U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

[X]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
       OF 1934.
                For the quarterly period ended December 31, 2002

[ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d)  OF THE  EXCHANGE ACT For the
       transition period from to .

                           Commission File No: 0-12382

                              Alpha Virtual, Inc.
              ----------------------------------------------------
                         (formerly Perceptronics, Inc.)
             (Exact name of Registrant as specified in its Charter)



             Delaware                                      95-2577731
  -------------------------------                    ----------------------
  (State or other jurisdiction of                      (I.R.S. Employer
   incorporation or organization)                    Identification Number)


              10345 West Olympic Boulevard, Los Angeles, CA 90064
              ---------------------------------------------------
                (Address of Principal Executive Offices) Zip Code

       Registrant's telephone number, including area code: (310) 432-6200
           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK - $.001 PAR VALUE
                         ------------------------------
                                (Title of Class)

Check whether the Registrant  (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES X NO

The number of shares outstanding of the Registrant's common stock as of December
31, 2002 was 9,382,669.

Transitional Small Business Disclosure Format (check one):

                                   Yes        No  X
                                      -----     -----



                                     1 of 19

<PAGE>



                                      INDEX
                                      -----


                               ALPHA VIRTUAL, INC.



PART I.  FINANCIAL INFORMATION
------------------------------
Item 1.  Financial Statements

         Balance sheets, Alpha Virtual, Inc., December 31, 2002 and
         March 31, 2002.                                                    3

         Statements of operations, Alpha Virtual, Inc., nine months
         ended December 31, 2002 and nine months ended December 31, 2001    5

         Statements of cash flows, Alpha Virtual, Inc., nine months
         ended December 31, 2002 and December 31,   2001.                   6

         Notes to financial statements.                                     7

Item 2. Management's  Discussion and Analysis and Plan of Operation        13



PART II. OTHER INFORMATION
--------------------------
Item 2.  Changes in Securities                                             16

Item 4.  Submission of Matters to a Vote of Security Holders.              17

Item 5.  Other Information.                                                17

Item 6.  Exhibits and Reports on Form 8-K.                                 18


















                                     2 of 19

<PAGE>


                          Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

                               ALPHA VIRTUAL, INC.
                                 BALANCE SHEETS



                                                    December 31,     March 31,
                                                        2002           2002
                                                    (Unaudited)      (Audited)
                                                   ------------    ------------
ASSETS:
Current Assets:
--------------
Cash and short term investments                    $    293,734    $     19,807
Receivables, net of allowance of $3,000 as of            34,570          27,070
   December 31, 2002 and March 31, 2002 - Note C
Prepaid expenses                                         65,112          24,481
                                                   ------------    ------------

Total current assets:                                   393,416          71,358

Equipment & Leasehold Improvements, at cost              45,850          45,850
Less accumulated depreciation and amortization          (32,037)        (28,038)
                                                   ------------    ------------
                                                         13,813          17,812

Other Assets                                             21,825          21,825
                                                   ------------    ------------

TOTAL ASSETS                                       $    429,054    $    110,995
                                                   ============    ============


















                  See Notes to Financial Statements (Unaudited)


                                     3 of 19

<PAGE>

                               ALPHA VIRTUAL, INC.
                                 BALANCE SHEETS
                                   (Continued)


                                                    December 31,     March 31,
                                                        2002           2002
                                                    (Unaudited)      (Audited)
                                                   ------------    ------------

LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current Liabilities:
-------------------
Accounts payable                                   $    332,834    $    111,546
Payroll taxes payable                                   247,937         138,167
Accrued compensation                                      3,399          47,853
Other accrued liabilities                                78,369          49,929
Short term debt - Note D                                485,000          50,000
Current portion of obligation under capital lease         3,290           3,176
Loans payable to shareholders - Note D                   18,000          28,000
Rate reserve                                            100,000         100,000
                                                   ------------    ------------
Total current liabilities:                            1,268,829         528,671

Long-Term Liabilities:
---------------------
Obligation under capital lease                            4,139           5,813
                                                   ------------    ------------

Total Liabilities                                     1,272,968         534,484


COMMITMENTS AND CONTIGENCIES

SHAREHOLDERS' DEFICIT:

Common Stock, par value $.001 per share,
  authorized  60,000,000 shares,  issued
  and outstanding 9,382,669 shares at
  December 31, 2002 and
  4,228,876 shares at March 31, 2002                      9,382           4,229
Additional paid in capital                           17,492,724      16,403,703
Accumulated deficit                                 (18,346,020)    (16,831,421)
                                                   ------------    ------------

TOTAL SHAREHOLDERS' DEFICIT                            (843,914)       (423,489)
                                                   ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIT                                            $    429,054    $    110,995
                                                   ============    ============


                  See Notes to Financial Statements (Unaudited)


                                     4 of 19

<PAGE>


                               ALPHA VIRTUAL, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


                            Three Months Ended             Nine Months Ended
                                December 31,                  December 31,

                               2002          2001            2002          2001
                       ------------  ------------    ------------  ------------
Net Sales              $     12,287  $          -    $     64,558  $          -
Cost of Sales                     -             -    $     47,058  $          -
                       ------------  ------------    ------------  ------------

Gross Profit                 12,287             -          17,500             -

Costs and expenses:
Selling, general and
  administrative            106,740       751,493       1,013,044     1,355,153
Research & development       14,138       126,809         505,640       338,788
                       ------------  ------------    ------------  ------------

Operating loss             (108,591)     (878,302)     (1,501,184)   (1,693,941)

Other income/(expense)      (13,415)            -         (13,415)      137,500

Loss before taxes          (122,006)     (878,302)     (1,514,599)   (1,556,441)
Income tax provision              -             -               -             -
                       ------------  ------------    ------------  ------------

Net loss               $   (122,006) $   (878,302)     (1,514,599)   (1,556,441)
                       ============  ============    ============  ============

Earnings per share:
       Basic:          $      (0.02) $      (0.06)   $      (0.26) $      (0.11)

       Diluted:        $      (0.02) $      (0.06)   $      (0.26) $      (0.11)
                       ============  ============    ============  ============

Weighted average common and common equivalent shares:


Basic - Note E            7,039,939     3,123,040       5,751,491     2,726,676

Diluted - Note E          7,039,939     3,123,040       5,751,491     2,726,676
                       ============  ============    ============  ============






                  See Notes to Financial Statements (Unaudited)


                                     5 of 19

<PAGE>

                               ALPHA VIRTUAL, INC.
                        CONDENSED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)


                                                  Nine Months Ended December 31,

                                                        2002            2001
                                                   ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                           $ (1,514,599)   $ (1,556,441)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization                             3,999           1,306

Changes in assets and liabilities:
   Receivables                                           (7,500)         25,693
   Prepaid expenses                                     (40,631)        (49,285)
   Other assets                                               -         (13,200)
   Accounts payable                                     221,288        (250,610)
   Payroll taxes payable                                109,770               -
   Accrued compensation                                 (44,454)            833
   Other accrued liabilities                             28,420         (17,691)
                                                   ------------    ------------


Net cash used by operating activities:               (1,243,687)     (1,859,395)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment                                         -          (1,416)
                                                   ------------    ------------

Net cash provided (used) by investing activities              -          (1,416)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock                    1,084,174       1,875,000
Proceeds from note payable                              435,000               -
Payments on capital lease                                (1,560)              -
                                                   ------------    ------------

Net cash provided in financing activities             1,517,614       1,875,000

NET INCREASE (DECREASE) IN CASH                         273,927          14,189
                                                   ------------    ------------


Cash, beginning of period                          $     19,807    $     12,444
Cash, end of period                                     293,734          26,633
                                                   ============    ============

Cash paid during period for income taxes                      -               -
Cash paid during period for interest expense                  -               -


                  See Notes to Financial Statements (Unaudited)


                                     6 of 19

<PAGE>

                               ALPHA VIRTUAL, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE A - UNAUDITED FINANCIAL STATEMENTS
---------------------------------------

The  unaudited  financial  statements  have been  prepared  in  conformity  with
generally accepted accounting  principles and include all adjustments which are,
in the opinion of management, necessary for fair presentation of the results for
the  interim  periods  presented.  All such  adjustments  are, in the opinion of
management,  of a normal  recurring  nature.  Results for the three month period
ended December 31, 2002 are not necessarily  indicative of the operating results
to be expected for the full year.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted. It is suggested that these financial  statements
are read in conjunction with the financial statements and notes thereto included
in the Company's annual report on Form 10-KSB for the year ended March 31, 2002.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

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

Basis of Presentation:  The accompanying financial statements have been prepared
in conformity with generally accepted accounting  principles,  which contemplate
continuation  of the Company as a going  concern.  The Company has  continued to
sustain operating losses and requires  substantial amounts of working capital to
support its operations.  At December 31, 2002 current liabilities exceed current
assets by  $875,413.  The Company  continues to have  difficulty  in meeting its
obligations  as they  become  due.  The  ability of the  Company to operate  its
business and  generate  sufficient  positive  cash flows is dependent on raising
additional investment capital. In view of the above,  activities will be reduced
to paying liabilities and to seeking business  combinations.  The objective will
be to acquire an  operating  company  that has  experienced  management  and the
potential for profitable growth in exchange for securities. Such transaction may
result in a change in control of the Company. As of the date of this filing, the
Company has not been in  negotiations  to acquire any  company.  There can be no
assurance  that the Company will be successful  in acquiring  any business.  The
Company's  financial  statements do not include any  adjustments  to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and  classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.


                                     7 of 19

<PAGE>


                               ALPHA VIRTUAL, INC.
                          NOTES TO FINANCIAL STATEMENTS


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

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

Revenue Recognition: Sales of services are recorded when performed in accordance
with  contracts.  Revenues  from  long-term  contracts  are  recorded  using the
percentage-of-completion (cost-to-cost) method of accounting. Under this method,
sales are recorded as costs (including general and  administrative  expenses) as
incurred,  plus a portion of the profit expected to be realized on each contract
in the  ratio  that  costs  incurred  to date  bear to total  estimated  cost at
completion.  Revenues  from software  sales are recorded in accordance  with SOP
97-2 "Software Revenue Recognition", which requires that revenue recognized from
software  arrangements  be allocated to the various  elements of the arrangement
based on the relative  fair values of the elements,  such as software  products,
upgrades,   enhancements,   post  contract  customer  support,  installation  or
training. Revenues from product services are recognized at the time services are
provided.  The Company has been developing and marketing their OneView  software
products  and  services.  As of December  31, 2002 there were  $48,287  revenues
related to these products.

Income Taxes:  Provisions  for federal and state income taxes are  calculated on
reported  financial  statement  income  based  on  the  current  tax  law.  Such
provisions  differ from the amounts  currently  payable because certain items of
income and expense, known as temporary differences,  are recognized in different
tax periods  for  financial  reporting  purposes  than for income tax  purposes.
Deferred  income taxes are the result of the  recognition  of tax benefits  that
management  expects  to  realize  from the  utilization  of net  operating  loss
carryforwards. The amounts recorded are net of valuation allowance and represent
management's estimate of the amount that is more likely than not to be realized.

Per Share  Data:  Per share data is based upon the  weighted  average  number of
shares of common and dilutive  common stock  equivalents  outstanding  using the
treasury stock method.  Refer to Note E for a reconciliation  of the shares used
to compute earnings per share.

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







                                     8 of 19

<PAGE>


                               ALPHA VIRTUAL, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE C - RECEIVABLES
--------------------

At  December  31,  2002 and March 31,  2002  there  were  $34,570  and  $27,070,
respectively,  of receivables that represent amounts from services performed and
royalties  from  the  Eidetics  sale.  These  amounts  are  net of  $3,000  that
represents amounts that may become uncollectible.


NOTE D - SHORT TERM DEBT
------------------------

As of  December  31, 2002 and March 31,  2002,  there is a loan  outstanding  of
$50,000 with a foreign  customer.  The note bears  interest at 6% per year.  The
terms of the note required repayment by March 1, 1996.

As of December  31, 2002 and March 31, 2002  respectively  the Company had loans
outstanding of $18,000 and $28,000 to various shareholders. $10,000 of the notes
were  converted  into 66,665 shares (13,333 shares after the November 2002 stock
split). These loans are past due as of March 31, 2002. The loans are convertible
to common stock at $0.15 per share at the option of the note holders  ($0.75 per
share after the November 2002 stock split.

On  July  9,  2002,  the  Company  entered  into  a  Restated  Multiple  Advance
Convertible Promissory Note (the "Note") with its principal shareholder ("GAC").
The Note provides up to $425,000 of term debt to the Company maturing on July 9,
2003 at an interest rate of 11.5 percent.  As of December 31, 2002,  the Company
amended the note and had borrowed an aggregate  of $435,000  from GAC,  $110,000
during the three month period ended December 31, 2002. The Note is  convertible,
at the  election of GAC,  into the  Company's  common stock at a price per share
equal to 30% of the average  trading  price for the twenty  business  day period
prior  to date of  conversion.  The  Note is  secured,  pursuant  to a  Security
Agreement,  by all of the Company's computer software programs. The terms of the
note require  repayment on demand,  but in no event,  earlier than July 9, 2003.
The Company recorded accrued interest of $13,415 at December 31, 2002 related to
the note.


NOTE E - EARNINGS PER SHARE
---------------------------

The Company  uses SFAS #128 in  accounting  for basic and diluted  earnings  per
share.  Basic earnings per share  excludes  dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares  outstanding  for the  period.  Diluted  earnings  per share is  computed
similarly to fully diluted earnings per share. A  reconciliation  of shares used
to  compute  earnings  per  share for the three  and  nine-month  periods  ended
December 31, 2002 and 2001 are as follows:



                                     9 of 19

<PAGE>


                               ALPHA VIRTUAL, INC.
                          NOTES TO FINANCIAL STATEMENTS


                              Three months ended          Nine months ended
                                  December 31               December 31
                               2002         2001          2002         2001

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

Weighted average common      7,039,939    3,123,040     5,751,491    2,726,676
shares Outstanding

Diluted stock options and            -            -             -            -
warrants based on treasury
stock method
                           -----------  -----------   ------------ -----------

Diluted shares               7,039,939    3,123,040     5,751,491    2,726,676
                           ===========  ===========   ============ ===========



NOTE F - REVERSE STOCK SPLIT
----------------------------

On October 31, 2002 the Company consummated a 1-for-5 reverse stock split of its
outstanding  common  shares.  The par value of the stock  remained  at $.001 per
share. All references in these notes to the financial statements to common stock
or average number of common shares outstanding reflect the value of common stock
after the effects of the 1-for-5 reverse split.


NOTE G - SALES OF COMMON STOCK
------------------------------

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

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

On November 6, 2002, the Company  entered into a Securities  Purchase  Agreement
("Purchase  Agreement") and a Registration Rights Agreement ("Rights Agreement")
with certain  accredited  investors to be named by Manhattan  Capital  Partners,



                                    10 of 19

<PAGE>


                               ALPHA VIRTUAL, INC.
                          NOTES TO FINANCIAL STATEMENTS


LLC, a venture capital limited liability company.  Under the Purchase Agreement,
the Company has agreed to sell  $310,000 of its common stock,  as amended,  at a
purchase price based upon the lower of (i) $0.10 per share,  or (ii) the average
price per share  between  the  "bid"  and  "ask"  price on the  Over-the-Counter
Bulletin Board at the close of business for the five (5) business days preceding
the closing date. The offer closed and 3,100,000  post-split  shares were issued
at a price of $0.10 per share.

Upon the sale of the Company's common stock to the investors,  and in accordance
with the  Rights  Agreement,  the  Company  has  agreed  to file a  registration
statement with the Securities and Exchange Commission ("SEC") registering all of
the common stock purchased by the investors.

Also,  on November  6, 2002,  and in  connection  with the  Purchase  and Rights
Agreements with certain investors, the Company agreed to enter into a Consulting
Agreement and Registration Rights Agreement with Manhattan Capital Partners, LLC
("Manhattan")  upon the receipt by the  Company of  $310,000.  In  exchange  for
general business consulting  services,  the Company granted warrants to purchase
an  aggregate  of  2,000,000  shares of its common stock at a price of $0.10 per
share.  The warrants expire five years after the date of grant. The Registration
Rights Agreement requires the Company to file a registration  statement with the

SEC,  registering  the  underlying  common  stock  of the  warrants  granted  to
Manhattan.


NOTE H -LICENSE AGREEMENT
-------------------------

Effective October 31 2002, the Company entered into a License Agreement with its
principal shareholder,  Global Alpha Corporation ("GAC") wherein GAC was granted
an exclusive license to the Company's  software and systems commonly referred to
as the "IC3D Framework" (the "System). The System encompasses  substantially all
of the Company's  software  including  software  developed to support multi-user
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  December  31, 2002 the annual
license fee of $25,000 had not been paid and the Company is discussing  with GAC
setting off the license fee against the short term debt of $435,000  owed by the
Company to GAC.







                                    11 of 19

<PAGE>


                               ALPHA VIRTUAL, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE I -OPERATING EXPENSES OF THE COMPANY
-----------------------------------------

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


NOTE J -SUBSEQUENT EVENTS
-------------------------

On January 23, 2003 the Company paid $203,950 to the Internal Revenue Service in
settlement  of its prior  payroll  tax  liabilities.  The  Company is  currently
negotiating  with the  Internal  Revenue  Service for  reduction or abatement of
penalties  associated with the arrear payroll taxes.  Until the actual amount of
the liability for possible  penalties or additional taxes can be ascertained,  a
contingent liability has not been established.

On January 30, 2003 the Company established a Trust for the Benefit of Creditors
in the amount of $40,000 and  segregated  these funds from the general  funds of
the Company. The Company intends to use these funds to settle liabilities of the
Company.

























                                    12 of 19

<PAGE>



Item 2. Management's Discussion and Analysis and Plan of Operation

General

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

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

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

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





                                    13 of 19

<PAGE>

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

In view of the above,  our activities  will be reduced to paying our liabilities
and to  seeking  business  combinations.  Our  objective  will be to  acquire an
operating  company  that  has  experienced  management  and  the  potential  for
profitable growth in exchange for our securities. Such transaction may result in
a change in control of the Company.  As of the date of this filing,  we have not
been in negotiations  to acquire any company.  There can be no assurance that we
will be successful in acquiring any business.

Going Concern Qualification

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

RESULTS OF OPERATIONS

The nine month period ended December 31, 2002 versus December 31, 2001

Net Sales. Net sales for the nine-month periods ended December 31, 2002 and 2001
were $64,538 and $0. Net sales for the  three-month  periods ended  December 31,
2002 and 2001 were  $12,827 and $0,  respectively.  The company is in a state of
transition  and net sales  are  representative  of  initial  attempts  to market
software and fees for services rendered.

Cost of Sales. Cost of sales for the nine-month  periods ended December 31, 2002
and 2001 were  $47,058 and $0. Cost of sales for the three month  periods  ended
December 31, 2002 and 2001 were $0 and $0,  respectively.  These costs primarily
related to salaries and wages  expenses  related to software  products  sold and
services rendered.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  decreased  $757,424 or 88% in the  three-month  period
ended  December 31, 2002 compared to the  comparable  three-month  period in the
prior fiscal year. This decrease was the result of decreased staffing levels and
a general  shutdown of operations.  On October 31, 2002, the Company  terminated
all but one of its employees;  and except for its license  agreement,  it ceased
all of its prior operating activities. Its principal activities will be directed




                                    14 of 19

<PAGE>

to reducing its liabilities and seeking possible acquisitions.  Selling, general
and administrative  expenses decreased $192,757 for the entire nine-month period
ended  December 31, 2002  compared to the  comparable  nine-month  period in the
prior  fiscal  year.  Until  October  31,  2002 the  Company  continued  to grow
operations and develop the OneView software products for market launch.

Interest  Expense.  Interest  expense  was  $13,415 for the three month and nine
month  periods  ended  December 31, 2002 related to the 11.5% loan from GAC, the
Company's major  shareholder.  No interest was recorded in the prior three month
or in the prior nine-month periods ended December 31, 2001.

Liquidity  and  Capital  Resources.   The  Company  is  experiencing  continuing
liquidity  problems due to a lack of revenues and the absence of cash  reserves.
At December  31,  2002,  the  Company's  unrestricted  cash and cash  equivalent
balance of $293,734 was the result of equity investments made during the quarter
ended December 31, 2002 and loans from the Company's major shareholder, GAC. The
majority of that cash will be used to settle  liabilities fore payroll taxes and
to settle general  liabilities of the Company.  The Company had negative working
capital of $875,413 at December 31, 2002,  compared to negative  working capital
of $457,313 at March 31, 2002. The increase in negative  working capital was due
primarily to the continued  operating losses the Company sustained.  The Company
continues to have  difficulty in meeting all of its  obligations  which are past
due. The Company owes  approximately  $240,000 in payroll  taxes at December 31,
2002 to both the  State  and  Federal  government  and may not  have  sufficient
capital to pay all of the  liabilities  of the Company..  The lack of sufficient
working  capital which  restricted  the Company's  ability to market its OneView
products and to expand its revenue base led to its licensing  substantially  all
of its technology to its principal shareholder, GAC, in October 2002.

The  Company's  operating  activities  used cash of  $1,243,687  during the nine
months ended  December 31, 2002  resulting  primarily  from the  operating  loss
incurred  during  the  nine  month  period  and the  costs  associated  with the
development and commercial introduction of the its commercial software products.

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

The only  foreseeable  cash  requirements  during the next twelve months will be
related to reducing the Company's liabilities,  maintaining its corporate status
as a corporate entity, complying with the periodic reporting requirements of the
U.S. Securities and Exchange  Commission,  and evaluating and reviewing business
ventures and opportunities.

On November 6, 2002,  the Company  entered into an  agreement to raise  $310,000
from the sale of its common  stock.  The  proceeds  should  allow the Company to
continue.  If additional  funds are required,  it is anticipated that management
will seek  additional  equity  capital or loans.  There is no assurance that the
Company will be able to raise or borrow additional capital or that the terms and
conditions  relating to the acquisition of such new capital will be favorable to
the Company.

The Company's  financing  activities  provided an additional  amount of $110,000


                                    15 of 19

<PAGE>

during the quarter ended  December 31, 2002. The funding came as a loan from its
main investor, Global Alpha.

FORWARD LOOKING STATEMENTS

The Company  hereby  incorporates  by  reference  "Forward  Looking  Statements"
contained in the  "Management's  Discussion And Analysis Of Financial  Condition
And Results Of Operations" of the Company's Form 10-KSB dated March 31, 2002.


                           Part II. OTHER INFORMATION
                           --------------------------

Item 2. Changes in Securities and Use of Proceeds.

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

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

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

Upon the sale of the Company's common stock to the investors,  and in accordance
with the  Rights  Agreement,  the  Company  has  agreed  to file a  registration
statement with the Securities and Exchange Commission ("SEC") registering all of
the common stock purchased by the investors.

Also,  on November  6, 2002,  and in  connection  with the  Purchase  and Rights
Agreements with certain investors, the Company agreed to enter into a Consulting
Agreement and Registration Rights Agreement with Manhattan Capital Partners, LLC
("Manhattan")  upon the receipt by the  Company of  $310,000.  In  exchange  for
general business consulting  services,  the Company granted warrants to purchase
an  aggregate  of  2,000,000  shares of its common stock at a price of $0.10 per
share.  The warrants expire five years after the date of grant. The Registration
Rights Agreement requires the Company to file a registration  statement with the
SEC,  registering  the  underlying  common  stock  of the  warrants  granted  to
Manhattan.

                                    16 of 19

<PAGE>


Item 4. Submission of Matters to a Vote of Security Holders.

On  September  24,  2002, a majority of the  Company's  shareholders  approved a
one-for-five reverse stock split. After required filings with the Securities and
Exchange  Commission  and  notice  to  all  shareholders  of  the  Company,  the
one-for-five reverse stock split became effective on October 31, 2002.

In  connection  with the reverse  stock split,  the  Company's  common stock now
trades under the new trading symbol: "AVUL."


Item 5. Other Information.

On November 6, 2002, the Company  entered into a Securities  Purchase  Agreement
("Purchase  Agreement") and a Registration Rights Agreement ("Rights Agreement")
with certain  accredited  investors to be named by Manhattan  Capital  Partners,
LLC, a venture capital limited liability company.  Under the Purchase Agreement,
the Company has sold $310,000 of its common stock at a purchase price based upon
the lower of (i) $0.10 per share,  or (ii) the average  price per share  between
the "bid" and "ask" price on the Over-the-Counter Bulletin Board at the close of
business for the five (5) business days  preceding  the closing date.  The offer
closed  and  3,100,000  post-split  shares  were  issued at a price of $0.10 per
share.


Upon the sale of the Company's common stock to the investors,  and in accordance
with the  Rights  Agreement,  the  Company  has  agreed  to file a  registration
statement with the Securities and Exchange Commission ("SEC") registering all of
the common stock purchased by the investors.


























                                    17 of 19

<PAGE>


Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:

10.18    Securities  Purchase  Agreement  entered  into  between the Company and
         certain investors to be named by Manhattan Capital Partners,  LLC dated
         November 6, 2002. (1)

10.19    Registration  Rights  Agreement  entered  into  between the Company and
         certain investors to be named by Manhattan Capital Partners,  LLC dated
         November 6, 2002. (1)

10.20    Consulting  Agreement  to be  entered  into  between  the  Company  and
         Manhattan  Capital  Partners,  LLC upon the  receipt of the  Company of
         $310,000  pursuant to a Securities  Purchase  Agreement  (Exhibit 10.18
         above). (1)

10.21    Registration  Rights  Agreement  to be entered into between the Company
         and Manhattan Capital Partners,  LLC upon the signing of the Consulting
         Agreement (Exhibit 10.20 above). (1)

10.22    License  Agreement  entered  into  between the Company and Global Alpha
         Corporation. (1)

10.23    Restated Multiple Advance  Convertible  Promissory Note entered into by
         the Company and Global Alpha Corporation, Dated July 9, 2002. (1)

10.24    Security  Agreement  entered  into between the Company and Global Alpha
         Corporation, dated July 9, 2002. (1)

99.1     Chief Executive  Officer  Certification  pursuant to 18 U.S.C.  Section
         1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act of
         2002.

99.2     Chief Financial  Officer  Certification  pursuant to 18 U.S.C.  Section
         1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act of
         2002.

-----------------------------
(1) Exhibits  previously filed with Form 10-Q for the period ended September 30,
2002.






(b) Reports on Form 8-K:

         None





                                    18 of 19

<PAGE>



                                   Signatures


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


                                       Alpha Virtual, Inc.
                                       Registrant





Date: February 14, 2003                By: /s/ Saif Mansour
      -----------------                ---------------------------------------
                                        Saif Mansour
                                        President



































                                    19 of 19