  employed  to promote  our  product  and
service portfolio. These initiatives include:

      o     Bundling of our services;

      o     Bundling with third party applications and software;

      o     Joint partnerships with leading industry organizations;

      o     Trade shows;

      o     Leverage  personal  contacts  and  utilize  network of key  industry
            advisors; and

      o     Leverage network of investment brokers and their clients. Transition
            investor support to market support.


                                       13
<PAGE>

Research and Development

      Research and development expenditure for the fiscal 2004 was approximately
$490,674.  Research and  development  expenditure are in respect of salaries for
personnel in product development, including hardware and software enhancements.

Employees and Labor Relations

      At December 31, 2004 we had 43 full-time employees.  At March 17, 2005, we
had 43 full-time employees,  as well as 1 contract employee on monthly retainers
and/or commissions.

      We believe our labor relations are good. However, five former employees of
Veridicom,  Inc.  (which we acquired in November 2003) have filed claims against
us with the Labor Commissioner in the State of California.  The former employees
allege that we owe unpaid wages,  salaries and vacation pay for various  periods
between  July 2000 and  November  2003  amounting  to a total of  $111,650.  The
Company  has  accrued  for this  liability  in its  financial  statements  as at
December 31, 2004.

Legislative Actions and Potential New Accounting Pronouncements

      In order to comply with the newly adopted  Sarbanes-Oxley  Act of 2002 and
proposed accounting changes by the Securities and Exchange Commission, we may be
required to increase  our  internal  controls,  hire  additional  personnel  and
additional outside legal,  accounting and advisory services,  all of which could
cause our general and administrative costs to increase.  Proposed changes in the
accounting  rules,  including  legislative  and other  proposals  to account for
employee stock options as compensation  expense among others, could increase the
expenses that we report under Generally Accepted Accounting  Practices and could
adversely affect our operating results.

ITEM 2.  DESCRIPTION OF PROPERTIES

      Corporate Headquarters.  Our executive offices are located at 3800-999 3rd
Avenue,  Seattle,  Washington.  We have an agreement  for use of office space at
this  location  under  an  annual  rental  agreement.  Under  the  terms  of the
agreement,  we have the option to increase or decrease office space  utilization
on a monthly basis.

      We also  maintain  an office in Canada  located  at 21 Water  Street,  5th
Floor, Vancouver,  British Columbia. We lease approximately 8,200 square feet of
office space located at this location under a three-year lease, which expires in
February 2007.

      We  also  maintain  short-term  tenancies  for  office  space  located  in
Washington, DC., London (UK) and Lahore (Pakistan).

      All of our facilities are in good repair.

      We believe that our existing facilities will be adequate to meet our needs
for the foreseeable future. Should we need additional space, management believes
it will be able to secure additional space at commercially reasonable rates.


                                       14
<PAGE>

ITEM 3.   LEGAL PROCEEDINGS

      Five former  employees of Veridicom,  Inc.  (which we acquired in November
2003) have filed claims against us with the Labor  Commissioner  in the State of
California.  The former employees allege that we owe unpaid wages,  salaries and
vacation pay for various  periods  between July 2000 and November 2003 amounting
to a total of  $111,650.  The  Company has  accrued  for this  liability  in its
financial statements as at December 31, 2004.

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

      There were no matters  submitted to a vote of our security  holders during
the fourth quarter ended December 31, 2004.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock; Related Information

      Our common stock is traded on the OTCBB under the symbol "VRDI".  Prior to
February  23,  2004,  our  common  stock  traded  under the symbol  "AVRT".  The
following  table sets forth the high and low bid prices for our common  stock as
reported  by the  National  Daily  Quotation  Service  and the  Over-The-Counter
Bulletin Board.  Quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions:

                                                    High 1     Low 1
         2003                                       -------    -------
          Jan. 1 - March 31                         $  3.50    $  1.06
          April 1 - June 30                         $  6.00    $  2.94   1
          July 1 - Sept. 30                         $  7.00    $  1.20
          Oct. 1 - Dec. 31                          $  6.00    $  3.45
         2004
          Jan. 1 - March 31                         $  8.00    $  4.00
          April 1 - June 30                         $  5.70    $  3.45
          July 1 - Sept. 30                         $  5.50    $  1.50
          Oct. 1 - Dec. 31                          $  4.05    $  2.30



            1 -  The high and low per share prices reflect our stock split that
                 occurred on April 23, 2003(1:7 stock reverse split).

      At March 17, 2005, there were  approximately  720 holders of record of our
common stock.

      For information  concerning  historical dividends and our dividend policy,
see   "Item    6--Management's    Discussion    and    Analysis   or   Plan   of
Operation--Dividends and Distributions."

      In connection  with the EssTec,  Veridicom  and Cavio merger  transactions
described in Item 1 above, we issued a total of 12,895,302  shares of our common
stock.

      During the period  ended  December  31,  2004,  we issued an  aggregate of
1,020,578  shares of our common  stock in a private  offering.  The shares  were
offered and sold in  reliance  upon  exemptions  from  registration  pursuant to
Section  4(2)  under  the  Securities  Act of  1933,  as  amended,  and Rule 506
promulgated  thereunder.  Each  of  the  investors  qualified  as an  accredited
investor (as defined by Rule 501 under the  Securities Act of 1933, as amended).
We raised $2,715,062 in the private placement,  less offering costs of $673,978.
Net proceeds were used for general corporate purposes.


                                       15
<PAGE>


      During the period ended  December 31, 2004,  we issued 8,561 shares of our
common  stock  pursuant to stock option  exercises.  The shares were offered and
sold in reliance  upon  exemptions  from  registration  pursuant to Section 4(2)
under  the  Securities  Act of  1933,  as  amended,  and  Rule  506  promulgated
thereunder.  Each of the  optionees  qualified  as an  accredited  investor  (as
defined by Rule 501 under the  Securities  Act of 1933,  as amended).  We raised
$13,808  from the exercise of the stock  options and net proceeds  were used for
general corporate purposes.



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      Management's Discussion and Analysis of Financial Condition and Results of
Operations

      The following  discussion should be read in conjunction with our Financial
Statements, including the related notes thereto, and other financial information
included  herein.  The  information  in  this  Report  includes  forward-looking
statements.  In addition,  past operating results are not necessarily indicative
of the results to be expected for future periods.

Overview
--------

      We were  incorporated  in  Delaware  on  September  9, 1987 under the name
Perceptronics,  Inc. From our inception  through fiscal 2000, we were engaged in
the design, development and manufacture of computer-based simulation systems for
training and decision support. These systems included both hardware and software
and are used to train  personnel in the use of various  military and  commercial
equipment.  Much of our simulator  business was in the foreign defense industry.
The  tightening  of defense  budgets  worldwide,  combined  with the  continuing
consolidation and competition in the defense industry,  negatively  impacted the
growth and profit  opportunities  for small companies such as ours. As a result,
in July 2000, we refocused our business. In connection with the refocus, we sold
the assets related to our computer based simulation system line of business to a
developer and manufacturer of specialized defense simulation  products.  We then
commenced   development   of  commercial   products  in  the  area  of  Internet
collaboration.

      However,  we lacked the funds necessary to exploit our developed products.
As a result,  in October 2002, we entered into a license agreement with our then
principal  stockholder,  Global Alpha Corporation  ("GAC") pursuant to which GAC
was granted an exclusive  license to our software and systems commonly  referred
to as the "IC3D Framework" (the "System"). The System encompassed  substantially
all of our 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 license agreement,  GAC agreed to pay us a license fee of
10% of the  revenue  generated  from  the sale or use of the  System  up to $1.0
million, 9% up to $2.0 million, 8% up to $3.0 million and, thereafter, 7% of the
revenue generated.

      In connection  with the license  agreement,  in October 2002 we terminated
substantially all of our employees, and except for our license agreement, ceased
all of our prior operating activities.  Our principal activities became directed
to reducing our  liabilities  and seeking  possible  acquisitions.  Management's
objective was to acquire an operating  company that has  experienced  management
and the potential for profitable growth in exchange for our securities.


                                       16
<PAGE>

      On April 28, 2003,  we entered  into an Agreement  and Plan of Merger with
EssTec, Inc., a privately-held Nevada corporation ("EssTec"). In accordance with
the merger,  on May 8, 2003,  we,  through our  wholly-owned  subsidiary,  Alpha
Acquisition Corporation,  a Nevada corporation,  acquired EssTec in exchange for
4,276,162  shares of our  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.

      On May 8, 2003,  in  connection  with the EssTec  merger,  we changed  our
fiscal year end from March 31 to December 31.

      On November 25, 2003, we entered into an Agreement and Plan of Merger with
Veridicom,  Inc., a  privately-held  California  corporation  ("Veridicom").  In
accordance with the merger,  on November 25, 2003, we, through our  wholly-owned
subsidiary,  A/V  Acquisition  Corporation,   a  Nevada  corporation,   acquired
Veridicom in exchange for 3,500,000 shares of our Common Stock; 3,250,000 shares
were issued to the  holders of  Veridicom  stock and 250,000  shares were issued
into escrow to cover  indemnification  obligations,  if any, of  Veridicom.  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.

      On January 16, 2004,  we entered into an Agreement and Plan of Merger with
Cavio  Corporation,   a  privately-held  Washington  corporation  ("Cavio").  In
accordance with the merger,  on February 20, 2004, we, through our  wholly-owned
subsidiary, A/VII Corporation, a Nevada corporation,  acquired Cavio in exchange
for 5,119,140  shares of our 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.

Description of the Company Post-Merger

      Following the merger with Cavio, we appointed the following officers,  key
employees and advisors:

         Paul Mann, President, Chief Executive Officer and Director
         Bashir Jaffer, Chief Financial Officer
         Terry Laferte, VP, Technical Operations
         Cameron Adams, VP, Strategic Development and Sales
         Hamid Baradaran, VP, Hardware Development and Manufacturing

      We also realigned our business strategy to leverage the core operations of
each  of our  subsidiaries.  We  have  three  operational  subsidiaries:  Cavio,
Veridicom and EssTec.

      Our core  strategy  is to build a  comprehensive  authentication  suite of
products and services, with market-specific  applications that leverage the core
identity management  infrastructure.  We believe there is a significant need for
an auditable,  scalable  product  solution capable of linking an individual to a
specific  electronic  event or transaction -- a strong  authentication  solution
that safeguards legitimate interests and adheres to emerging electronic commerce
legislation.  Our identity management solutions employ public key infrastructure
and a "virtual  token"  based  technology  to  control,  audit and  monitor  the
identification processes for electronic events and transactions.


                                       17
<PAGE>

      We will focus on  transforming  the market for  biometrics and growing the
market beyond traditional  security  applications.  In particular,  the strategy
will be to expand the  traditional  security  offerings to include  security and
convenience value propositions for commercial or point-of-sale transactions.  By
developing customizable  applications as well as authentication  technology,  we
are  endeavoring  that our brand become  synonymous  with secure,  authenticated
transactions.

      We offer a solution that we believe not only  addresses an  organization's
current   requirements  for  stronger  and  more  scalable   authentication  and
authorization,   but  also  addresses  a  future  vision  for  security,  via  a
combination  of  centralized   and   distributed   identity   repositories   and
administration tools.  Utilizing biometric technology,  we provide organizations
with  an  authentication  solution  that  also  provides  users  with  increased
convenience by reducing the reliance on passwords.

      We have a strong  management  team with  combined  experience in sales and
marketing,  vertical  market  knowledge,  technology  development,  and hardware
integrated  circuit  design.  In  addition,  we will have access to a network of
advisors and consultants with significant  expertise in technology,  government,
security, and financial services.  These advisors will be invited to form a more
formal advisory board to provide strategic  direction for products and services,
and, they may be leveraged to provide targeted business  development contacts in
key target markets.

      There are  several  factors  that  management  believes  will  provide new
opportunities  or present new  challenges  for us. We believe  that  regulatory,
technological, and cultural changes will create new opportunities. International
distribution  arrangements are currently in place,  while new channels are being
developed.

      Since March 1, 2004,  we have  undertaken  a  comprehensive  review of all
pre-merger  operations.   This  on-going  review  has  included  all  facets  of
operations, including the supply chain, product development,  previous sales and
marketing  agreements,  internal controls and reporting  systems.  Based on this
review,  we have decided that a thorough  reorganization of all of the companies
is  warranted,  including  a  re-evaluation  of  the  supply  chain,  method  of
manufacture,  product  strategy and other  organizational  procedures.  Although
distracting in the  short-term,  we believe that this review is in the long-term
best   interests  of  the  Company  and  our   stockholders.   As  part  of  the
reorganization, we closed our Sunnyvale, California offices on April 15, 2004 in
favor of a more cost  effective and  efficient  development  environment  in the
Pacific Northwest.

Recent Events

      We  officially  changed our name from Alpha  Virtual,  Inc.  to  Veridicom
International, Inc. on February 23, 2004.

      Following the name change, shares of our common stock are traded under the
symbol "VRDI" on the OTC Bulletin Board (the "OTCBB").

      In April 2004,  Messrs.  Al-Zarooni  and Mirza  resigned from the Board of
Directors.

      In June 2004,  Messrs.  McCallum and Coles were  appointed to the Board of
Directors.

      During  September  2004 and October 2004, we exhibited our products at two
industry trade show: the Biometrics Consortium in Washington,  DC and Biometrics
2004 in London, UK. These shows were the first trade shows that we exhibited our
products at  post-merger  and we believe that they were generally well received.
We will continue to evaluate additional exhibition  opportunities as they become
available.


                                       18
<PAGE>

      On September 28, 2004,  we announced  that we had retained the services of
Carpe DM, Inc.  for  investor  relations  services.  We intend to maintain  good
communication channels with our investor base.

      On August 25, 2004,  we announced  the  development  of Cavio 3.0 Identity
Server.  The Cavio 3.0 Identity  Server is a robust  authentication  solution of
enterprises or for offering hosted authentication services over the Internet.

      On August 23,  2004,  we  announced  an  agreement  to provide the Potomac
Institution for Policy Studies with our biometric authentication  technology. We
believe that this agreement will generate  additional interest in our technology
in the  government  and NGO markets due to the nature of work  performed  by the
Institute.

      During the third quarter, we also announced  significant sales orders with
customers in Turkey and Korea, and announced additional patent opportunities for
our technology in Europe.

      On October 12, 2004 we  announced  a new product  called VKI.  VKI will be
available  in variety  of  configurations,  but will be  primarily  designed  as
multi-factor  authentication  device incorporating  fingerprint  authentication,
secure USB storage, file encryption, and optional Radio Frequency Identification
("RFID") integration.  It is intended that VKI will be marketed to both consumer
and enterprise markets.

      On October 25, 2004 we signed an agreement  with Optimiser Pty Ltd to form
a venture focused on secure digital entertainment content management.  Utilizing
our biometric  technology and Optimiser's  digital content management  platform,
the new joint  venture  will market a service to allow users to download and pay
for   content  at  a  wide   variety  of  remote   locations   based  on  users'
individually-defined  preferences.  The device will allow only the  purchaser of
the content to access and open the entertainment files.

      On December 14, 2004, we announced the intention of the Examining Division
of the European  Patent Office to grant Veridicom a European patent for its high
security biometric authentication process using trusted sensors.

      On December 15, 2004,  we announced  expanded  business  opportunities  in
Brazil with a leading Brazilian technology integrator, Inteligencia Informatica.

      On February 25, 2005,  we completed the first of three rounds of a private
placement  whereby we will issue up to an aggregate of  $5,100,000  worth of 10%
callable secured notes  convertible into shares of common stock, and warrants to
purchase up to an aggregate of 10,200,000  shares of our common stock to certain
accredited  investors.  The first of three equal  installments of $1,700,000 was
received in February,  2005 and the two subsequent  closings of $1,700,000  each
are  contingent  upon  triggering  events set forth in the  Securities  Purchase
Agreement.

      On March 8,  2005,  we  announced  that MCP Asia Ltd,  an  investment  and
consulting  firm from Hong Kong,  together  with Fook Vo Holding Ltd ("Fook Vo")
based in Macau,  are in  discussions  to provide the Company with  marketing and
sales services in the Hong Kong, Macau and China regions.

      From  March  10 to March  16,  2005,  we  exhibited  at CeBIT  2005 at the
Hannover  Fairgrounds  in  Hannover,  Germany.  CeBIT  offers  the a  forum  for
business-to-business, "B2B", solutions.

      On  March  14,  2005 we  announced  the  appointment  of two new  European
representatives to expand our growing presence in the European marketplace.  Mr.
Theo Musallam is based in Zurich and will be  representing us in Switzerland and
Mr. Guenther Klix is based in Munich and will be representing us in Germany.


                                       19
<PAGE>

Critical Accounting Policies Used in Financial Statements
---------------------------------------------------------

      We  prepare  our  financial   statements  in  accordance  with  accounting
principles  generally  accepted in the United States.  The  preparation of these
financial  statements requires management to make estimates and assumptions that
affect the reported  amounts of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Management's  estimates and judgments  are based on  historical  experience  and
various   other   factors  that  are  believed  to  be   reasonable   under  the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or conditions.

      Veridicom  International,  Inc.,  ("we," "us,"  "our," or the  "Company"),
formerly  known  as Alpha  Virtual,  Inc.  is a  Delaware  Corporation  formerly
headquartered  in California  that was formed on September 9, 1987.  The name of
the Company was changed to Veridicom  International,  Inc. in February 2004. The
Company  consolidated  its  corporate  offices  in  Seattle,   Washington,   and
Vancouver, British Columbia in April 2004.

Going Concern
-------------

      Our financial  statements  have been  presented on the basis that we are a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As of December 31, 2004 we have
incurred a net loss of  $3,720,261  and have a working  capital  deficit,  which
raises doubt about our ability to continue as a going concern.  We are currently
devoting our efforts to raising additional  capital and investigating  potential
merger candidates.  Our ability to continue as a going concern is dependent upon
our ability to develop  additional sources of capital,  and ultimately,  achieve
profitable operations.  The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

Mergers
-------

      On April 28,  2003 we entered  into an  Agreement  and Plan of Merger with
Esstec Inc., a privately held Nevada corporation ("Esstec"),. In accordance with
the Merger,  on May 8, 2003,  we,  through our wholly  owned  subsidiary,  Alpha
Acquisition  Corporation  ("AAC"),  a Nevada  Corporation,  acquired  Esstec  in
exchange  for  4,276,162  shares of the Alpha's  common  stock.  For  accounting
purposes  Esstec acquired Alpha in a reverse merger under the purchase method of
accounting.  The  financial  statements  in the filings of Alpha became those of
Esstec.  The legal  entity  (Alpha)  retained  its name until it was  changed to
Veridicom  International,  Inc. in February 2004. Thus, the financial statements
are still those of "Esstec, Inc."

      On November 25, 2003, we entered into an Agreement and Plan of Merger with
Veridicom,  Inc.  ("Veridicom  Inc."),  a  California  corporation,  through AAC
whereby we acquired Veridicom Inc. in exchange for 3,500,000 shares of Veridicom
Inc.'s  common stock.  3,250,000  shares were issued to the holders of Veridicom
Inc.'s  stock,  and 250,000  shares  were issued into escrow to cover  Veridicom
Inc.'s  indemnification  obligations,  if any.  Veridicom's  stockholders  owned
approximately 35% of our common stock outstanding as of November 25, 2003.


                                       20
<PAGE>

      On January 16, 2004,  we entered into an Agreement and Plan of Merger with
Cavio Corporation, a privately held Washington corporation ("Cavio"). The merger
became  effective  on February 20, 2004  following a special  meeting of Cavio's
stockholders.  In accordance with the merger, on February 20, 2004,  through its
wholly owned subsidiary,  A/VII Acquisition  Corporation,  a Nevada corporation,
acquired Cavio in exchange for 5,119,140 shares of our common stock. We recorded
goodwill of $3,792,019 for this acquisition.


          Cash                                    $   164,791
          Receivables                                  14,043
          Stock subscription receivable               129,821
          Prepaid expenses                              4,874
          Fixed assets, net                           109,473
                                                  -----------
                                                      423,002
                                                  -----------
     Less liabilities assumed
          Accounts payable and accrued expenses      (694,009)
          Loans payable                               (28,693)
                                                  -----------
                                                     (722,702)
                                                  -----------
     Net liabilities                              $  (299,700)
                                                  ===========
     Net liabilities assumed                      $   299,700
     Stock issued for acquisition                     299,700
     Common stock issued into escrow                3,192,619
                                                  -----------
     Goodwill                                     $ 3,792,019
                                                  ===========

      The following  unaudited  proforma  condensed  consolidating  statement of
operations for the year period ended December 31, 2004 gives effect to the above
transaction as if it had occurred on January 1, 2004.


<TABLE>
<CAPTION>
                     Veridicom International    Cavio Corporation for
                      Inc. Consolidated for        the period from
                     the year ended December     November 01, 2003 to
                             31, 2004             February 19, 2004        Proforma Adjustments    Proforma Consolidated
                     ------------------------- ------------------------- ------------------------- ----------------------

<S>                      <C>                        <C>                          <C>                     <C>
Revenues                 $   384,853                $        --                  $  --                   $   384,853
(Expenses)                (4,196,622)                  (481,715)                    --                    (4,678,337)
Other                         91,508                     (3,367)                    --                        88,141
                         ===========                ===========                  =====                   ===========
Net loss                 $(3,720,261)               $  (485,082)                 $  --                   $(4,205,343)

</TABLE>

                                       21
<PAGE>

Operations
----------

      We have five  operational  subsidiaries:  Esstec,  Essential  Tec Pakistan
(Private)  Limited  ("Pakistan  Ltd."),  Veridicom  Inc.,  Cavio,  and Veridicom
International (Canada) Inc. ("Canada Inc.").

      Esstec is a  professional  services  company  that  focuses on  e-commerce
initiatives,  interactive  multimedia,  and  mobile  software  applications  for
clients  in   various   industries,   including   the   telecommunications   and
entertainment  industries.  During  2004,  Esstec  did not have any  significant
revenues or incur any significant expenses.

      Pakistan Ltd. was incorporated on April 19, 2000 to establish the business
of software development for the international markets and to export software and
technology. Esstec owns approximately 63.4% of Pakistan Ltd.

      Veridicom Inc.  designs,  manufactures and delivers  hardware and software
products  that  enable  strong  authentication  solutions  based on  fingerprint
biometrics. Veridicom Inc. markets a complete fingerprint biometrics platform on
which applications can be built.

      Cavio  produces  technology  tools  designed to protect  users from fraud,
misrepresentation,   security   and  privacy   issues  by   allowing   users  to
biometrically  authenticate  themselves  to secure  control  access and  confirm
identity across a number of industries.

      On January 21, 2004,  Canada Inc. was formed to be the Canadian  operating
company for the public company.

Consolidation
-------------

      The consolidated  financial  statements include the accounts of us and our
subsidiaries  Esstec,  Pakistan  Ltd.,  Veridicom,  Cavio,  and Canada Inc.  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

Minority Interest
-----------------

      Minority interest  reflects the ownership of minority  shareholders in the
equity of Pakistan Ltd., a consolidated subsidiary less than wholly owned.

Reclassifications
-----------------

      For comparative purposes,  prior year's consolidated  financial statements
have been reclassified to conform to report classifications of the current year.

Goodwill
--------

      Goodwill was recorded at its  purchase  price and is not being  amortized.
Pursuant  to SFAS 142  ("Goodwill  and Other  Intangible  Assets")  and SFAS 144
("Accounting  for the  Impairment  or Disposal of Long-Lived  Assets"),  we have
evaluated our goodwill for impairment and determined  that the fair value of our
goodwill is $4,728,546.


                                       22
<PAGE>

Valuation of the Company's Common Stock
---------------------------------------

      Unless otherwise  disclosed,  all stock based transactions entered into by
us have been  valued at the  market  value of our  common  stock on the date the
transaction   was  entered   into  or  have  been  valued   using  the  Modified
Black-Scholes Model to estimate the fair market value.

Concentrations of Credit Risk
-----------------------------

      Financial  instruments,  which potentially  expose us to concentrations of
credit  risk,  consist  primarily  of trade  accounts  receivable.  We  maintain
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.

Advertising Expenses
--------------------

      We expense advertising costs as incurred.  During the years ended December
31, 2004 and 2003, we did not have significant advertising costs.

Fair Value of Financial Instruments
-----------------------------------

      The  carrying  amounts  of  cash,  accounts  receivable,  notes  payables,
accounts  payable,  and accrued  expenses  approximate fair value because of the
short maturity of these items.

Recently Issued Accounting Pronouncements
-----------------------------------------

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment" ("SFAS 123(R)").  SFAS 123(R) will provide investors and other users of
financial  statements  with more complete and neutral  financial  information by
requiring  that  the   compensation   cost  relating  to   share-based   payment
transactions be recognized in financial  statements.  That cost will be measured
based on the fair  value of the equity or  liability  instruments  issued.  SFAS
123(R) covers a wide range of share-based  compensation  arrangements  including
share  options,   restricted  share  plans,   performance-based   awards,  share
appreciation  rights,  and employee share purchase  plans.  SFAS 123(R) replaces
SFAS No. 123,  "Accounting  for  Stock-Based  Compensation",  and supersedes APB
Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees".  SFAS 123,  as
originally issued in 1995, established as a preferable  fair-value-based  method
of accounting for share-based payment transactions with employees. However, that
Statement  permitted  entities the option of continuing to apply the guidance in
Opinion 25, as long as the footnotes to financial  statements disclosed what net
income  would have been had the  preferable  fair-value-based  method been used.
Public  entities  (other than those filing as small  business  issuers)  will be
required to apply SFAS 123(R) as of the first interim or annual reporting period
that begins after June 15,  2005.  The Company has  evaluated  the impact of the
adoption  of SFAS  123(R),  and  believes  that it could  have an  impact to the
Company's overall results of operations depending on the number of stock options
granted in a given year.

                                       23

<PAGE>

      In December 2004,  the FASB issued SFAS No.153,  "Exchanges of Nonmonetary
Assets,  an  amendment  of  APB  Opinion  No.  29,  Accounting  for  Nonmonetary
Transactions."  The amendments  made by SFAS 153 are based on the principle that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception  for  exchanges  of  nonmonetary  assets  that do not have  commercial
substance.  Previously,  Opinion 29 required that the accounting for an exchange
of a productive asset for a similar  productive asset or an equivalent  interest
in the same or similar  productive  asset should be based on the recorded amount
of the  asset  relinquished.  Opinion  29  provided  an  exception  to its basic
measurement  principle (fair value) for exchanges of similar  productive assets.
That exception required that some nonmonetary  exchanges,  although commercially
substantive,  to be recorded on a carryover  basis. By focusing the exception on
exchanges that lack commercial substance, the FASB believes SFAS No.153 produces
financial  reporting  that  more  faithfully  represents  the  economics  of the
transactions. SFAS No.153 is effective for nonmonetary asset exchanges occurring
in  fiscal  periods  beginning  after  June 15,  2005.  Earlier  application  is
permitted for nonmonetary asset exchanges  occurring in fiscal periods beginning
after the date of  issuance.  The  provisions  of SFAS  No.153  shall be applied
prospectively. The Company has evaluated the impact of the adoption of SFAS 153,
and does not believe the impact will be  significant  to the  Company's  overall
results of operations or financial position.

      In  November  2004,  the FASB  issued SFAS No. 151  "Inventory  Costs,  an
amendment of ARB No. 43, Chapter 4 (" SFAS No. 151". The amendments made by SFAS
151 clarify that abnormal amounts of idle facility  expense,  freight,  handling
costs, and wasted materials  (spoilage)  should be recognized as  current-period
charges and require the  allocation of fixed  production  overheads to inventory
based on the normal  capacity  of the  production  facilities.  The  guidance is
effective for inventory  costs incurred during fiscal years beginning after June
15, 2005.  Earlier  application is permitted for inventory costs incurred during
fiscal years  beginning  after  November 23, 2004. The Company has evaluated the
impact of the  adoption  of SFAS 151,  and does not  believe  the impact will be
significant  to  the  Company's  overall  results  of  operations  or  financial
position.

      In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of Both  Liabilities and Equity,"
which is effective for financial  instruments entered into or modified after May
31, 2003,  and  otherwise is  effective  at the  beginning of the first  interim
period beginning after June 15, 2003. SFAS No. 150 establishes standards for how
an  issuer   classifies  and  measures   certain   financial   instruments  with
characteristics  of both  liabilities and equity.  The adoption of this standard
did not have a material impact on the Company's financial statements.

      In April  2003,  FASB  issued SFAS No.  149,  "Accounting  for  Derivative
Instruments and Hedging  Activities,"  which is effective for contracts  entered
into or modified  after June 30, 2003 and for hedging  relationships  designated
after June 30, 2003. This statement  amends and clarifies  financial  accounting
and reporting for derivative  instruments including certain instruments embedded
in other contracts and for hedging  activities  under SFAS No. 133,  "Accounting
for  Derivative  Instruments  and  Hedging  Activities."  The  adoption  of this
standard did not have a material impact on the Company's financial statements.


                                       24
<PAGE>

      In January  2003,  the FASB  issued  FIN 46,  "Consolidation  of  Variable
Interest  Entities."  FIN 46 clarifies the  application  of Accounting  Research
Bulletin No. 51, "Consolidated Financial Statements," for certain entities which
do not have  sufficient  equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties or in which
equity  investors do not have the  characteristics  of a  controlling  financial
interest  ("variable  interest  entities").  Variable  interest entities will be
required  to  be  consolidated  by  their  primary   beneficiary.   The  primary
beneficiary  of a variable  interest  entity is  determined to be the party that
absorbs a majority of the entity's  expected losses,  receives a majority of its
expected returns, or both, as a result of holding variable interests,  which are
ownership,  contractual,  or other  pecuniary  interests  in an  entity.  FIN 46
applies  immediately  to variable  interest  entities  created after January 31,
2003,  and to  variable  interest  entities  in which an  enterprise  obtains an
interest  after that date. It applies in the first fiscal year or interim period
beginning  after  December 15, 2003, to variable  interest  entities in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
FIN 46 applies  to public  enterprises  as of the  beginning  of the  applicable
interim or annual  period.  The  Company's  adoption  of FIN 46 did not have any
impact upon the Company's financial condition or results of operations.

      In March 2004,  the FASB  approved the  consensus  reached on the Emerging
Issues Task Force (EITF) Issue No.  03-1,  "The Meaning of  Other-Than-Temporary
Impairment and Its  Application to Certain  Investments."  The objective of this
Issue is to provide  guidance for identifying  impaired  investments.  EITF 03-1
also provides new disclosure  requirements for investments that are deemed to be
temporarily  impaired.  In September 2004, the FASB issued a FASB Staff Position
(FSP)  EITF  03-1-1  that  delays  the  effective  date of the  measurement  and
recognition guidance in EITF 03-1 until after further deliberations by the FASB.
The disclosure  requirements  are effective only for annual periods ending after
June 15,  2004.  The Company  has  evaluated  the impact of the  adoption of the
disclosure requirements of EITF 03-1 and does not believe it will have an impact
to the Company's  overall combined  results of operations or combined  financial
position.  Once  the  FASB  reaches  a final  decision  on the  measurement  and
recognition provisions,  the Company will evaluate the impact of the adoption of
EITF 03-1.

Inventory
---------

      Inventory consists primarily of various sensors,  combos and parallel port
units. Inventory is valued at lower of cost (first-in, first-out) or market.

Furniture and Equipment
-----------------------

      Furniture   and  equipment   are  recorded  at  cost.   Depreciation   and
amortization expense is provided on a straight-line basis using estimated useful
lives of 3-7 years.  Depreciation  expense was $47,188 and $18,015 for the years
ended  December  31, 2004 and 2003,  respectively.  Maintenance  and repairs are
charged to expense as  incurred  and  expenditures  for major  improvements  are
capitalized.  When assets are retired or  otherwise  disposed  of, the  property
accounts are relieved of costs and  accumulated  depreciation  and any resulting
gain or loss is credited or charged to operations.


                                       25
<PAGE>

Patents
-------

      At the  acquisition of Veridicom Inc., we evaluated the unused patents and
determined  the costs to secure the patents  outweighed  their  intended use and
were unable to find a party  interested in purchasing  the patents.  The patents
were  originally  recorded at cost and were being  amortized on a  straight-line
basis over 15 years. The Company has valued the patents at $200,000.

Cash and Cash Equivalents
-------------------------

      For purposes of reporting cash flows,  we consider all funds with original
maturities of three months or less to be cash equivalents.

Income Taxes
------------

      We recognize  deferred tax assets and  liabilities for the expected future
income tax consequences of events that have been recognized in the our financial
statements.   Under  this  method,  deferred  tax  assets  and  liabilities  are
determined based on temporary differences between the financial carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in
the  periods  in which  the  temporary  differences  are  expected  to  reverse.
Valuation  allowances  are  established  when  necessary to reduce  deferred tax
assets to the amount expected to be realized.  Income tax expense represents the
tax payable for the current  period and the change during the period in deferred
tax assets  and  liabilities.  We have a net  operating  loss  carry  forward of
approximately $3,800,000 expiring beginning in 2020.

Revenue Recognition
-------------------

      Sales  of  services  are  recorded  when  performed  in  accordance   with
contracts. 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  market  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.

      For fixed fee contracts, Esstec recognizes revenue based on the percentage
completed,  calculated as either the number of direct labor hours in the project
to date divided by the  estimated  total  direct labor hours,  or based upon the
completion of specific task benchmarks. It is Esstec's policy to record contract
losses in their  entirety in the period in which such  losses can be  estimated.
Any revenues  associated with  pre-payments  or pre-billings  are deferred until
revenue is earned. For non-fixed fee jobs, revenue is recognized as services are
performed and adjusted to realization value, if necessary.

      Pakistan  Ltd.  recognizes  revenue  at the  point/time  the  software  is
delivered/exported.

      Veridicom Inc. recognizes revenues at the point of shipment of products.


                                       26
<PAGE>

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------

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

Comprehensive Loss
------------------

      We utilize Statement of Financial  Accounting  Standards  ("SFAS") No. 130
"Reporting  Comprehensive  Income."  This  statement  establishes  standards for
reporting  comprehensive  loss  and its  components  in a  financial  statement.
Comprehensive loss as defined includes all changes in equity (net assets) during
a  period  from  non-owner  sources.   Examples  of  items  to  be  included  in
comprehensive  loss, which are excluded from net loss,  include foreign currency
translation  adjustments and unrealized  gains and losses on  available-for-sale
securities.   Comprehensive  loss  presented  in  these  consolidated  financial
statements resulted from translations of foreign currency financial statements.

Foreign Currency Translation
----------------------------

      Pakistan Ltd.  considers the Pakistan Rupee to be the functional  currency
of its operations.  Cavio and Canada Inc. consider the Canadian Dollar to be the
functional  currency of their operations.  The reporting currency of the Company
is  the  U.S.  dollar;  accordingly,  all  amounts  included  in  the  financial
statements have been translated into U.S. dollars.

   Exchange Rates        For the year Ending 2004    For the Year Ending 2003
   --------------        ------------------------    ------------------------
   Rupee Average                      .01715                 .017331
   Rupee Period end                   .01682                 .017479
   Canadian Dollar Average            .76847
   Canadian Dollar Period end         .83084

Software Development Costs
--------------------------

      The software  development  costs were expensed as research and development
costs as  incurred  until the  software  reached  technological  feasibility  in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer  Software to be Sold,  Leased or  Otherwise  Marketed"
("SFAS 86").

Earnings Per Common Share
-------------------------

      We compute  earnings  (loss) per common share in accordance with Statement
of Financial  Accounting  Standards No. 128,  Earnings Per Share (SFAS No. 128).
This statement  simplifies the standards for computing  earnings per share (EPS)
previously  found in Accounting  Principles  Board Opinion No. 15,  Earnings Per
Share, and makes them more comparable to international  EPS standards.  SFAS No.
128 replaces the  presentation  of primary EPS with a presentation of basic EPS.
In addition,  the Statement  requires dual presentation of basic and diluted EPS
on the face of the  income  statement  for all  entities  with  complex  capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS  computation  to the  numerator  and  denominator  of the  diluted EPS
computation.


                                       27
<PAGE>

Results of Operations--Years Ended December 31, 2004 and 2003

      The following  table sets forth certain  statement of operations  data for
the years ended December 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                                            2004                 2003
                                                       ------------         ------------
<S>                                                    <C>                  <C>
Revenues
         Net revenue                                   $    384,853         $    281,997
         Cost of goods sold                                 212,063              116,007
                                                       ------------         ------------
         Gross profit (loss)                                172,789              165,990

Operations
         General & administrative expense                 3,441,793            1,727,517
         Research & development expense                     490,674                   --
         Technical operations expense                         4,903
         Depreciation expense                                47,188               18,105
         Impairment of goodwill                                  --            1,809,648
                                                       ------------         ------------
         Income (loss) from operations                   (3,811,769)          (3,389,280)

Other income
         Other (income) loss                               (179,344)              (6,692)
         Interest expense                                    94,145               60,835
         Gain on forgiveness of debt                             --             (556,104)
         Impairment charges, other assets                        --                   --
                                                       ------------         ------------
         Income (loss) before minority interest          (3,726,569)          (2,887,319)

Minority interest                                            (6,308)              (4,629)
                                                       ------------         ------------
Net (loss) income                                        (3,720,261)          (2,882,690)

Other comprehensive income (loss):
         Foreign currency translation                      (144,695)                (741)
                                                       ------------         ------------
Total comprehensive income (loss)                      $ (3,864,956)        $ (2,883,431)

Earnings (loss) per share:
   Basic and fully diluted (loss)
   per common share                                    $      (0.27)        $      (0.51)

Weighted average common shares
   outstanding basic and fully diluted                   14,415,829            5,662,025
</TABLE>

General
-------

      Following the completion of the transaction with EssTec and Veridicom Inc.
in 2003 and with Cavio in  February  2004,  we have been  engaged  primarily  in
aligning the operations of the  subsidiaries  with the objective of streamlining
and consolidating operations as necessary, reducing costs and seeking additional
capital.

      As part of the process of streamlining and consolidation of operations, we
closed and  relocated  our  Sunnyvale,  California  facility in April 2004.  The
direct costs incurred for this amounted to $31,575.


                                       28
<PAGE>

      Since May 2004,  we have  focused our  resources  on product  development,
including hardware and software enhancements, as well as on marketing efforts.

Net Revenue
-----------

      Net revenue for fiscal 2004 of $384,853  increased by $102,856 compared to
fiscal  2003.  Net  revenue  in fiscal  2004 is mainly  in  respect  of sales of
capacitive fingerprint sensors, computer peripherals and software related to the
use of our fingerprint authentication technology,  whereas net revenue in fiscal
2003 was mainly in respect  of  software  development  and  consulting  services
provide by EssTec. Such revenue in 2004 was not significant.

Cost of Goods Sold
------------------

      Cost of goods sold during 2004 was mainly for product components purchased
from suppliers and the cost of finished products from existing inventory.  These
amounted to $212,063 in fiscal 2004 and increased by $96,056  compared to fiscal
2003. This is due to the corresponding  increase in net revenues.  Cost of goods
sold  during  2003  were  direct  costs  incurred  by  EssTec  for the  software
development and consulting services rendered.


Gross Profit
------------

      The  gross  profit  in  fiscal  2004 of  $172,789  was  44.9% of net sales
compared  to gross  profit  of  $165,990  which was 58.9% of net sales in fiscal
2003. The variance in the gross profit of $6,799 is due to the change in revenue
sources and product mix during the comparable periods.

General and Administrative Expenses
-----------------------------------

      General and administrative  expenses,  which include non-cash compensation
expense  of,  $359,100  amounted  to  $3,441,793  in  fiscal  2004  compared  to
$1,727,517  in  fiscal  2003.   This  increase  of  $1,714,276  in  general  and
administrative expenses is mainly in respect of:

      o     Salaries , which increased from $253,500 in 2003 to $775,000 in 2004
            as a result of the  hiring  of new  software  development,  hardware
            development and administrative staff;

      o     Consulting  expense,  increased from $139,500 in 2003 to $775,000 in
            2004. This increase includes $210,000 for sales  representatives  in
            the USA, $105,000 for investment consultancy services,  $150,000 for
            remittances to our Pakistan operations for software development work
            and  $92,000  for  independent  contractors  of  our  operations  in
            Sunnyvale;

      o     Professional  services expense which increased from $336,400 in 2003
            to $607,000 in 2004 due to  substantial  increase in accounting  and
            audit fees;

      o     Travel expenses, which increased from $93,000 in 2003 to $242,000 in
            2004;

      o     Rent expenses,  which  increased from $13,000 in 2003 to $145,838 in
            2004 due to formation of the Canadian subsidiary and mergers.

      o     Office administration expenses, which increased from $17,000 in 2003
            to $108,898 in 2004


                                       29
<PAGE>

Research and Development
------------------------

      Research and  development  expenditure  for the fiscal 2004 was  $490,674,
compared to $20,689 in 2003 which was  included  in general  and  administrative
expenses in the 2003  financial  statements.  The  increase  in this  expense is
mainly in respect of salaries for  personnel in product  development,  including
hardware and software enhancements.

Interest Expense
----------------

      Interest  expense in fiscal  2004  amounting  to  $108,116  was mostly for
accrued  interest on notes payable,  compared to interest  expense of $60,835 in
fiscal 2003. The higher interest expense in fiscal 2004 is was mainly in respect
of certain new borrowings during the year.

Liquidity and Capital Resources
-------------------------------

      On February 25, 2005,  we completed the first of three rounds of a private
placement  whereby we will issue up to an aggregate of  $5,100,000  worth of 10%
callable secured notes  convertible into shares of common stock, and warrants to
purchase up to an aggregate of 10,200,000  shares of our common stock to certain
accredited  investors.  The first of three equal  installments of $1,700,000 was
received in March,  2005 and the two subsequent  closings of $1,700,000 each are
contingent  upon  triggering  events  set  forth  in  the  Securities   Purchase
Agreement.

      As a  result,  we  currently  have  sufficient  funds  on hand to fund our
operations  for the next  quarter.  We intend to  complete  the second and third
rounds  of our  private  placement  financing  to fund our  current  and  future
operations. If successful in completing this financing, we may not be able to do
so on terms that are not  excessively  dilutive to our existing  stockholders or
less costly than  existing  sources of financing.  Failure to secure  additional
financing in a timely  manner and on  favorable  terms if and when needed in the
future  could  have a  material  adverse  effect on our  financial  performance,
balance  sheet and stock  price  and  require  us to  implement  cost  reduction
initiatives and curtail operations

Off-Balance Sheet Arrangements
------------------------------

      None.

Dividends and Distributions
---------------------------

      We have not paid any cash  dividends  to date.  We intend  to  retain  our
future  earnings,  if any,  and we do not  anticipate  paying cash  dividends on
either class of our stock in the foreseeable future.


                                       30
<PAGE>

Risk Factors
------------

Risk Related to our Financial Results

OUR STOCK PRICE IS VOLATILE AND COULD DECLINE IN THE FUTURE.

      The  price of our  common  stock  has been  volatile  in the past and will
likely continue to fluctuate in the future.  The stock market in general and the
market for shares of  technology  in particular  has  experienced  extreme stock
price fluctuations. In some cases, these fluctuations have been unrelated to the
operating  performance  of  the  affected  companies.   Many  companies  in  the
technology  and related  industries,  including  us, have  experienced  dramatic
volatility in the market prices of their common stock.

WE HAVE AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY PROFITABLE AND EXPECT TO INCUR
SIGNIFICANT EXPENSES IN THE FUTURE AS WE IMPLEMENT OUR NEW BUSINESS MODEL, WHICH
MAY REDUCE OUR PROFITABILITY.

      We have incurred a cumulative  net loss since  inception and are currently
experiencing  negative cash flow.  We expect to continue to experience  negative
cash flow and operating losses for the foreseeable future as we continue to make
significant  expenditures for acquisitions,  sales and marketing,  international
expansion,  infrastructure development and general and administrative functions,
in light of our new  business  model.  As a  result,  we will  need to  generate
significant revenues to achieve profitability.  If our revenues grow more slowly
than we anticipate,  or if our operating  expenses exceed  expectations,  we may
experience reduced profitability.

OUR  AUDITORS  HAVE  INDICATED  UNCERTAINTY  CONCERNING  OUR ABILITY TO CONTINUE
OPERATIONS AS A GOING CONCERN.

      Our auditors have indicated uncertainty concerning our ability to continue
as a going concern as of the most recent audited financial statements. We cannot
assure you that our ability to obtain additional  customers or financing sources
will be  impaired  as a result of this  qualification.  Additionally,  we cannot
assure you that our proposed projects and services,  if fully developed,  can be
successfully  marketed  or that we will ever  achieve  significant  revenues  or
profitable margins and therefore remain a going concern.

WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS.

      We just  completed  the first of three  rounds of a private  placement  to
raise an  aggregate  of  $5,100,000.  The first of three equal  installments  of
$1,700,000  was  received  in March,  2005 and the two  subsequent  closings  of
$1,700,000  each  are  contingent  upon  triggering  events  set  forth  in  the
Securities  Purchase  Agreement.  If we cannot  complete  the  second  and third
installments  of this  placement  and cannot raise  needed  funds on  acceptable
terms, we will not be able to develop or enhance our products, take advantage of
future  opportunities  or  respond to  competitive  pressures  or  unanticipated
requirements.  To the  extent we raise  additional  capital  by  issuing  equity
securities,  our stockholders may experience substantial dilution. Also, any new
equity  securities may have greater  rights,  preferences or privileges than our
existing  common stock.  A material  shortage of capital will require us to take
drastic  steps such as reducing our level of  operations,  disposing of selected
assets or seeking an acquisition  partner. If cash is insufficient,  we will not
be able to continue operations.


                                       31
<PAGE>

WE WILL BE REQUIRED TO AMEND OUR PREVIOUS PERIODIC REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.

      We have failed to timely  respond to comments  generated by the Securities
and Exchange  Commission on several of our previously filed periodic reports. In
addition, our previous auditors resigned largely as a result of periodic reports
being filed prior to their review.  Although we are  currently  working with our
new auditors to address  these  concerns,  we will be required to amend  certain
previously filed periodic reports and there can be no assurance that we will not
be required to restate previously filed financial  statements,  or be subject to
regulatory  action  by the  Securities  and  Exchange  Commission.  Any of these
actions would have a material  adverse  effect on us and the price of our common
stock.

IF WE FAIL TO MAINTAIN EFFECTIVE INTERNAL CONTROLS OVER FINANCIAL REPORTING, THE
PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED.

      Our internal  controls over  financial  reporting may have  weaknesses and
conditions  that  need to be  addressed,  the  disclosure  of which  may have an
adverse  impact on the price of our common  stock.  We are required to establish
and maintain appropriate internal controls over financial reporting.  Failure to
establish  those  controls,  or any failure of those controls once  established,
could adversely impact our public disclosures regarding our business,  financial
condition or operating  results.  In addition,  management's  assessment  of our
internal  controls  over  financial   reporting  may  identify   weaknesses  and
conditions  that need to be addressed in our internal  controls  over  financial
reporting or other matters that may raise concerns for investors.  Any actual or
perceived  weaknesses and  conditions  that need to be addressed in our internal
controls over financial reporting,  disclosure of management's assessment of our
internal  controls  over  financial   reporting  or  disclosure  of  our  public
accounting  firm's  attestation to or report on  management's  assessment of our
internal  controls over  financial  reporting may have an adverse  impact on the
price of our common stock.

Risks Related To Our Business

WE FACE INTENSE  COMPETITION FROM OTHER BIOMETRIC SECURITY SOLUTION PROVIDERS AS
WELL AS IDENTIFICATION AND SECURITY SYSTEMS PROVIDERS.

      A significant  number of established and startup  companies have developed
or are developing hardware for fingerprint  biometric security applications that
currently  compete  or will  compete  directly  with  those  products  designed,
developed and sold by us. Other  companies  have developed or are developing and
marketing  biometric  security  applications for the recognition of fingerprints
that currently compete or will compete with those products  designed,  developed
and sold by us. Some of these  companies  have  developed or are  developing and
marketing  semiconductor  or optically  based direct contact  fingerprint  image
capture devices.  Other companies have developed or are developing and marketing
other methods of biometric  identification  such as retinal blood vessel or iris
pattern, facial structure, or voice recognition.

      If one or more of these technologies or approaches were widely adopted, it
would significantly  reduce the potential market for our products.  Our products
also compete with non-biometric technologies such as certificate authorities and
traditional keys, cards,  surveillance  systems and passwords.  Many competitors
offering  products  that are  competitive  with our products  and services  have
significantly  more cash and resources than us. The biometric security market is
a rapidly  evolving  and  intensely  competitive  market,  and we  believe  that
additional  competitors  may enter the market and become  significant  long-term
competitors.


                                       32
<PAGE>

      We expect  competition  to increase and  intensify in the near term in the
biometrics markets.  Companies competing with us may introduce products that are
competitively priced, have increased performance or functionality or incorporate
technological advances not yet developed or implemented by us.

SOME PRESENT AND POTENTIAL COMPETITORS HAVE FINANCIAL,  MARKETING, RESEARCH, AND
MANUFACTURING RESOURCES SUBSTANTIALLY GREATER THAN WE HAVE.

      In order to compete  effectively in this environment,  we must continually
develop and market new and enhanced products at competitive prices and must have
the  resources  available  to invest in  significant  research  and  development
activities.  The  failure to do so could have a material  adverse  effect on its
business operations, financial results and stock price.

WE WILL NEED TO RAISE ADDITIONAL EQUITY OR DEBT FINANCING IN THE FUTURE.

      We will need to raise financing in the future to fund our  operations.  If
successful in raising additional financing, we may not be able to do so on terms
that are not  excessively  dilutive to our existing  stockholders or less costly
than existing sources of financing.  Failure to secure additional financing in a
timely manner and on favorable terms if and when needed in the future could have
a material adverse effect on our financial performance,  balance sheet and stock
price and  require  us to  implement  cost  reduction  initiatives  and  curtail
operations.

OUR BUSINESS WILL NOT GROW UNLESS THE MARKET FOR OUR SECURITY  SOLUTIONS EXPANDS
BOTH DOMESTICALLY AND INTERNATIONALLY.

      A large  portion  of our  revenues  is derived  from the sale of  security
products and services.  We cannot accurately  predict the future growth rate, if
any, or the ultimate size of the biometric  technology  market. The expansion of
the  market  for our  products  and  services  depends  on a number of  factors,
including:

      o     the cost,  performance  and reliability of its products and services
            and the products and services of our competitors;

      o     customers'   perception   of  the  benefit  of  biometric   security
            solutions;

      o     public  perceptions of the  intrusiveness of these solutions and the
            manner in which firms are using the biometric information collected;

      o     public   perceptions   regarding  the   confidentiality  of  private
            information;

      o     customers' satisfaction with our products and services; and

      o     marketing  efforts  and  publicity   regarding  these  products  and
            services.

      Certain groups have publicly objected to the use of biometric products for
some  applications on civil liberties  grounds and legislation has been proposed
to  regulate  the  use of  biometric  security  products.  From  time  to  time,
fingerprint recognition and other biometrics technologies have been the focus of
organizations  and individuals  seeking to curtail or eliminate the use of these
technologies  on the  grounds  that these  technologies  may be used to diminish
personal  privacy  rights.  In  the  event  that  such  initiatives   result  in
restrictive legislation,  the market for fingerprint recognition products may be
adversely  affected.  Even if biometric markets develop as we hope, our products
and services  may not gain wide market  acceptance.  Even if biometric  security
solutions  gain wide  market  acceptance,  our  products  and  services  may not
adequately address the market requirements.


                                       33
<PAGE>

THE  BIOMETRICS  INDUSTRY IS  CHARACTERIZED  BY RAPID  TECHNOLOGICAL  CHANGE AND
EVOLVING INDUSTRY STANDARDS, WHICH COULD RENDER OUR EXISTING PRODUCTS OBSOLETE.

      Our future success will depend upon our ability to develop and introduce a
variety of new products and services and  enhancements to these new products and
services  in  order to  address  the  changing  and  sophisticated  needs of the
marketplace.  Frequently,  technical  development  programs  in  the  biometrics
industry require  assessments to be made of the future  directions of technology
and technology market generally, which are inherently difficult to predict.

DELAYS IN INTRODUCING NEW PRODUCTS,  SERVICES AND  ENHANCEMENTS,  THE FAILURE TO
CHOOSE CORRECTLY AMONG TECHNICAL ALTERNATIVES OR THE FAILURE TO OFFER INNOVATIVE
PRODUCTS  AND  SERVICES  AT  COMPETITIVE  PRICES MAY CAUSE  CUSTOMERS  TO FOREGO
PURCHASES OF OUR PRODUCTS AND SERVICES AND PURCHASE THOSE OF OUR COMPETITORS.

      The development of new or enhanced  products and services is a complex and
uncertain  process that requires the accurate  anticipation of technological and
market trends. We may experience development,  marketing and other technological
difficulties  that may delay or limit our  ability to  respond to  technological
changes,  evolving  industry  standards,  competitive  developments  or customer
requirements. You should also be aware that:

      o     Our  technology  may  become  obsolete  upon  the   introduction  of
            alternative technologies;

      o     We may incur substantial costs if we need to modify our products and
            services to respond to these alternative technologies;

      o     We may not have  sufficient  resources  to develop  or  acquire  new
            technologies  or to introduce  new  products or services  capable of
            competing with future technologies;

      o     We may be  unable to  acquire  the  rights  to use the  intellectual
            property necessary to implement new technology; and

      o     When  introducing  new or enhanced  products or services,  we may be
            unable to effectively  manage the transition from older products and
            services.

      Continued  participation  by us in the market for biometric  products that
are linked to forensic quality  databases under the jurisdiction of governmental
agencies may require the  investment  of resources in upgrading our products and
technology  in order for us to  compete  and to meet  regulatory  and  statutory
standards.  We may  not  have  adequate  resources  available  to us or may  not
adequately  keep  pace with  appropriate  requirements  in order to  effectively
compete in the marketplace.

DEFECTS IN OUR PRODUCTS AND SERVICES COULD DIMINISH  DEMAND FOR OUR PRODUCTS AND
SERVICES, WHICH MAY HARM OUR BUSINESS.

      Because our products and services are complex,  they may contain errors or
defects that are not found until after they are used by our customers. Errors or
defects that  subsequently  arise could  seriously  harm our  reputation and its
ability to generate sales to new or existing customers.

      Our  products  and  services  are  used in  systems  with  other  vendors'
products.  These  products and services can be adequately  tested only when they
are  successfully  integrated  with  these  systems.  Errors may be found in new
products or releases  after  shipment  and our  products  and  services  may not
operate as expected. Errors or defects in our products and services could result
in:

      o     loss of revenues and increased service and warranty costs;

      o     delay in market acceptance;


                                       34
<PAGE>

      o     loss of salaries; and

      o     injury to our reputation.

WE MAY BE SUBJECT TO LOSS IN MARKET SHARE AND MARKET  ACCEPTANCE  AS A RESULT OF
MANUFACTURING ERRORS, DELAYS OR SHORTAGES.

      Performance  failure in our  products or certain of our services may cause
loss of market share, delay in or loss of market acceptance, additional warranty
expense or product recall, or other contractual  liabilities.  The complexity of
certain  of the  fingerprint  recognition  systems  make the  manufacturing  and
assembly process of such products,  especially in volume,  complex.  This may in
turn lead to delays or shortages in the availability of certain products, or, in
some cases, the unavailability of certain products.  The negative effects of any
delay or failure could be exacerbated if the delay or failure occurs in products
or services that provide  personal  security,  secure  sensitive  computer data,
authorize significant financial  transactions or perform other functions where a
security breach could have significant consequences.

      If a  product  or  service  launch  is  delayed  or is the  subject  of an
availability  shortage  because of problems with our ability to  manufacture  or
assemble the product or service  successfully on a timely basis, or if a product
or service  otherwise fails to meet  performance  criteria,  we may lose revenue
opportunities   entirely  and/or  experience   delays  in  revenue   recognition
associated with a product or service in addition to incurring  higher  operating
expenses during the period required to correct the defects. We may be subject to
repair,  replacement,  reimbursement and liability claims for products that fail
to work or to meet applicable performance criteria.

      There is a risk that for  unforeseen  reasons we may be required to repair
or replace a substantial number of products in use or to reimburse customers for
products that fail to work or meet strict  performance  criteria.  We attempt to
limit  remedies for product or service  failure to the repair or  replacement of
malfunctioning  or  noncompliant  products  or  services,  and also  attempts to
exclude or minimize exposure to product and related  liabilities by including in
its standard agreements  warranty  disclaimers and disclaimers for consequential
and related damages as well as limitations on its aggregate liability. From time
to time,  in certain  complex  sale or licensing  transactions,  each entity may
negotiate liability provisions that vary from such standard forms.

OUR EXISTING AND PROPOSED  INTERNATIONAL BUSINESS EXPOSES US TO ADDITIONAL RISKS
THAT MAY  RESULT IN FUTURE  ADDITIONAL  COSTS OR LIMIT THE  MARKET  FOR  PRODUCT
SALES.

      Products and services provided to our international  customers account for
a significant part of our revenues.  In addition,  key component of our business
plan is to expand our reach in our foreign markets.  Conducting business outside
of the United States subjects us to additional risks, including:

      o     changes in regulatory requirements;

      o     reduced protection of intellectual property rights;

      o     evolving privacy laws;

      o     tariffs and other trade barriers;

      o     difficulties in staffing and managing foreign operations;


                                       35
<PAGE>

      o     problems in collecting accounts receivable; and

      o     difficulties in authenticating customer information.

      We will face risks  inherent  to new  ventures  in each new market that we
enter,  including a lack of acceptance of our business  model. We may also incur
substantial  costs  related  to  entering  into new  markets,  which  may not be
recoverable we are unsuccessful in these markets. Failure to recover these costs
and expenses may materially  adversely  impact our cash flow and ability to meet
our regular operating expenses, which may, in turn harm our ability to serve our
customers and our competitive position to obtain new customers.

      In addition, a portion of our technology base is in Pakistan.  We could be
adversely affected by any major hostilities involving Pakistan,  which result in
the  interruption  or  curtailment  of trade  between  Pakistan  and its trading
partners.  For  example,  if the United  States or any of its  trading  partners
reinstitutes  the recently lifted trade  sanctions,  it may adversely impact our
ability to continue our Pakistani operations.

IF WE FAIL TO ATTRACT AND RETAIN EMPLOYEES,  OUR GROWTH COULD BE LIMITED AND OUR
COSTS COULD INCREASE,  WHICH MAY ADVERSELY  AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL POSITION.

      Our future  success  depends in large  part upon our  ability to  attract,
train and retain  highly  skilled  executive-level  management  and creative and
technical  personnel.  The  competition  in the  technology  industry  for  such
personnel  is  intense,  and we  cannot be sure  that we will be  successful  in
attracting,  training and retaining  such  personnel.  Some of our employees and
executive  officers  have joined our company  recently,  and all  employees  are
subject to "at will" employment.  High turnover resulting in additional training
expense would decrease its  profitability.  We cannot  guarantee that we will be
able to replace any of our  management  personnel  in the event  their  services
become unavailable.

OUR FAILURE TO MAINTAIN THE PROPRIETARY  NATURE OF OUR TECHNOLOGY,  INTELLECTUAL
PROPERTY AND MANUFACTURING PROCESSES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS,  OPERATING  RESULTS  AND  FINANCIAL  CONDITION  AND ON OUR  ABILITY TO
COMPETE EFFECTIVELY.

      We principally rely upon patent,  trademark,  copyright,  trade secret and
contract law to establish and protect our  proprietary  rights.  There is a risk
that claims  allowed on any patents or trademarks  that we hold may not be broad
enough to protect our technology.  In addition, our patents or trademarks may be
challenged,  invalidated or circumvented  and management  cannot be certain that
the rights  granted  thereunder  will  provide us with  competitive  advantages.
Moreover,  any current or future issued or licensed patents,  or trademarks,  or
currently  existing or future developed trade secrets or know-how may not afford
sufficient   protection  against   competitors  with  similar   technologies  or
processes, and the possibility exists that certain of our already issued patents
or trademarks may infringe upon third party patents or trademarks or be designed
around by others.

      In  addition,  there  is a risk  that  others  may  independently  develop
proprietary  technologies  and processes,  which are the same as,  substantially
equivalent  or  superior to those  possessed  by us or become  available  in the
market at a lower price.

      There is a risk that we have  infringed  or in the  future  will  infringe
patents or  trademarks  owned by owners,  that we will need to acquire  licenses
under  patents or  trademarks  belonging  to others for  technology  potentially
useful or necessary to us and that  licenses will not be available on acceptable
terms, if at all.


                                       36
<PAGE>

      We may have to  litigate  to  enforce  our  patents  or  trademarks  or to
determine  the  scope  and  validity  of  other  parties'   proprietary  rights.
Litigation could be very costly and divert  management's  attention.  An adverse
outcome in any  litigation  may have a severe  negative  effect on our financial
results and stock price. To determine the priority of inventions, we may have to
participate in interference proceedings declared by the United States Patent and
Trademark Office or oppositions in foreign patent and trademark  offices,  which
could result in substantial  cost to us and limitations on the scope or validity
our patents or trademarks.

      We also rely on trade secrets and proprietary  know-how,  which we seek to
protect by confidentiality agreements with our employees,  consultants,  service
providers  and third  parties.  There is a risk  that  these  agreements  may be
breached,  and  that  the  remedies  available  to us may  not be  adequate.  In
addition,  our trade secrets and proprietary know-how may otherwise become known
to or be independently discovered by others.

FAILURE TO  INCREASE  OUR BRAND  AWARENESS  COULD  LIMIT OUR  ABILITY TO COMPETE
EFFECTIVELY.

      If the marketplace  does not associate us with  high-quality  products and
services, we may be unable to keep our existing customers, attract new customers
or  successfully  introduce  new products and  services.  Competitive  and other
pressures may require us to increase our marketing expenses to promote our brand
name, and the benefits associated with brand creation may not outweigh the risks
and costs associated with  establishing our brand name. Our failure to develop a
strong  brand  name  or  the  incurrence  of  excessive  costs  associated  with
establishing our brand name may harm our business.

WE HAVE A LENGTHY SALES AND  IMPLEMENTATION  CYCLE,  WHICH INCREASES THE COST OF
COMPLETING SALES AND RENDERS COMPLETION OF SALES LESS PREDICTABLE.

      If we are unable to license  our  services  to new  customers  on a timely
basis or if our existing  and  proposed  customers  and their  end-users  suffer
delays in the  implementation  and adoption of its services,  our revenue may be
limited and business and  prospects may be harmed.  Our customers  must evaluate
our  technology  and  integrate  our products and services into the products and
services  they  provide.  In  addition,  our  customers  may  need  to  adopt  a
comprehensive  sales,  marketing  and training  program in order to  effectively
implement  some  of its  products.  For  these  and  other  reasons,  the  cycle
associated  with  establishing  licenses  and  implementing  our products can be
lengthy.

OUR SUCCESS  DEPENDS ON OUR ABILITY TO GROW AND DEVELOP OUR DIRECT AND  INDIRECT
DISTRIBUTION  CHANNELS AND THE INABILITY TO DO SO COULD ADVERSELY  AFFECT FUTURE
OPERATING RESULTS.

      Our failure to grow and develop  our direct  sales  channel or to increase
the number of our indirect  distribution  channels could have a material adverse
effect on our  business,  operating  results and  financial  condition.  We must
continue to develop  relationships  with existing  channel  partners or they may
choose to devote greater resources to supporting the products of competitors.

WE MAY BE  ADVERSELY  IMPACTED  BY THE  EVENTS OF AND  ACTIONS  IN  RESPONSE  TO
SEPTEMBER  11,  2001.  A  RECURRENCE  OF  TERRORIST  ATTACKS MAY HAVE A MATERIAL
ADVERSE IMPACT ON OUR BUSINESS PLAN, OPERATIONS AND FINANCIAL CONDITION.

      We may be adversely  affected by the events of September 11, 2001, and the
war in Iraq.  At this  time,  the long term  effects of these  events,  or other
similar  or  related  events  that may occur in the  future,  on the  biometircs


                                       37
<PAGE>

industry or on  worldwide  economic  conditions.  We cannot  assure you that our
business plan,  will not be adversely  impacted by future  terrorist  attacks or
actions taken in response to those attacks.

Risks Related to our Capital Structure

THERE IS NO ASSURANCE  OF AN  ESTABLISHED  PUBLIC  TRADING  MARKET,  WHICH WOULD
ADVERSELY  AFFECT  THE  ABILITY  OF  INVESTORS  IN OUR  COMPANY  TO  SELL  THEIR
SECURITIES IN THE PUBLIC MARKETS.

      Although our common stock trades on the  Over-the-Counter  Bulleting Board
(the "OTCBB"),  a regular trading market for the securities may not be sustained
in the future.  The NASD has enacted recent changes that limit quotations on the
OTCBB to  securities of issuers that are current in their reports filed with the
Securities  and  Exchange  Commission.  The  effect on the  OTCBB of these  rule
changes and other proposed  changes cannot be determined at this time. The OTCBB
is an inter-dealer,  Over-The-Counter  market that provides  significantly  less
liquidity  than  the  NASD's  automated  quotation  system  (the  "NASDAQ  Stock
Market").  Quotes  for  stocks  included  on the  OTCBB  are not  listed  in the
financial  sections  of  newspapers  as are those for The Nasdaq  Stock  Market.
Therefore,  prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of common stock may be unable to resell their  securities  at
or near their  original  offering  price or at any price.  Market prices for our
common stock will be influenced by a number of factors, including:

      o     the issuance of new equity securities;

      o     changes in interest rates;

      o     competitive developments,  including announcements by competitors of
            new  products or services or  significant  contracts,  acquisitions,
            strategic partnerships, joint ventures or capital commitments;

      o     variations in quarterly operating results;

      o     change in financial estimates by securities analysts;

      o     the depth and liquidity of the market for our common stock;

      o     investor perceptions of our company and the technologies  industries
            generally; and

      o     general economic and other national conditions.

THE LIMITED PRIOR PUBLIC MARKET AND TRADING  MARKET MAY CAUSE  VOLATILITY IN THE
MARKET PRICE OF OUR COMMON STOCK.

      Our common stock is currently traded on a limited basis on the OTCBB under
the symbol  "VRDI."  The  quotation  of our  common  stock on the OTCBB does not
assure that a meaningful, consistent and liquid trading market currently exists,
and in recent  years  such  market  has  experienced  extreme  price and  volume
fluctuations that have  particularly  affected the market prices of many smaller
companies  like us.  Our common  stock is thus  subject  to  volatility.  In the
absence of an active trading market:

      o     investors may have difficulty buying and selling or obtaining market
            quotations;

      o     market visibility for our common stock may be limited; and


                                       38
<PAGE>

      o     a lack of  visibility  for our  common  stock may have a  depressive
            effect on the market for our common stock.

OUR COMMON STOCK COULD BE CONSIDERED A "PENNY STOCK."

      Our common stock could be considered to be a "penny stock" if it meets one
or more of the  definitions  in Rules  15g-2  through  15g-6  promulgated  under
Section 15(g) of the Securities Exchange Act of 1934, as amended.  These include
but are not limited to the following:  (i) the stock trades at a price less than
$5.00 per share;  (ii) it is NOT  traded on a  "recognized"  national  exchange;
(iii) it is NOT quoted on The Nasdaq  Stock  Market,  or even if so, has a price
less than  $5.00 per  share;  or (iv) is issued by a company  with net  tangible
assets less than $2.0  million,  if in  business  more than a  continuous  three
years,  or with  average  revenues of less than $6.0  million for the past three
years.  The  principal  result or effect of being  designated a "penny stock" is
that securities  broker-dealers  cannot recommend the stock but must trade in it
on an unsolicited basis.

BROKER-DEALER REQUIREMENTS MAY AFFECT TRADING AND LIQUIDITY.

      Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule
15g-2 promulgated  thereunder by the SEC require broker-dealers dealing in penny
stocks to provide  potential  investors with a document  disclosing the risks of
penny stocks and to obtain a manually  signed and dated  written  receipt of the
document  before  effecting any  transaction in a penny stock for the investor's
account.

      Potential  investors in our common stock are urged to obtain and read such
disclosure  carefully before  purchasing any shares that are deemed to be "penny
stock." Moreover,  Rule 15g-9 requires broker-dealers in penny stocks to approve
the account of any investor for  transactions  in such stocks before selling any
penny stock to that investor.  This procedure  requires the broker-dealer to (i)
obtain from the investor information  concerning his or her financial situation,
investment  experience and investment  objectives;  (ii)  reasonably  determine,
based on that  information,  that  transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written  statement  setting forth the basis on which
the  broker-dealer  made the  determination  in (ii) above;  and (iv)  receive a
signed and dated copy of such  statement from the investor,  confirming  that it
accurately reflects the investor's  financial situation,  investment  experience
and investment  objectives.  Compliance with these requirements may make it more
difficult  for  holders  of our  common  stock to resell  their  shares to third
parties or to otherwise dispose of them in the market or otherwise.

SHARES  ELIGIBLE  FOR FUTURE SALE MAY  ADVERSELY  AFFECT THE MARKET PRICE OF OUR
COMMON STOCK, AS THE FUTURE SALE OF A SUBSTANTIAL AMOUNT OF OUR RESTRICTED STOCK
IN THE PUBLIC MARKETPLACE COULD REDUCE THE PRICE OF OUR COMMON STOCK.

      From time to time, certain of our stockholders may be eligible to sell all
or some of  their  shares  of  common  stock  by  means  of  ordinary  brokerage
transactions  in the open  market  pursuant to Rule 144,  promulgated  under the
Securities  Act  ("Rule  144"),  subject  to certain  limitations.  In  general,
pursuant  to  Rule  144,  a  stockholder  (or  stockholders   whose  shares  are
aggregated)  who has  satisfied a one-year  holding  period may,  under  certain
circumstances,  sell within any three-month  period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of securities,  without any limitations,  by a non-affiliate of our company that
has satisfied a two-year holding period. In addition,  we completed the first of
three  rounds of a private  placement in February  2005,  whereby we granted the


                                       39
<PAGE>

investors in the private placement certain  registration rights with respect the
shares common stock underlying their securities.  Any substantial sale of common
stock  pursuant  to Rule 144 or pursuant  to any resale  prospectus  may have an
adverse effect on the market price of our securities.

CERTAIN  PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW AND MAY
MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO EFFECT A CHANGE- IN-CONTROL.

      Our  Certificate  of  Incorporation  authorizes  the Board of Directors to
issue up to 2,000,000  shares of preferred  stock.  The  preferred  stock may be
issued in one or more series,  the terms of which may be  determined at the time
of  issuance  by  the  Board  of  Directors   without   further  action  by  the
stockholders.  These terms may include voting rights including the right to vote
as a series on particular matters,  preferences as to dividends and liquidation,
conversion rights,  redemption rights and sinking fund provisions.  The issuance
of any preferred stock could diminish the rights of holders of our common stock,
and therefore could reduce the value of such common stock. In addition, specific
rights  granted to future  holders of preferred  stock could be used to restrict
our ability to merge with, or sell assets to, a third party.  The ability of the
Board of Directors to issue preferred stock could make it more difficult, delay,
discourage,   prevent   or  make  it  more   costly  to   acquire  or  effect  a
change-in-control.

      In addition,  we are also  subject to Section 203 of the Delaware  General
Corporation  Law that,  subject  to  certain  exceptions,  prohibits  a Delaware
corporation  from  engaging  in any  business  combination  with any  interested
stockholder  for a period of three years following the date that the stockholder
became an interested stockholder. The preceding provisions of our Certificate of
Incorporation,  as well as Section 203 of the Delaware General  Corporation Law,
could  discourage   potential   acquisition   proposals,   delay  or  prevent  a
change-in-control  and prevent  changes in our  management,  even if such things
would be in the best interests of our stockholders.

ITEM 7. FINANCIAL STATEMENTS

      The  information  required by this Item 7 is  incorporated by reference to
our audited financial  statements and Independent  Auditors' Report beginning at
page F-1 of this Form 10-KSB.

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

      The information  required under this Item 8 was previously reported in our
annual report on Form 10-KSB for the year ended December 31, 2003.

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

      As of December 31, 2004, our  management,  with the  participation  of our
Chief  Executive  Officer,  or "CEO,"  and Chief  Financial  Officer,  or "CFO,"
performed an evaluation of the effectiveness and the operation of our disclosure
controls and  procedures as defined in Rules 13a - 15(e) or 15d-15(e)  under the
Securities  Exchange Act of 1934, as amended,  or the  "Exchange  Act." Based on
their  evaluation,  our CEO and CFO have concluded that our disclosure  controls
and  procedures  needed  improvement  and were not  adequately  effective  as of
December 31, 2004 to ensure timely  reporting  with the  Securities and Exchange
Commission.


                                       40
<PAGE>

      Our CEO and CFO are taking an active role in identifying the  deficiencies
and implementing  corrective  measures,  which includes the establishment of new
internal  policies  related to  financial  reporting.  We  believe  that the new
internal  policies will address the conditions  identified by our CEO and CFO as
material weaknesses in our disclosure controls and procedures.  We will continue
to monitor the effectiveness of these new internal policies.

      Our CEO and CFO  believe  that  there  are no  material  inaccuracies,  or
omissions of material  facts  necessary to make the statements not misleading in
light of the circumstances in which they were made, in this Form 10-KSB.

Changes in Internal Controls
----------------------------

      There  have  been  no  changes  in our  internal  control  over  financial
reporting identified in connection with the evaluation required by paragraph (d)
of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter
ended December 31, 2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.


ITEM 8B.  OTHER INFORMATION

      None


                                    PART III


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

Information Concerning Our Directors and Executive Officers
------------------------------------------------------------

      Incorporated by reference to our definitive proxy  statement,  to be filed
pursuant  to  Regulation  14A within  120 days after the end of the fiscal  year
covered by this annual report.

Code of Ethics
--------------

      We  adopted  a Code of  Business  Ethics  that  applies  to our  principal
executive officer,  principal financial officer, principal accounting officer or
controller or persons performing similar functions, a copy of which was filed as
an exhibit to our annual  report on Form 10-KSB for the year ended  December 31,
2003.

Section 16(a) Beneficial Ownership Compliance
---------------------------------------------

      Section  16(a)  of the  Securities  Exchange  Act  of  1934  requires  our
directors  and  certain  executive  officers  and  persons who own more than ten
percent (10%) of a registered class of our equity securities (collectively,  the
"Reporting Persons"), to file reports of ownership and changes in ownership with

                                       41
<PAGE>

the Securities and Exchange  Commission.  The Reporting  Persons are required by
Securities and Exchange  Commission  regulation to furnish us with copies of all
Section 16(a) forms they file.

      To our  knowledge,  based solely on our review of the copies of such forms
received by us, or written  representations  from the Reporting Persons,  all of
our insiders complied with all filing requirements during 2004.

ITEM 10. EXECUTIVE COMPENSATION

      The  information  required  by this  Item  10 is  hereby  incorporated  by
reference to our definitive proxy statement,  to be filed pursuant to Regulation
14A  within 120 days after the end of the  fiscal  year  covered by this  annual
report.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  information  required  by this  Item  11 is  hereby  incorporated  by
reference to our definitive proxy statement,  to be filed pursuant to Regulation
14A  within 120 days after the end of the  fiscal  year  covered by this  annual
report.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The  information  required  by this  Item  12 is  hereby  incorporated  by
reference to our definitive proxy statement,  to be filed pursuant to Regulation
14A  within 120 days after the end of the  fiscal  year  covered by this  annual
report.

ITEM 13. EXHIBITS

(a) Exhibits.

    Exhibit
     Number
 ------------     --------------------------------------------------------------

          2.1     Agreement and Plan of Merger dated April 23, 2003 by and among
                  the  Registrant   (formerly   Alpha  Virtual,   Inc.),   Alpha
                  Acquisition  Corporation  and EssTec,  Inc.  (incorporated  by
                  reference to Exhibit 10.25 to the Registrant's  current report
                  on Form 8-K filed with the SEC on May 5, 2003).

          2.2     Agreement  and Plan of Merger  dated  November 25, 2003 by and
                  among the  Registrant  (formerly  Alpha  Virtual,  Inc.),  A/V
                  Acquisition  Corporation and Veridicom,  Inc. (incorporated by
                  reference  to  Exhibit  No.  2.1 to the  Registrant's  current
                  report on Form 8-K filed with the SEC on December 10, 2003).

          2.3     Agreement  and Plan of Merger  dated  January 16, 2004 between
                  the  Registrant   (formerly   Alpha  Virtual,   Inc.),   A/VII
                  Acquisition   Corporation   and  Veridicom,   Inc.  and  Cavio
                  Corporation  (incorporated  by reference to Exhibit 2.1 to the
                  Registrant's  current report on Form 8-K filed with the SEC on
                  February 23, 2004).

          2.3(a)  Amendment  No. 1 to Agreement and Plan of Merger dated January
                  16,  2004  between the  Registrant  (formerly  Alpha  Virtual,
                  Inc.), A/VII Acquisition  Corporation and Veridicom,  Inc. and
                  Cavio Corporation (incorporated by reference to Exhibit 2.2 to
                  the  Registrant's  Quarterly  Report  on Form  10-QSB  for the
                  quarterly period ended March 31, 2004).


                                       42
<PAGE>

          3.1     Amended   and   Restated    Certificate    of    Incorporation
                  (incorporated  by reference to Exhibit 3.1 to the Registrant's
                  Definitive  Information  Statement  on Schedule 14C filed with
                  the SEC on February 3, 2004).

          3.2     Amended and  Restated  By-Laws  (incorporated  by reference to
                  Exhibit  3.2  to the  Registrant's  Information  Statement  on
                  Schedule 14C filed with the SEC on February 3, 2004).

          4.1     Form of 10% Secured Convertible Notes dated as of February 25,
                  2005  by and  between  the  Registrant  and the  Note  Holders
                  indicated on the schedule  thereto  (incorporated by reference
                  to Exhibit 4.1 to the Registrant's  current report on Form 8-K
                  filed with the SEC on March 2, 2005).

          4.2     Form of Stock Purchase Warrant (Series A) dated as of February
                  25, 2005 by and between the Registrant and the Warrant Holders
                  indicated on the schedule  thereto  (incorporated by reference
                  to Exhibit 4.2 to the Registrant's  current report on Form 8-K
                  filed with the SEC on March 2, 2005).

          4.3     Form of Stock Purchase Warrant (Series B) dated as of February
                  25, 2005 by and between the Registrant and the Warrant Holders
                  indicated on the schedule  thereto  (incorporated by reference
                  to Exhibit 4.3 to the Registrant's  current report on Form 8-K
                  filed with the SEC on March 2, 2005).

          4.4     Registration  Rights  Agreement dated February 25, 2005 by and
                  among  the  Registrant  and the  investors  signatory  thereto
                  (incorporated  by reference to Exhibit 4.4 to the Registrant's
                  current  report  on Form  8-K  filed  with the SEC on March 2,
                  2005).

         10.1     1999 Stock Option Plan  (incorporated  by reference to Exhibit
                  10.1 to the  Registrant's  quarterly report on Form 10-QSB for
                  the period ended September 30, 1999).

         10.2     Employment   agreement  dated  August  15,  2003  between  the
                  Registrant and Paul Mann (incorporated by reference to Exhibit
                  10.2 to the Registrant's  Annual Report on Form 10-KSB for the
                  year ended December 31, 2003).

         10.3     Commercial  Lease  dated  February  20,  2004  by and  between
                  Gastown Investment 21 Ltd. and the Registrant  (formerly Alpha
                  Virtual,  Inc.)  (incorporated by reference to Exhibit 10.3 to
                  the  Registrant's  Annual  Report on Form  10-KSB for the year
                  ended December 31, 2003).

         10.4     Rental  Agreement dated April 30, 2004 by and between Insignia
                  Corporate  Establishments and the Registrant  (incorporated by
                  reference to Exhibit 10.4 to the Registrant's Annual Report on
                  Form 10-KSB for the year ended December 31, 2003).

         10.5     2004 Stock Option,  Deferred Stock and  Restricted  Stock Plan
                  (incorporated  by reference  to Exhibit A to the  Registrant's
                  Definitive  Proxy Statement on Schedule 14A filed with the SEC
                  on June 4, 2004).

         10.6     Securities Purchase Agreement, dated February 25, 2005, by and
                  among the Registrant and the purchasers listed on the schedule
                  thereto  (incorporated  by  reference  to Exhibit  10.1 to the
                  Registrant's  current report on Form 8-K filed with the SEC on
                  March 2, 2005).

         10.7     Intellectual  Property Security Agreement,  dated February 25,
                  2005, by and among the Registrant,  EssTec,  Inc.,  Veridicom,
                  Inc., Cavio  Corporation,  Veridicom  International  (Canada),
                  Essential   Tec   Pakistan   (Private)   Limited,    Veridicom
                  International (Europe) Limited,  Veridicom KK, and the secured
                  parties  signatory  thereto   (incorporated  by  reference  to
                  Exhibit 10.2 to the  Registrant's  current  report on Form 8-K
                  filed with the SEC on March 2, 2005).


                                       43
<PAGE>

         14.1     Code of Ethics  (incorporated  by reference to incorporated by
                  reference to Exhibit 14.1 to the Registrant's Annual Report on
                  Form 10-KSB for the year ended December 31, 2003).

         21.1     List of Subsidiaries.

         24.1     Power of Attorney (included on the signature page).

         31.1     Certification  of Chief  Executive  Officer  pursuant  to Item
                  601(b)(31) of Regulation  S-B, as adopted  pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certification  of Chief  Financial  Officer  pursuant  to Item
                  601(b)(31) of Regulation  S-B, as adopted  pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

         32.1     Certifications  of Chief Executive Officer and Chief Financial
                  Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.*


* This exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Beckman  Kirkland  &  Whitney  ("Beckman")  resigned  as  our  independent
certified public  accountant on February 11, 2004.  Beckman audited  Veridicom's
financial  statements  for the fiscal  years ended  December  31, 2002 and 2001.
Following Beckman's  resignation,  the Board selected AJ Robbins, PC to serve as
our certified public accountant.

      Beckman's report on Veridicom's  financial statements for the fiscal years
ended  December  31,  2002 and 2001  did not  contain  any  adverse  opinion  or
disclaimer  of  opinion  and were not  qualified  as audit  scope or  accounting
principles.  The reports for the fiscal  years ended  December 31, 2002 and 2001
were qualified  reports in that adverse financial  conditions  identified by the
accountants  raised  substantial  doubt  about  our  ability  to  continue  as a
going-concern. During the recent fiscal year ended December 31, 2003, there were
no  disagreements  with  Beckman  on any  matter  of  accounting  principles  or
practices,  financial statement disclosure or auditing scope or procedure which,
if not  resolved to the  satisfaction  of Beckman,  would have caused it to make
reference  to the subject  matter of the  disagreement  in  connection  with its
reports.

      Aggregate fees billed by our independent  certified public accountants for
the years ended 2004 and 2003 are as follows:

                                                           2004         2003
                                                        ---------     ---------
Audit fees...........................................   $ 223,568     $ 90,000
Audit related fees...................................   $      --     $     --
Tax fees(1)..........................................   $   1,193     $     --
All other fees.......................................   $      --     $     --

(1)   Fees paid in connection  with services  relating to the preparation of tax
      return extensions.

                                       44
<PAGE>

      The Board has considered the provision of non-audit  services  provided by
our independent  certified  public  accounts to be compatible  with  maintaining
their independence. The Board will continue to approve all audit and permissible
non-audit  services  provided by our independent  certified public  accountants.
These  services may include audit services and related  services,  tax services,
and other services.


                                   SIGNATURES

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

                          VERIDICOM INTERNATIONAL, INC.

                          By:         /s/ Paul Mann
                             ------------------------------------------
                             Name:    Paul Mann
                             Title:   President
                                      (Principal Executive Officer)


                                POWER OF ATTORNEY

      KNOW ALL  PERSONS  BY  THESE  PRESENTS,  that  each of the  persons  whose
signature  appears  below hereby  constitutes  and appoints Paul Mann and Bashir
Jaffer, each of them acting individually,  as his or her attorney-in-fact,  each
with the full power of  substitution,  for him or her in any and all capacities,
to sign any and all amendments to this Annual Report on Form 10-KSB, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with   the   Securities   and   Exchange   Commission,    granting   unto   said
attorneys-in-fact,  and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises as fully to all intents and  purposes as he or she might or could do in
person,  hereby ratifying and confirming our signatures as they may be signed by
our said  attorney-in-fact  and any and all  amendments to this Annual Report on
Form 10-KSB.

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

<TABLE>
<CAPTION>
      Signature                 Title                                   Date

<S>                         <C>                                     <C>
      /s/ Paul Mann         President, Chief Executive Officer,
------------------------    Director (Principal Executive Officer)  March 31, 2005
Paul Mann

      /s/ Bashir Jaffer     Chief Financial Officer (Principal
------------------------    Financial Officer), Sectretary          March 31, 2005
Bashir Jaffer

      /s/ Saif Mansour
------------------------
Saif Mansour                Director                                March 31, 2005

      /s/ Bill Cheung
------------------------
Bill Cheung                 Director,                               March 31, 2005

     /s/ Jeremy Coles
------------------------
Jeremy Coles                Director                                March 31, 2005
</TABLE>



                                       45
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE

Report of Independent Registered Public Accounting Firm                      F-1

Consolidated Balance Sheet                                                   F-2

Consolidated Statements of Operations and Other Comprehensive
 Income (Loss)                                                               F-3

Consolidated Statements of Changes in Stockholders' Equity (Deficit)         F-4

Consolidated Statements of Cash Flows                                        F-5

Notes to Consolidated Financial Statements                                   F-6

<PAGE>

                                AJ. ROBBINS, P.C.
                          CERTIFIED PUBLIC ACCOUNTANTS
                              216 SIXTEENTH STREET
                                    SUITE 600
                             DENVER, COLORADO 80202

           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Veridicom International, Inc.
Seattle, Washington

We have  audited  the  accompanying  consolidated  balance  sheet  of  Veridicom
International,  Inc.  as of December  31,  2004,  and the  related  consolidated
statements of operations,  changes in stockholders'  equity,  and cash flows for
each  of the  years  in the two  year  period  then  ended.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial  position  of  Veridicom
International,  Inc. as of December 31, 2004,  and the results of its operations
and its cash  flows for each of the years in the two year  period  then ended in
conformity with generally accepted accounting principles in the United States of
America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
that raises  substantial doubt about the entity's ability to continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 1. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.


                                AJ. ROBBINS, P.C.
                          CERTIFIED PUBLIC ACCOUNTANTS

Denver, Colorado
February 11, 2005


                                      F-1
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2004

                                     ASSETS
Current assets
            Cash                                                  $     53,866
            Accounts receivable, net                                    15,791
            Accounts receivable, related party                          32,794
            Subscriptions Receivable                                   420,000
            Inventory                                                   72,793
            Other current assets                                        26,603
                                                                  ------------
                        Total current assets                           621,847

Furniture & equipment, net                                             206,697
Patents                                                                200,000
Goodwill                                                             4,728,546
Other assets                                                             3,302
                                                                  ------------
                                                                  $  5,760,392
                                                                  ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
            Accounts payable                                      $  1,808,828
            Accrued expenses                                           785,889
            Due to related party                                       610,003
            Notes payable, related party                               582,681
            Notes payable                                              254,549
            Other current liabilities                                   37,799
                                                                  ------------
Total current liabilities                                            4,079,749

Minority interest                                                       18,698

Commitments and Contingencies
Stockholders' equity
Perferred stock $.001 par value
   2,000,000 authorized -0-
   issued and outstanding

Common stock, $.001 par value, 60,000,000 authorized;
 15,856,110 issued and outstanding                                       15,856

Additional paid in capital                                           13,591,596
Accumulated other comprehensive loss                                   (144,695)
Accumulated (deficit)                                               (11,800,812)
                                                                  -------------
Total stockholders' equity                                            1,661,945
                                                                  -------------
                                                                  $   5,760,392
                                                                  =============


         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                       F-2
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
   CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                          2004             2003
                                                                      ------------     ------------
<S>                                                                   <C>              <C>
Revenues
            Net revenue                                               $    384,853     $    281,997
            Cost of goods sold                                             212,063          116,007
                                                                      ------------     ------------
            Gross profit                                                   172,790          165,990

Operations
            General & administrative expense                             3,441,793        1,727,517
            Research & development expense                                 490,674               --
            Technical operations expense                                     4,903               --
            Depreciation expense                                            47,188           18,105
            Impairment of goodwill                                              --        1,809,648
                                                                      ------------     ------------
            Income (loss) from operations                               (3,811,768)      (3,389,280)

Other income
            Other income (expense)                                         179,344            6,692
            Interest expense                                               (94,145)         (60,835)
            Gain on forgiveness of debt                                         --          556,104
                                                                      ------------     ------------
            (Loss) before minority interest                             (3,726,569)      (2,887,319)

Minority interest                                                            6,308            4,629
                                                                      ------------     ------------
Net (loss)                                                              (3,720,261)      (2,882,690)

Other comprehensive (loss):
            Foreign currency translation                                  (141,002)            (741)
                                                                      ============     ============
Total comprehensive (loss)                                            $ (3,861,263)    $ (2,883,431)
                                                                      ============     ============
 (Loss) per share:
   Basic and fully diluted (loss)
   per common share                                                   $      (0.27)    $      (0.51)
                                                                      ============     ============
Weighted average common shares
   Outstanding, basic and fully diluted                                 14,415,829        5,662,025
                                                                      ============     ============
</TABLE>

         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                                           VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                                               (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                                CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                           FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

                                                                                     Accumulated
                                    $.001      Common                    Additional     Other                              Total
                   Common Stock   par value     Stock      Deferred       Paid In    Comprehensive  Accumulated      Stockholders'
                       Shares       Amount    Committed  Compensation     Capital        Loss        (Deficit)      Equity (Deficit)
                       ------       ------    ---------  ------------     -------        ----        ---------      --------------
<S>                 <C>            <C>       <C>         <C>           <C>           <C>           <C>              <C>
Balances,
December 31, 2002   $  4,259,496   $  4,259  $  10,000   $ (477,141)   $  5,129,790  $   (2,952)   $ (5,197,861)    $   (533,905)

Reverse merger
with
Alpha Virtual,
Inc.                   1,515,897      1,516         --           --       1,003,308          --              --        1,004,824

Amortization of
deferred
compensation                  --         --         --      477,141              --          --              --          477,141

Sales of common
stock
net of offering
costs
of $106,603              155,296        155         --           --         619,445          --              --          619,600

Stock issued for
services                  20,000         20         --           --          58,780          --              --           58,800

Stock issued in
acquisition of
Veridicom, Inc.        3,500,000      3,500         --           --         414,760          --              --          418,260

Stock options
granted
for service                   --         --         --           --          54,520          --              --           54,520

Foreign currency
translation
adjustment                    --         --         --           --              --        (741)             --             (741)

Net (loss)                    --         --         --           --              --          --      (2,882,690)       (2,882,69)
                      ----------   --------  ---------   ----------    ------------  ----------    ------------     ------------

Balances,
December 31, 2003      9,450,689   $  9,450  $  10,000   $       --    $  7,280,603  $   (3,693)   $ (8,080,551)    $   (784,191)

Sales of common
stock
net of offering
costs
of $673,978            1,020,578      1,021         --           --       2,040,063          --              --        2,041,084

Stocks issued for
conversion of debt       157,143        157         --           --         164,843          --              --          165,000

Stocks issued as
loan
fee (Beaufort)           100,000        100         --           --         106,150          --              --          106,250

Stock issued in
Cavio
merger                 5,119,140      5,119         --           --         424,401          --              --          429,520

Stock options
granted
for CEO                       --         --         --           --         359,100          --              --          359,100

Exercise of Stock
options                    8,560          9         --           --          13,817          --              --           13,826

Cavio's
subscription
received                      --         --         --           --       3,192,619          --              --        3,192,619

Common stock
comitted
reclassified                  --         --    (10,000)          --          10,000          --              --               --

Foreign currency
translation
adjustment                    --         --         --           --              --    (141,002)             --         (141,002)

Net (loss)                    --         --         --           --              --          --      (3,720,261)      (3,720,261)
                      ----------   --------  ---------   ----------    ------------  ----------    ------------     ------------

Balances,
December 31, 2004     15,856,110   $ 15,856  $      --   $       --    $ 13,591,596  $ (144,695)   $(11,800,812)    $  1,661,945
                      ==========   ========  =========   ==========    ============  ==========    ============     ============
</TABLE>


                                      F-4
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                       CONSOLIDATED STATEMENTS CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                            2004                   2003
                                                                                        -----------            -----------
<S>                                                                                     <C>                     <C>
Cash flows from operating activities
Net loss before minority interest                                                       $ (3,726,569)           $(2,887,319)

Adjustments to reconcile net loss to net cash (used in) operating activities:
            Depreciation and amortization                                                     47,188                 18,105
            Bad debt expense                                                                      --                 38,216
            Impairment of goodwill                                                                --              1,809,648
            Stock based compensation                                                         359,100                531,661
            Common Stock issued for debt conversion                                         (165,000)                    --
            Common stock issued for loan fee                                                 106,250                     --
            Common stock issued for services rendered                                             --                 58,800
            Transfer of equipment to Cavio                                                        --                 18,336
            Gain on Forgiveness of Debt                                                           --               (556,104)
(Increase) / decrease in:
            Accounts receivable                                                               11,749                 (7,901)
            Related party receivables                                                         45,166                (50,404)
            Subscriptions Receivable                                                        (420,000)                    --
            Inventory                                                                         17,010                     --
            Other assets                                                                     (11,474)                88,480
Increase / (decrease) in :
            Accounts payable                                                                 605,443               (145,628)
            Accrued expenses                                                                 (98,880)                37,065
            Due to related parties                                                           234,304                157,059
            Other current liabilities                                                         37,799                     --
            Deferred compensation                                                                 --               (140,618)
                                                                                        ------------           ------------
Net cash (used in) operating activities                                                   (2,957,914)            (1,030,604)
                                                                                        ------------           ------------
Cash flows from investing activities
            Cash acquired through merger and acquisition                                     164,791                184,001
            Purchase of equipment                                                            (70,609)               (19,314)
                                                                                        ------------           ------------
Net cash provided by (used in) investing activities                                           94,182                164,687
                                                                                        ------------           ------------

Cash flows from financing activities
            Net proceeds from note payable                                                   582,681                346,549
            Payments on notes payable                                                       (130,000)               (20,000)
            Payment on capital lease obligation                                                   --                 (5,423)
            Collection of subscription receivable                                            129,821                     --
            Payment of offering costs/commission                                            (673,968)                    --
            Sale of minority interest                                                             --                 29,635
            Proceeds from sale of common stock and warrants                                3,023,699                619,600
                                                                                        ------------            -----------
Net cash provided by financing activities                                                  2,932,233                970,361
                                                                                        ------------            ------------
Effect of exchange rate changes on cash                                                     (141,002)                  (741)
                                                                                        ------------            ------------
Net increase (decrease) in cash                                                              (72,501)               103,703
Cash, beginning of period                                                                    126,367                 22,664
                                                                                        ------------            -----------
Cash, end of period                                                                          $53,866               $126,367
                                                                                        ============            ===========
Supplemental disclosures of cash flow information
Interest paid                                                                                 22,676                     --
Income taxes paid
</TABLE>

         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                       F-5
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Background

      Veridicom  International,  Inc.,  (the  Company,  formerly  known as Alpha
Virtual,  Inc.  ("Alpha") is a Delaware  Corporation  formerly  headquartered in
California  that was formed on  September  9, 1987.  The name of the Company was
changed  to  Veridicom  International,   Inc.  in  February  2004.  The  Company
consolidated  its  corporate  offices in  Seattle,  Washington,  and  Vancouver,
British Columbia in April 2004.

Going Concern

      The Company's  financial  statements have been presented on the basis that
it is a going  concern,  which  contemplates  the  realization of assets and the
satisfaction  of liabilities  in the normal course of business.  The Company has
incurred a net loss during 2004 of $3,720,261 and has a working capital deficit,
which raises doubt about its ability to continue as a going concern. The Company
is   currently   devoting  its  efforts  to  raising   additional   capital  and
investigating potential merger candidates.  The Company's ability to continue as
a going concern is dependent upon its ability to develop  additional  sources of
capital,  and  ultimately,   achieve  profitable  operations.  The  accompanying
financial  statements do not include any adjustments  that might result from the
outcome of these uncertainties.

Mergers

      On April 28,  2003 the Company and Esstec  Inc.,  a privately  held Nevada
corporation,  entered into an Agreement and Plan of Merger.  In accordance  with
the Merger, the Company, a Nevada  Corporation,  acquired Esstec in exchange for
4,276,162  shares of  Alpha's  common  stock.  For  accounting  purposes  Esstec
acquired Alpha in a reverse merger under the purchase method of accounting.  The
financial  statements in the filings of Alpha became those of Esstec.  The legal
entity   (Alpha)   retained   its  name  until  it  was  changed  to   Veridicom
International,  Inc. in February 2004. Thus, the financial  statements are still
those of "Esstec, Inc."

      On November 25, 2003,  the Company  entered into an Agreement  and Plan of
Merger with Veridicom, Inc. (Veridicom), a California corporation,  through AAC,
a Nevada  corporation,  whereby the Company  acquired  Veridicom in exchange for
3,500,000  shares of Veridicom's  common stock.  3,250,000 shares were issued to
the holders of Veridicom's  stock, and 250,000 shares were issued into escrow to
cover Veridicom's indemnification  obligations, if any. Veridicom's stockholders
owned approximately 35% of the Company's outstanding common stock as of November
25, 2003.


                                      F-6
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      On January 16, 2004,  the Company  entered  into an Agreement  and Plan of
Merger  with  Cavio  Corporation,   a  privately  held  Washington   corporation
("Cavio").  The merger became effective on February 20, 2004. In accordance with
the merger,  on February 20, 2004,  through its wholly owned  subsidiary,  A/VII
Acquisition Corporation,  acquired Cavio in exchange for 5,119,140 shares of the
Company's  common stock.  The Company  recorded  goodwill of $3,792,019 for this
acquisition.

          Cash                                    $   164,791
          Receivables                                  14,043
          Stock subscription receivable               129,821
          Prepaid expenses                              4,874
          Fixed assets, net                           109,473
                                                  -----------
                                                      423,002
                                                  -----------
          Less liabilities assumed
          Accounts payable and accrued expenses      (694,009)
          Loans payable                               (28,693)
                                                  -----------
                                                     (722,702)
                                                  -----------
     Net liabilities                              $  (299,700)
                                                  ===========
     Net liabilities assumed                      $   299,700
     Stock issued for acquisition                     299,700
     Common stock issued into escrow                3,192,619
                                                  -----------
     Goodwill                                     $ 3,792,019
                                                  ===========

      The following  unaudited  proforma  condensed  consolidating  statement of
operations for the year period ended December 31, 2004 gives effect to the above
transaction as if it had occurred on January 1, 2004.

<TABLE>
<CAPTION>
                  Veridicom International Inc.      Cavio Corporation for the period
                 Consolidated for the year ended       from November 01, 2003 to
                        December 31, 2004                  February 19, 2004           Proforma Adjustments    Proforma Consolidated
                 -------------------------------       -------------------------       --------------------    ---------------------
<S>                     <C>                                 <C>                               <C>                  <C>
Revenues                $   384,853                         $       --                        $  --                $   384,853
(Expenses)               (4,196,622)                          (481,715)                          --                 (4,678,337)
Other                        91,508                             (3,367)                          --                     88,141
                        -----------                         ----------                         ----                -----------
Net loss                $(3,720,261)                        $ (485,082)                        $ --                $(4,205,343)
                        ===========                         ==========                         ====                ===========
</TABLE>


                                      F-7
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operations

      The  Company  has  five  subsidiaries:   Esstec,  Essential  Tec  Pakistan
(Private)  Limited  ("Pakistan  Ltd."),  Veridicom  Inc.,  Cavio,  and Veridicom
International (Canada) Inc. ("Canada Inc.").

      Esstec is a  professional  services  company  that  focuses on  e-commerce
initiatives,  interactive  multimedia,  and  mobile  software  applications  for
clients  in   various   industries,   including   the   telecommunications   and
entertainment  industries.  During  2004,  Esstec  did not have any  significant
revenues or incur any significant expenses.

      Pakistan Ltd. was incorporated on April 19, 2000 to establish the business
of software development for the international markets and to export software and
technology. Esstec owns approximately 63.4% of Pakistan Ltd.

      Veridicom Inc.  designs,  manufactures and delivers  hardware and software
products  that  enable  strong  authentication  solutions  based on  fingerprint
biometrics. Veridicom Inc. markets a complete fingerprint biometrics platform on
which applications can be built.

      Cavio  produces  technology  tools  designed to protect  users from fraud,
misrepresentation,   security   and  privacy   issues  by   allowing   users  to
biometrically  authenticate  themselves  to secure  control  access and  confirm
identity across a number of industries.

      On January 21, 2004,  Canada Inc. was formed to be the Canadian  operating
company for the public company.

Consolidation

      The consolidated  financial statements include the accounts of the Company
and its subsidiaries Esstec,  Pakistan Ltd.,  Veridicom,  Cavio, and Canada Inc.
All significant  intercompany  balances and transactions have been eliminated in
consolidation.

Minority Interest

      Minority interest  reflects the ownership of minority  shareholders in the
equity of Pakistan Ltd., a consolidated subsidiary less than wholly owned.

Reclassifications

      For comparative purposes,  prior year's consolidated  financial statements
have been reclassified to conform to report classifications of the current year.


                                      F-8
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

      Goodwill was recorded at its  purchase  price and is not being  amortized.
Pursuant to statements of financial  accounting  standards  142  ("Goodwill  and
Other  Intangible  Assets")  and SFAS 144  ("Accounting  for the  Impairment  or
Disposal of  Long-Lived  Assets"),  the company has  evaluated  its goodwill for
impairment and determined that the fair value of its goodwill is $4,728,546.

Valuation of the Company's Common Stock

Unless otherwise  disclosed,  all stock based  transactions  entered into by the
Company  have been valued at the market value of the  Company's  common stock on
the  date the  transaction  was  entered  into or have  been  valued  using  the
Black-Scholes Model to estimate the fair market value.

Concentrations of Credit Risk

Financial instruments, which potentially expose the Company to concentrations of
credit  risk,  consist  primarily  of trade  accounts  receivable.  The  Company
maintains  reserves  for  potential  credit  losses  and  such  losses,  in  the
aggregate, have not exceeded management's expectations.

Advertising Expenses

      The Company expenses advertising costs as incurred. During the years ended
December  31, 2004 and 2003,  the Company did not have  significant  advertising
costs.

Fair Value of Financial Instruments

      The  carrying  amounts  of  cash,  accounts  receivable,  notes  payables,
accounts  payable,  and accrued  expenses  approximate fair value because of the
short maturity of these items.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December  2004,  the FASB issued SFAS  No.123  (revised  2004),  "Share-Based
Payment" ("SFAS 123(R)").  SFAS 123(R) will provide investors and other users of
financial  statements  with more complete and neutral  financial  information by
requiring  that  the   compensation   cost  relating  to   share-based   payment
transactions be recognized in financial  statements.  That cost will be measured
based on the fair  value of the equity or  liability  instruments  issued.  SFAS
123(R) covers a wide range of share-based  compensation  arrangements  including
share  options,   restricted  share  plans,   performance-based   awards,  share
appreciation  rights,  and employee share purchase  plans.  SFAS 123(R) replaces
SFAS No. 123,  "Accounting  for  Stock-Based  Compensation",  and supersedes APB
Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees".  SFAS 123,  as
originally issued in 1995,  established as preferable a fair-value-based  method
of accounting for share-based payment transactions with employees. However, that
Statement  permitted  entities the option of continuing to apply the guidance in
Opinion 25, as long as the footnotes to financial  statements disclosed what net
income  would have been had the  preferable  fair-value-based  method been used.
Public  entities  (other than those filing as small  business  issuers)  will be
required to apply SFAS 123(R) as of the first interim or annual reporting period
that begins after June 15,  2005.  The Company has  evaluated  the impact of the
adoption  of SFAS  123(R),  and  believes  that it could  have an  impact to the
Company's overall results of operations depending on the number of stock options
granted in a given year.


                                      F-9
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29,  Accounting for  Nonmonetary  Transactions."
The  amendments  made by SFAS 153 are based on the principle  that  exchanges of
nonmonetary  assets  should be  measured  based on the fair  value of the assets
exchanged.   Further,   the  amendments   eliminate  the  narrow  exception  for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception  for  exchanges  of  nonmonetary  assets  that do not have  commercial
substance.  Previously,  Opinion 29 required that the accounting for an exchange
of a productive asset for a similar  productive asset or an equivalent  interest
in the same or similar  productive  asset should be based on the recorded amount
of the  asset  relinquished.  Opinion  29  provided  an  exception  to its basic
measurement  principle (fair value) for exchanges of similar  productive assets.
That exception required that some nonmonetary  exchanges,  although commercially
substantive,  to be recorded on a carryover  basis. By focusing the exception on
exchanges that lack commercial substance, the FASB believes SFAS No.153 produces
financial  reporting  that  more  faithfully  represents  the  economics  of the
transactions. SFAS No.153 is effective for nonmonetary asset exchanges occurring
in  fiscal  periods  beginning  after  June 15,  2005.  Earlier  application  is
permitted for nonmonetary asset exchanges  occurring in fiscal periods beginning
after the date of  issuance.  The  provisions  of SFAS  No.153  shall be applied
prospectively. The Company has evaluated the impact of the adoption of SFAS 153,
and does not believe the impact will be  significant  to the  Company's  overall
results of operations or financial position.

In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4 (" SFAS No. 151". The amendments  made by SFAS 151 clarify
that abnormal  amounts of idle facility  expense,  freight,  handling costs, and
wasted materials  (spoilage) should be recognized as current-period  charges and
require the allocation of fixed  production  overheads to inventory based on the
normal  capacity of the  production  facilities.  The guidance is effective  for
inventory  costs  incurred  during fiscal years  beginning  after June 15, 2005.
Earlier  application  is permitted for inventory  costs  incurred  during fiscal
years beginning after November 23, 2004. The Company has evaluated the impact of
the adoption of SFAS 151, and does not believe the impact will be significant to
the Company's overall results of operations or financial position.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and Equity,"  which is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15, 2003.  SFAS No. 150  establishes  standards for how an
issuer   classifies   and   measures   certain   financial    instruments   with
characteristics  of both  liabilities and equity.  The adoption of this standard
did not have a material impact on the Company's financial statements.

In April 2003, FASB issued SFAS No. 149, "Accounting for Derivative  Instruments
and Hedging  Activities,"  which is  effective  for  contracts  entered  into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. This statement amends and clarifies financial accounting and reporting
for  derivative  instruments  including  certain  instruments  embedded in other
contracts  and for  hedging  activities  under  SFAS No.  133,  "Accounting  for
Derivative  Instruments and Hedging  Activities."  The adoption of this standard
did not have a material impact on the Company's financial statements.


                                      F-10
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2003,  the FASB issued FIN 46,  "Consolidation  of Variable  Interest
Entities." FIN 46 clarifies the application of Accounting  Research Bulletin No.
51, "Consolidated  Financial Statements," for certain entities which do not have
sufficient  equity at risk for the  entity to  finance  its  activities  without
additional  subordinated financial support from other parties or in which equity
investors do not have the  characteristics  of a controlling  financial interest
("variable interest  entities").  Variable interest entities will be required to
be  consolidated  by their primary  beneficiary.  The primary  beneficiary  of a
variable  interest  entity is determined to be the party that absorbs a majority
of the entity's expected losses, receives a majority of its expected returns, or
both,  as  a  result  of  holding  variable  interests,   which  are  ownership,
contractual,  or  other  pecuniary  interests  in  an  entity.  FIN  46  applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date.  It applies in the first  fiscal year or interim  period  beginning  after
December 15, 2003, to variable  interest entities in which an enterprise holds a
variable  interest that it acquired  before  February 1, 2003. FIN 46 applies to
public  enterprises  as of the  beginning  of the  applicable  interim or annual
period.  The  Company's  adoption  of FIN 46 did not  have any  impact  upon the
Company's financial condition or results of operations.

In March 2004,  the FASB approved the consensus  reached on the Emerging  Issues
Task  Force  (EITF)  Issue  No.  03-1,  "The  Meaning  of   Other-Than-Temporary
Impairment and Its  Application to Certain  Investments."  The objective of this
Issue is to provide  guidance for identifying  impaired  investments.  EITF 03-1
also provides new disclosure  requirements for investments that are deemed to be
temporarily  impaired.  In September 2004, the FASB issued a FASB Staff Position
(FSP)  EITF  03-1-1  that  delays  the  effective  date of the  measurement  and
recognition guidance in EITF 03-1 until after further deliberations by the FASB.
The disclosure  requirements  are effective only for annual periods ending after
June 15,  2004.  The Company  has  evaluated  the impact of the  adoption of the
disclosure requirements of EITF 03-1 and does not believe it will have an impact
to the Company's  overall combined  results of operations or combined  financial
position.  Once  the  FASB  reaches  a final  decision  on the  measurement  and
recognition provisions,  the Company will evaluate the impact of the adoption of
EITF 03-1.

Inventory

      Inventory consists primarily of various sensors,  combos and parallel port
units. Inventory is valued at lower of cost (first-in, first-out) or market.

Furniture and Equipment

      Furniture and equipment is recorded at cost. Depreciation and amortization
expense is provided on a straight-line basis using estimated useful lives of 3-7
years. Depreciation expense was $47,188 and $18,015 for the years ended December
31, 2004 and 2003, respectively.  Maintenance and repairs are charged to expense
as incurred and expenditures for major improvements are capitalized. When assets
are retired or  otherwise  disposed  of, the  property  accounts are relieved of
costs and accumulated depreciation and any resulting gain or loss is credited or
charged to operations.


                                      F-11
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Patents

At  the  acquisition  of  Veridicom,  the  Company  evaluated  the  patents  and
determined the costs to secure the unused patents  outweighed their intended use
and was unable to find a party interested in purchasing the patents. The patents
were  originally  recorded at cost and were being  amortized on a  straight-line
basis over 15 years. The Company has valued the patents at $200,000. The company
is not amortizing the patents.

Cash and Cash Equivalents

      For purposes of reporting cash flows, the Company considers all funds with
original maturities of three months or less to be cash equivalents.

Income Taxes

The Company  recognizes  deferred  tax assets and  liabilities  for the expected
future  income  tax  consequences  of events  that have been  recognized  in the
Company's  financial  statements.  Under this  method,  deferred  tax assets and
liabilities are determined based on temporary  differences between the financial
carrying  amounts and the tax bases of assets and liabilities  using enacted tax
rates in effect in the periods in which the temporary  differences  are expected
to reverse.  Valuation  allowances  are  established  when  necessary  to reduce
deferred tax assets to the amount  expected to be  realized.  Income tax expense
represents  the tax  payable for the  current  period and the change  during the
period in deferred tax assets and  liabilities.  The Company has a net operating
loss carry forward of approximately $3,800,000 expiring beginning in 2020.

Revenue Recognition

      Sales  of  services  are  recorded  when  performed  in  accordance   with
contracts. 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  market  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.

      For fixed fee contracts, Esstec recognizes revenue based on the percentage
completed,  calculated as either the number of direct labor hours in the project
to date divided by the  estimated  total  direct labor hours,  or based upon the
completion of specific task benchmarks. It is Esstec's policy to record contract
losses in their  entirety in the period in which such  losses can be  estimated.
Any revenues  associated with  pre-payments  or pre-billings  are deferred until
revenue is earned. For non-fixed fee jobs, revenue is recognized as services are
performed and adjusted to realization value, if necessary.

Pakistan   Ltd.   recognizes   revenue  at  the   point/time   the  software  is
delivered/exported.

Veridicom Inc. recognizes revenues at the point of shipment of products.


                                      F-12
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates in the Preparation of Financial Statements

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

Comprehensive Loss

The Company utilizes  Statement of Financial  Accounting  Standards ("SFAS") No.
130. "Reporting  Comprehensive Income." This statement establishes standards for
reporting  comprehensive  loss  and its  components  in a  financial  statement.
Comprehensive loss as defined includes all changes in equity (net assets) during
a  period  from  non-owner  sources.   Examples  of  items  to  be  included  in
comprehensive  loss, which are excluded from net loss,  include foreign currency
translation  adjustments and unrealized  gains and losses on  available-for-sale
securities.   Comprehensive  loss  presented  in  these  consolidated  financial
statements resulted from translations of foreign currency financial statements.

Foreign Currency Translation

      Pakistan Ltd.  considers the Pakistan Rupee to be the functional  currency
of its operations.  Cavio and Canada Inc. consider the Canadian Dollar to be the
functional  currency of their operations.  The reporting currency of the Company
is  the  U.S.  dollar;  accordingly,  all  amounts  included  in  the  financial
statements have been translated into U.S. dollars.

   Exchange Rates      For the year Ending 2004     For the Year Ending 2003
   --------------      ------------------------     ------------------------
   Rupee Average                .01715                      .017331
   Rupee Period end             .01682                      .017479
   Canadian Dollar Average      .76847
   Canadian Dollar Period end   .83084

Software Development Costs

      The software  development  costs are expensed as research and  development
costs as  incurred  until the  software  reaches  technological  feasibility  in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer  Software to be Sold,  Leased or  Otherwise  Marketed"
("SFAS 86").

Earnings Per Common Share

The Company  computes  earnings per common share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). The
Statement requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation  of the numerator and denominator of the basic EPS computation to
the numerator and  denominator  of the diluted EPS  computation.  Basic loss per
share is computed by  dividing  loss  available  to common  shareholders  by the
weighted average number of common shares outstanding. The computation of diluted
loss per share is  similar to the basic  loss per share  computation  except the
denominator  is increased to include the number of additional  shares that would
have been  outstanding if the dilutive  potential common shares had been issued.
In  addition,  the  numerator is adjusted for any changes in income or loss that
would result from the assumed  conversions of those potential  shares.  However,
such  presentation is not required if the effect is antidilutive.  Due to losses
during the years ended December 31, 2004 and 2003, no presentation is made.


                                      F-13
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - ACCOUNTS RECEIVABLE

      In  December  1999 the  Company  sold its PGTS  training  simulator  to an
unrelated entity.  As part of the agreement,  the Company is entitled to royalty
payments on future PGTS Training System sales by Eidetics for a four-year period
from  the  date  of  sale.  As  of  December  31,  2004  the  Company  was  owed
approximately  $105,117 in past due  royalties.  A full  allowance  was recorded
against this  receivable.  The Company  continues to pursue  collection of these
royalties.

Accounts   receivable   are  in  respect  of  sales  of hardware and software to
customers that the Company expects to collect in 2005.

NOTE 3 - FURNITURE AND EQUIPMENT

Furniture and equipment consists of the following:

                                                                          2004
                                                                        --------
Tooling equipment                                                       $161,595
Furniture and equipment                                                   33,932
Office equipment                                                          30,954
Computers                                                                278,185
Software                                                                 158,539
Vehicles                                                                  19,818
                                                                        --------
                                                                         683,023
         Less accumulated depreciation and amortization                  476,326
                                                                        --------
                                                                        $206,697
                                                                        ========

NOTE 4 - DCAA AUDIT

      The  Company's  books and  records  were  subject to audit by the  Defense
Contract Audit Agency (DCAA) for defense contracts  serviced by Alpha in 1994. A
contingent  liability  of $100,000  had been  reserved  for over 10 years in the
Company's  books for DCAA audit. No efforts have been made by DCAA to collect on
this contingent  liability and the Company recognized  $100,000 of income in the
current year after the  expiration  of the 10 year period,  which is included in
other income.

NOTE 5 - NOTES PAYABLE - RELATED PARTIES

      The Company has notes payable totaling  $582,681 bearing interest at rates
from 10%-12% per annum, maturing between January 2004 and June 2007.

      In  August  2004,  the  Company  borrowed   $100,000  under  a  short-term
agreement. The principal amount and interest of $10,000 was due on September 30,
2004. Additional terms of the loan include the issuance of 25,000  shares of the
Company at $4.25 per share (the closing  price on August 30, 2004) as a loan fee
and the granting of warrants to purchase  100,000 shares of the Company's common
stock at $3.50 per share.  The value of the 25,000  shares of $106,250  has been
recorded as common stock committed.

                                      F-14
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Subsequent to December 31, 2004, the Company has reached a full settlement
with the lender. Under the settlement terms, the total interest payable is to be
limited to a maximum of $20,000,  of which $10,000 was paid in March 2005. Also,
$65,000 of the  principal  was repaid in January 2005. A director of the Company
is an associate of the lender's parent company.

      During the year ending December 31, 2004,  157,140 shares were issued upon
conversion of $165,000 of notes. These conversions were inadvertently omitted on
the June 30, 2004 and September 30, 2004 quarterly  financial  statements  which
would have reduced debt by $165,000 and increased equity by the same amount. The
effect of any interest  adjustment for the above in the  respective  quarters is
not significant.

      The Company has an unsecured short term loan from Tall Enterprises Ltd. (a
company  controlled by Terry  Laferte,  an officer of the Company)  amounting to
$66,467 as at December 31, 2004;  bearing interest at 7% per annum and due on or
before June 30, 2005. This loan was paid in full in March, 2005.

      The Company has an unsecured loan from Global Ventures Advisors, a company
controlled  by a director of the Company's  subsidiary  in Pakistan  which as of
December 31, 2004  amounted to $416,214;  bearing  interest at 12% per annum and
due on or before June 30, 2006, with an option to convert to common stock in the
event of default in repayment by the Company.

NOTE 6 - STOCK-BASED COMPENSATION

      The Company  accounts  for stock based  compensation  under  Statement  of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation" (SFAS 123). The standard requires the Company to present the "fair
value" method with respect to stock-based  compensation of consultants and other
non-employees.

      The Company did not change its method of accounting  with respect to stock
options;  the Company continues to account for these under the "intrinsic value"
method.  The Company  recognized  $359,100 as stock  based  compensation  to the
Company's CEO for the year ended December 31, 2004. This brings the total number
of vested shares to December 31, 2004 to 62,500 out of the total 150,000 shares.

NOTE 7 - RELATED PARTY TRANSACTIONS

      The Company has entered into  agreements with Manhattan  Capital  Partners
("Manhattan")  and its  affiliates  to provide  consulting  and stock  placement
services.  The Company paid Manhattan a total of $316,028  during the year ended
December 31, 2004.  The Company  paid  Manhattan a total of $205,673  during the
year ended  December 31, 2003.  At December 31, 2003  Manhattan had advanced the
Company $110,005 in a non-interest  bearing short-term loan, which was repaid in
2004.  The  Company  has  amounts  outstanding  for prior  services  rendered by
affiliates of Manhattan  totaling an additional  $208,771 and is  negotiating to
reduce the amounts owed under this agreement. Manhattan is related due to one of
the principals who is a director of the Company.

      The Company has an  unsecured,  non-interest  bearing  short term advances
from Paul Mann,  CEO and  President of the  Company,  amounted to $218,899 as of
December 31, 2004. These advances are without any specified repayment terms.

      On July 15, 2003 the  Company  entered  into a  consulting  agreement  for
marketing  strategy  and support  services for a term of three months and at the
rate of $7,000 per month plus the reimbursement of out of pocket expenses.  This
agreement continues and expands Government and commercial  marketing  activities
previously  undertaken for the OneView Technology,  and extends these activities
to include technology newly available from Esstec and Veridicom.


                                      F-15
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      On July 15, 2003 the Company  entered into an advisory  agreement with the
principals  of the  consulting  company  in the  above  agreement  to  join  the
Company's  Advisory  Board  to  assist  the  Company's  Board  of  Directors  in
structuring and advising as to strategic  alliances and growth. The agreement is
for one year and the  principals  were each  granted  options to acquire  10,000
shares of the  Company's  common stock at $3.50 per share;  options vest monthly
over one year.  The options  were  valued at  $54,520,  the fair value using the
Black-Scholes Pricing Model. The average risk rate used was 3.3%, volatility was
estimated at 100% and the expected life was one year.

      On November 3, 2003,  Veridicom Inc. a subsidiary of the Company,  entered
into a five year  Marketing  and  Distribution  Agreement  with Biocom Co. Ltd.,
("Biocom")  a Korean  corporation  and Gyung Min Kim, a director of the Company.
Under  the  terms  of this  Agreement  Biocom  was  appointed  as the  Company's
exclusive  distributor for all the sale and servicing of the Company's  products
in Korea.

NOTE 8 - COMMON STOCK

      The Company has  authorized  60,000,000  shares of $.001 par value  common
stock and 2,000,000 shares of $.001 par value preferred stock

Common Stock Issued during the Year Ended December 31, 2004

      During the year ending December 31, 2004 the Company sold 1,020,578 shares
of common stock for $2,715,062 less offering costs of $673,978.

      During the year ending  December 31, 2004 the Company  issued 8,560 shares
of common stock for $13,826 for the exercise of stock options.

Stock Option Plan

      In April 2004 the Company  adopted the 2004 Stock Option,  Deferred Stock,
and Restricted Stock Plan (the Plan) effective June 25, 2004, which provides for
the  granting of options to officers,  directors,  consultants,  employees,  and
advisors.  2,000,000  shares of common stock are reserved under the Plan for the
granting of options.  The Plan is in effect until June 25, 2014. The options are
exercisable  to purchase  stock for a period of up to ten years from the date of
grant.

      On February 7, 2005,  the Board of Directors  of the Company  approved the
granting of 1,025,000 shares to officers, directors and employees of the Company
under the 2004 Stock Option Plan.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Employment Agreement

      The Company  entered into an employment  agreement  with its President and
Chief Executive Officer  effective  February 20, 2004 for one year providing for
an annual salary of $175,000,  ten-year stock option to purchase  150,000 shares
of the Company's common stock at $3.50, and an annual bonus of $20,000 for every
$1.5  million in gross  consolidated  revenue of the Company for said year.  The
agreement is automatically renewable.

      The stock  options vest monthly over a  twenty-four  month  period.  As of
December 31, 2004, 42% of the options were vested.  The fair value of the vested
options of $359,100 was estimated using the  Black-Scholes  option pricing model
with an expected life of five years,  a risk-free  interest rate of 2.79% and an
expected  volatility of 293%.  The fair value of vested  options during the year
has been expensed as stock based compensation.


                                      F-16
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      On October 31, 2002 the Company's Chief Technology Officer was discharged.
On November 15, 2002 the two parties  entered into a  Settlement  of  Employment
Agreement whereby the Company agreed to pay and accrued $30,000 in severance pay
with monies  received  for  royalties  (See Note 2). the Company will pay 50% of
monies received up to $30,000.

Litigation

      Five former  employees of Veridicom,  Inc.  have filed claims  against the
Company  with the Labor  Commissioner  in the State of  California.  The  former
employees  allege that the Company owes unpaid wages,  salaries and vacation pay
for various  periods between July 2000 and November 2003 amounting to a total of
$111,650. Management and legal advisors are reviewing the validity of the claim.
The Company has accrued for this  liability in its  financial  statements  as of
December 31, 2004.

      On March 28,  2003 the  Company  and one  of  the  Company's  stockholders
filed a lawsuit  in  Superior  Court  against a former CEO of the  Company.  The
lawsuit  alleges a breach of  fiduciary  duty,  negligence,  fraud and breach of
contract  claiming the CEO did not devote his efforts to the  Company'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.

      In addition,  the Company is a party to a number of other lawsuits arising
in the normal course of business.  In the opinion of management,  the resolution
of these  matters  will not have a  material  adverse  effect  on the  Company's
operations, cash flows or financial position.

Agreements

      The Company  entered into a  Non-Excusive  Agreement  with  KirwanGier for
assisting in equity  placements on August 5, 2004 for a term of six months.  The
agreement was  terminated on October 6, 2004.  Under the terms of the agreement,
the Company was to issue  warrants to purchase  100,000  shares of the Company's
common stock at $3.50 per share.  The Company will not issue these  warrants due
to non-performance on the part of KirwanGier.

      The Company has entered into an agreement with Carpe DM on August 23, 2004
for  investor  relations  services  for a term of one  year.  The  terms  of the
agreement  are  pending  approval of the Board of  Directors  of the Company and
include  monthly  fees of $2,500 to  $5,000  and the  issuance  of  warrants  to
purchase  150,000  shares of the  Company's  common  stock at $3.50  per  share.
Additional  warrants for a further 150,000 shares may be issued at similar terms
dependent upon attainment of specific performance targets.


                                      F-17
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      On February 25, 2005, the Company completed the first of three rounds of a
private placement worth $5,100,000  through a placement agent,  Joseph Stevens &
Co. Inc ("JSC").  As  consideration  for the placement  services  provided,  the
Company is obligated to issue JSC a warrant to purchase up to 107,087  shares of
its  common  stock at an  exercise  price of $1.27 per  share  and a warrant  to
purchase up to 100,000  shares of its common stock at an exercise price of $3.50
per share and cash consideration in the amount of $136,000.

Leases

      In February 2004 the Company entered into a three year operating lease for
office space. The Company is required to pay basic rent and estimated  operating
expenses. The remaining lease amounts are $197,132 per annum for 2005 and 2006.

Rent expense was $139,077 and $26,841 for the years ended December 31, 2004 and
2003, respectively.

NOTE 10 - PROCEEDS FROM CAPITAL STOCK SUBSCRIPTIONS

      On January 16, 2004,  the Company  entered  into an Agreement  and Plan of
Merger  with  Cavio  Corporation,   a  privately  held  Washington   corporation
("Cavio").  The merger became effective on February 20, 2004 following a special
meeting  of Cavio's  stockholders.  In  accordance  with the terms of the Merger
Agreement,  the Company acquired all outstanding shares of Cavio common stock in
exchange for 5,119,140  shares of the Company's common stock. As of February 20,
2004 Cavio had received proceeds from capital stock  subscriptions  amounting to
$3,192,619, which represented amounts advanced to Cavio that were intended to be
converted  into capital  stock.  To complete the merger with the Company,  Cavio
issued  1,754,000  shares which were then  exchanged  for 486,654  shares of the
Company's common stock (at the exchange ratio of 1: 0.277454 as per the terms of
the  Merger  Agreement).  The  486,654  shares  have  been  held in trust  since
consummation of the Merger, pending confirmation of eligible subscribers and the
proceeds  of  $3,192,619  were  recorded  as a  liability  in Cavio's  financial
statements.

      In March,  2005, Cavio and the Company confirmed the subscribers  eligible
to be issued the 486,654  shares of the  Company's  common  stock.  The Board of
Directors  of the Company then  ratified,  approved and accepted the issuance of
the  aforementioned  486,654  shares  of  the  Company's  common  stock  to  the
subscribers. Accordingly, the proceeds from capital stock subscriptions have now
been  recorded  as  additional  paid in  capital  (APIC)  during  the year ended
December 31, 2004.

NOTE 11 - EARNINGS PER SHARE

                                            For the Year Ended December 31, 2004
                                            ------------------------------------
                                                                          Per
                                              Income        Shares       Share
                                            (Numerator)  (Denominator)  Amount
                                            -----------   -----------  --------
Basic EPS
  (Loss) available to common stockholders  $(3,720,261)   14,415,829   $(0.26)

Effect of Dilutive Securities                      --            --         --
                                           -----------    ----------   ------

Diluted EPS
  (Loss) available to common stockholders  $(3,720,261)   14,415,829   $(0.26)
                                           ===========    ==========   ======


                                      F-18
<PAGE>

                 VERIDICOM INTERNATIONAL, INC. AND SUBSIDIARIES
                     (FORMERLY KNOWN AS ALPHA VIRTUAL, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                            For the Year Ended December 31, 2003
                                            ------------------------------------
                                                                          Per
                                              Income        Shares       Share
                                            (Numerator)  (Denominator)  Amount
                                            -----------   -----------  --------
Basic EPS
  (Loss) available to common stockholders   $(2,882,690)   5,662,025   $ (0.51)

Effect of Dilutive Securities                      --            --         --
                                            -----------    ---------   -------

Diluted EPS
  (Loss) available to common stockholders   $(2,882,690)   5,662,025   $ (0.51)
                                            ===========    =========   =======

NOTE 12 GAIN ON CANCELLATION/FORGIVENESS OF DEBT

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. 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 has sold to GAC
the IC3D/OneView product in exchange for cancellation of the $435,000 note and
accrued interest of $45,312 owed by Alpha.

NOTE 13 - OFFICE CLOSING

      On April 15, 2004 the Company permanently closed the offices of Veridicom,
Inc. in Sunnyvale, California and is currently in the process of integrating and
consolidating  its  software and  hardware  product  divisions at its offices in
Vancouver,  British Columbia,  Canada.  The direct costs incurred by the company
to-date, with respect to the closure and relocation of the Sunnyvale operations,
amount to $31,575.


                                      F-19
<PAGE>

NOTE 14 - SUBSEQUENT EVENTS

Sale of Common Stocks

      Subsequent to the balance  sheet date the Company sold 287,632  shares for
$596,250. $65,000 of the proceeds was used to extinguish existing debt.

Financing agreement

      On February 25, 2005, the Company completed the first of three rounds of a
private  placement  whereby  the  Company  will  issue  up  to an  aggregate  of
$5,100,000 worth of 10% callable secured notes convertible into shares of common
stock of the Company and warrants to purchase up to an  aggregate of  10,200,000
shares of common  stock,  of the Company to certain  accredited  investors.  The
closing  of the first  round of the  Private  Placement  resulted  in  aggregate
proceeds  to the  Company  of  $1,700,000  and the two  subsequent  closings  of
$1,700,000  each  are  contingent  upon  triggering  events  set  forth  in  the
Securities Purchase Agreement.

      The Notes  have a term of 36 months  and bear  interest  at 10% per annum,
which is payable monthly; provided,  however, that the interest rate shall reset
at 0% for any monthly period in which the Company's  stock price is greater than
125% of the  "Initial  Market  Price,"  which is  defined  as 100% of the volume
weighted  average of the  Company's  common stock for the five days  immediately
prior to closing, as reported on the Over-the-Counter Bulletin Board.

      The Warrants are  exercisable  at any time for a period of five years from
the date of issuance.  The Series A Warrants have an exercise price of $3.00 per
share and the Series B Warrants have an exercise price of $5.00 per share.

      As an  inducement to  participate  in the Private  Placement,  the Company
granted  the  Note  Holders  a  security  interest  in all  of its  intellectual
property.

      As consideration for placement agent services provided by Joseph Stevens &
Co.  Inc.  ("JSC") in  connection  with the  Private  Placement,  the Company is
obligated to issue JSC a warrant to purchase up to 107,087  shares of its common
stock at an  exercise  price of $1.27 per share and a warrant to  purchase up to
100,000  shares of its common stock at an exercise  price of $3.50 per share and
cash consideration in the amount of $136,000.

Stock Option Plan

      On February 7, 2005,  the Board of Directors  of the Company  approved the
granting of 1,025,000 shares to officers, directors and employees of the Company
under the 2004 Stock Option Plan.


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