<PAGE>









FORM 10QSB
SIVAULT SYSTEMS, INC. - SVTL.OB
FILED: NOVEMBER 12, 2004 (PERIOD: SEPTEMBER 30, 2004)
Quarterly report filed by small businesses












                                       1
<PAGE>






                                Table Of Contents

PART I.
.. . . . . . . . . . . . . . . . . . . . . .
ITEM 1. FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3 CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3 DEFAULTS ON SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2




                                       2
<PAGE>




                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURTIES EXCHANGE
    ACT OF 1934

For the quarterly period ended September 30, 2004

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

For the transition period from _______________ to ________________

                  COMMISSION FILE NUMBER             0-30711

                              SIVAULT SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

             Nevada                                      98-0209119
State or other jurisdiction                  (IRS Employer Identification No.)
of incorporation or organization

                           500 5th Avenue, Suite 1650
                               New York, NY 10110
                    (Address of principal executive offices)

                                 (212) 931-5760
              (Registrant's telephone number, including area code)

(Former Name, Former Address, and Former Fiscal Year, if changed since last
report)

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, and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]

Indicate by check mark whether the Registrant is an Accelerated Filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]

State the number of shares outstanding of each of the issuer's classes of common
stock as of September 30, 2004

Common Stock, $.001 par value                        14,548,410
Class                                                Number of shares




                                       3
<PAGE>





                     SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
                                      INDEX

PART I

                       Item 1
        Financial Information                                          Page No.
        ---------------------                                          --------

        Consolidated Balance Sheets as of September 30, 2004 and
        June 30, 2004                                                  5 - 6

        Consolidated Statements of Comprehensive Loss for the
        three months ended September 30, 2004 and 2003
                                                                           7
        Consolidated Statements of Operations for the three
        months ended September 30, 2004 and 2003
                                                                           8
        Consolidated Statements of Stockholders' Equity for the
        three months ended September 30, 2004                              9

        Consolidated Statements of Cash Flows for the three
        months ended September 30, 2004 and 2003
                                                                     10 - 11
        Notes to Consolidated Financial Statements for the period
        ended September 30, 2004                                     12 - 26




                                       4
<PAGE>


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED BALANCE SHEETS


                                                      SEPTEMBER 30,   JUNE 30,
                                                         2004           2004
                                                     ------------   -----------

CURRENT ASSETS
  Cash                                               $    646,539    $  112,880
  Accounts receivable                                     591,748       848,617
  Inventory                                                 3,884         3,884
  Prepaid expenses and other current assets               168,040        58,788
                                                     ------------    ----------
     TOTAL CURRENT ASSETS                               1,410,211     1,024,169

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
 DEPRECIATION                                             683,426       636,994

SECURITY DEPOSITS                                         112,866        56,916
EXCESS COST OVER NET ASSETS ACQUIRED                    7,863,060             -
                                                     ------------    ----------

                                                     $ 10,069,563    $1,718,079
                                                     ============    ==========

The accompanying notes are an integral part of these consolidated financial
statements.



                                       5
<PAGE>


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>

                                                                               SEPTEMBER 30,    JUNE 30,
                                                                                  2004            2004
                                                                            ---------------   -------------

<S>                                                                            <C>            <C>
CURRENT LIABILITIES
    Accounts payable and accrued liabilities - non-related parties          $     2,352,454   $  2,558,883
    Accounts payable and accrued liabilities - related parties                      296,315        789,410
    Billings in excess of costs and estimated earnings on
     uncompleted contracts                                                                -         90,018
    Convertible debenture payable                                                 1,358,569      1,358,569
    Notes payable - related parties                                                 150,000        339,983
    Capital lease obligations                                                         1,679          3,329
    Corporate income taxes payable                                                  129,920        129,920
    Current liabilities of discontinued operations                                   93,913         93,913
                                                                            ---------------   ------------
      TOTAL CURRENT LIABILITIES                                                   4,382,850      5,364,025
                                                                            ---------------   ------------

DEFERRED RENT EXPENSE                                                                15,339         16,954
                                                                            ---------------   ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY):
  Common stock
     Authorized - 50,000,000 shares $0.001 par value
  Issued and outstanding - 14,458,410 shares and 7,924,664 shares
     at September 30, 2004 and June 30, 2004, respectively                           14,457          7,924
  Additional paid-in capital                                                     25,303,527     14,548,456
  Accumulated other comprehensive loss                                               (7,311)        (7,222)
  Accumulated deficit                                                           (19,639,299)   (18,212,058)
                                                                            ---------------   ------------
     TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                      5,671,374     (3,662,900)
                                                                            ---------------   ------------
                                                                            $    10,069,563   $  1,718,079
                                                                            ===============   ============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                       6
<PAGE>


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


                                                     THREE MONTHS ENDED
                                                        SEPTEMBER 30,
                                               --------------   --------------
                                                     2004             2003
                                               --------------   --------------

NET LOSS                                       $  (1,427,241)   $    (321,077)
 OTHER COMPREHENSIVE LOSS
  Foreign currency translation
   adjustment                                            (89)          (1,206)
                                               -------------    -------------
COMPREHENSIVE LOSS                             $  (1,427,330)   $    (322,283)
                                               =============    =============


The accompanying notes are an integral part of these consolidated financial
statements.


                                       7
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                  THREE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                             -------------- -----------
                                                                 2004         2003
                                                             -------------- -----------
<S>                                                          <C>            <C>
REVENUES
  Contract revenues earned                                   $     851,990  $   158,700
  Other revenues                                                     4,200       12,067
                                                             -------------  -----------
    TOTAL REVENUES                                                 856,190      170,767
                                                             -------------  -----------

OPERATING EXPENSES:
  Cost of revenues earned                                          391,004       77,111
  Selling, general and administrative                            1,118,007      671,977
  Issuance of common stock and stock options for services          710,500       12,500
                                                             -------------  -----------
                                                                 2,219,511      761,588
                                                             -------------  -----------

LOSS FROM OPERATIONS                                            (1,363,321)    (590,821)
                                                             -------------  -----------
OTHER EXPENSES:
  Interest expense                                                  63,920       90,189
                                                             -------------  -----------
                                                                    63,920       90,189
                                                             -------------  -----------

LOSS BEFORE PROVISION FOR INCOME TAXES                          (1,427,241)    (681,010)

PROVISION FOR INCOME TAXES                                               -            -
                                                             -------------  -----------

LOSS FROM CONTINUING OPERATIONS                                 (1,427,241)    (681,010)

INCOME FROM DISCONTINUED OPERATIONS                                      -      359,933
                                                             -------------  -----------

NET LOSS                                                     $  (1,427,241) $  (321,077)
                                                             =============  ===========

BASIC AND DILUTED LOSS PER COMMON SHARE:
  Continuing operations                                      $       (0.11) $     (0.11)
                                                             =============  ===========
  Discontinued operations                                    $           -  $      0.06
                                                             =============  ===========
  Net loss                                                   $       (0.11) $     (0.05)
                                                             =============  ===========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 OUTSTANDING                                                    12,783,494    6,249,755
                                                             =============  ===========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                       8
<PAGE>


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
THREE MONTHS ENDED SEPTEMBER 30, 2004

<TABLE>
<CAPTION>


                                                                                                                        TOTAL
                                        COMMON STOCK             ADDITIONAL          OTHER                          STOCKHOLDERS'
                                ------------------------------    PAID IN        COMPREHENSIVE     ACCUMULATED         EQUITY
                                   SHARES          AMOUNT         CAPITAL            LOSS            DEFICIT        (DEFICIENCY)
                                -------------- --------------- --------------- ----------------- ----------------- ----------------

<S>                                <C>          <C>              <C>             <C>               <C>               <C>
BALANCE, JUNE 30, 2004 (AUDITED)    7,924,664   $       7,924    $  14,548,456   $      (7,222)   $  (18,212,058)   $  (3,662,900)

ISSUANCE OF COMMON
 STOCK FOR:
  Cash (net of finders fees)        1,412,074           1,411        1,624,058               -                -         1,625,469
  Services                            395,000             395          633,105               -                -           633,500

ISSUANCE OF COMMON STOCK TO
  SETTLE ACCOUNTS PAYABLES
  AND ACCRUED LIABILITIES             420,005             420          667,881               -                -           668,301

ISSUANCE OF COMMON STOCK FOR
THE ACQUISITION OF SIVAULT
ANALYTICS, INC. AND RELATED
COSTS                               4,140,000           4,140        7,419,860               -                -         7,424,000

EXERCISE OF STOCK WARRANTS            166,667             167          333,167               -                -           333,334

ISSUANCE OF STOCK OPTIONS FOR
SERVICES                                    -               -           77,000               -                -            77,000

OTHER COMPREHENSIVE LOSS                    -               -                -             (89)               -               (89)

NET LOSS                                    -               -                -               -       (1,427,241)       (1,427,241)
                                -------------   -------------    -------------   -------------    -------------    --------------

BALANCE, SEPTEMBER 30, 2004
(UNAUDITED)                        14,458,410   $      14,457    $  25,303,527   $      (7,311)   $ (19,639,299)    $   5,671,374
                                =============   =============    =============   =============    =============     =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       9
<PAGE>


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                             THREE MONTHS ENDED
                                                                                SEPTEMBER 30,
                                                                         ---------------------------
                                                                            2004           2003
                                                                         -----------   -------------
<S>                                                                       <C>           <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Net loss from continuing operations                                      $(1,427,241)  $ (681,010)
 Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation of property and equipment                                       20,632        2,487
  Issuance of common stock for consulting services                            633,500       12,500
  Issuance of options for consulting services                                  77,000            -
  Deferred rent expense                                                        (1,615)           -
 Changes in assets and liabilities:
  Accounts receivable                                                         256,869      (77,826)
  Inventory                                                                         -       (8,366)
  Prepaid expenses and other current assets                                  (109,252)       4,526
  Security deposits                                                           (55,500)           -
  Accounts payable and accrued liabilities                                   (413,170)     279,185
  Costs and estimated earnings in excess of billings
    on uncompleted contracts                                                  (90,018)           -
                                                                          -----------   ------------
NET CASH USED IN OPERATING ACTIVITIES                                      (1,108,795)    (468,504)
                                                                          -----------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Cash acquired in acquisition                                                   5,622            -
 Purchase of property and equipment                                           (15,249)      (2,087)
 Advances to discontinued subsidiary                                                -     (198,969)
                                                                          -----------   ----------

NET CASH USED IN INVESTING ACTIVITIES                                          (9,627)    (201,056)
                                                                          -----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Net proceeds from the issuance of common stock                             1,625,469      820,329
 Proceeds from the exercise of stock warrants                                 333,334            -
 Repayments of shareholders' advances                                        (115,000)           -
 Repayment of note payable - related party                                   (189,983)           -
 Repayments on capital lease obligations                                       (1,650)      (1,308)
                                                                          -----------   ----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                   1,652,170      819,021
                                                                          -----------   ----------

EFFECT OF FOREIGN EXCHANGE RATE
  CHANGES ON CASH                                                                 (89)      (1,206)
                                                                          -----------   ----------

NET INCREASE IN CASH                                                          533,659      148,255
                                                                          -----------   ----------

CASH, AT BEGINNING OF PERIOD                                                  112,880        4,092
                                                                          -----------   ----------

CASH, AT END OF PERIOD                                                    $   646,539   $  152,347
                                                                          ===========   ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       10
<PAGE>



SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>


                                                                                THREE MONTHS ENDED
                                                                                   SEPTEMBER 30,
                                                                             -----------------------
                                                                                 2004         2003
                                                                             -----------   ---------

<S>                                                                          <C>           <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CASH PAID DURING THE PERIOD FOR:
 Interest                                                                    $   58,185    $       -
                                                                             ===========   =========
 Income taxes                                                                $        -    $       -
                                                                             ===========   =========

NON-CASH INVESTING AND FINANCING ACTIVITIES
  Issuance of common stock for:
  Services                                                                   $   633,500   $  12,500
                                                                             ===========   =========
  Settlement of accounts payables and accrued liabilities                    $   688,301   $       -
                                                                             ===========   =========
  Prepaid expenses                                                           $         -   $  62,500
                                                                             ===========   =========
  Settlement of convertible debenture                                        $         -   $ 100,000
                                                                             ===========   =========

  Excess cost of net assets acquired in the
  acquisition of SiVault Analytics, Inc.                                     $ 7,857,438   $       -
                                                                             ===========   =========

  Issuance of stock options for services                                     $    77,000   $       -
                                                                             ===========   =========

 Issuance of a note payable - related party to
  payoff a note payable - related party                                      $   150,000   $       -
                                                                             ===========   =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       11
<PAGE>

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Security Biometrics, Inc. pursuant to the acquisition of SiVault Analytics, Inc.
("SiVault Analytics") changed its name to SiVault Systems, Inc. ("SiVault") on
July 28, 2004.

SiVault (together with its consolidated subsidiaries, unless the context
otherwise requires, "the Company") is a Nevada corporation incorporated on March
12, 1999. SiVault and its subsidiaries are engaged in the commercialization of
technologies designed to implement secure electronic storage and retrieval of
signed documents and biometric signature-based authentification for electronic
transactions technologies which the Company has developed, acquired or licensed
from others. Lightec Communications Corp. ("Lightec"), a wholly-owned subsidiary
of SiVault, is a provider of telecommunications design, installation and
technical support for information technology systems.

ORGANIZATION

On August 25, 2000, SiVault acquired all of the issued and outstanding stock of
Biometric Security, Inc. (hereinafter referred to as "BSI") in exchange for
1,912,884 shares of the Company's common stock. (1,875,000 of these shares were
owned by a trust whose beneficiaries were the children of a officer of the
Company). This transaction had the effect of what is commonly referred to as a
"reverse acquisition" in that the Company is the legal acquirer; however, BSI
was the accounting acquirer. In connection with the legal form of this
transaction, BSI became a wholly-owned subsidiary of SiVault. For accounting
purposes, the acquisition was treated as a recapitalization of BSI rather than a
business combination. BSI was subsequently renamed eMedRx, Inc. ("eMedRx
Nevada") on December 2, 2002, which is still in the development stage as of
September 30, 2004.

On June 29, 2001, SiVault acquired all of the outstanding membership interest of
Netface, LLC ("Netface"). Netface is a Connecticut limited liability
corporation. Netface held an option to acquire on exclusive worldwide perpetual,
royalty-free license to exploit the Gesture Recognition Technology developed by
DSI Datotech Systems, Inc. (hereinafter referred to as Datotech) for video games
and internet/television. In the year ended June 30,2002, Netface, LLC abandoned
its Datotech option and is now inactive.

On March 14, 2002, SiVault acquired 100% of the outstanding common stock of
Lightec Communications Corp. ("Lightec"). Lightec is a New York corporation
incorporated on July 2, 1996.

On June 28, 2002, SiVault acquired 100% of the outstanding common stock of
Datadesk Technologies, Inc. ("Datadesk"). Datadesk designed and produced
(through subcontractors) advanced digital input devices and appliances. The
Company discontinued its operations as of August 20, 2003.

On January 21, 2003, SiVault incorporated a new subsidiary, eMedRx, Inc.
("eMedRx Canada") under the Company Act of the Province of British Columbia,
Canada. eMedRx Canada entered into an exclusive license agreement with the
Company to develop and market its electronic medical prescription system around
the world. eMedRx Canada was in the development stage at September 30, 2004.

On October 1, 2003, SiVault established a new subsidiary to sell, market and
implement the eMedRx product and PenFlow application in the U.S. Healthcare
delivery market. In return for the rights to the product, SiVault received
consideration of 49% of the stock of the new subsidiary, eMedRx, Inc. ("eMedRx
Delaware"). SiVault appointed the chairman, who owns 51% of eMedRx Delaware as
of September 30, 2004. The chairman of eMedRx Delaware is also a director of
SiVault. EMedRx Delaware has not generated any revenues to date, and its losses
have been funded by SiVault. Accordingly, eMedRx Delaware was considered a
variable interest entity and has been consolidated in SiVault's financial
statements.


                                       12
<PAGE>



NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

On February 18, 2004, SiVault acquired Datagility Inc. ("Datagility"), a
software company specializing in anti-money laundering solutions and application
service provider services. Its assets include primarily the CyberTrooper
software application. Datagility Inc. was acquired in a Stock Purchase Agreement
for initial cash consideration of $100,000 and 116,279 shares of common stock
valued at $300,000, using the average closing price of the Company's common
stock during the 30 trading days subsequent to January 1, 2004. Additional
consideration of $100,000 is due on or before December 31, 2004. No revenues
have been generated by Datagility Inc. to date.

On July 9, 2004, SiVault acquired SiVault Analytics, Inc., ("SiVault
Analytics"), which is in the business of providing products and services to
implement secure storage and retrieval of signed documents and signature-based
authentication for processing on-line transactions. The acquisition was
completed on July 14, 2004, by the Company's purchase of all the outstanding
common shares of SiVault Analytics in exchange for 4 million of the Company's
newly issued common stock valued at $1.80 per share. SiVault Analytics was
incorporated in the State of Delaware on June 16, 2003 under the name of
"PERFORMANCE CENTRAL, INC." and changed its name to SiVault Analytics, Inc. on
November 5, 2003.

BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company as at September
30, 2004, and for the three months ended September 30, 2004 and 2003 have been
prepared in accordance with accounting principles generally accepted in the
United States for interim reporting. Accordingly, they do not include all of the
disclosures required by accounting principles generally accepted in the United
States for complete financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended June 30, 2004. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the interim financial
information have been included. The results of operations for any interim period
are not necessarily indicative of the results of operations for the entire year.

GOING CONCERN

The consolidated financial statements have been prepared assuming the Company
will continue to operate as a going concern which contemplates the realization
of assets and the settlement of liabilities in the normal course of business.
The Company has experienced significant operating losses since inception. In
addition, as at September 30, 2004, the Company has a working capital deficit
amounting to approximately $3.0 million.

The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of assets and
liabilities that might be necessary should the Company be unable to continue as
a going concern.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of SiVault
Securities, Inc. and its subsidiaries. All significant inter-company accounts
and transactions have been eliminated.


                                       13
<PAGE>


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

VARIABLE INTEREST ENTITIES

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" which was replaced in December 2003 by the
issuance of FIN 46R ("FIN 46R"). FIN 46R explains how to identify variable
interest entities ("VIEs") and how a company should assess its interests in a
variable interest entity to decide whether to consolidate that entity. FIN 46R
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. The Company is considered the primary beneficiary of
eMedRx Delaware, and accordingly, has consolidated the assets, liabilities and
the results of operations of eMedRx Delaware, as of and for the period ended
September 30, 2004.

ACCOUNTING ESTIMATES

Management uses estimates and assumptions in preparing consolidated financial
statements in accordance with generally accepted accounting principles in the
United States. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used. Significant estimates made by management include revenue
recognition, the fair values of warrants issued, allowances on receivables, the
valuation allowance on deferred tax assets and the valuation of intangible
assets.

REVENUE RECOGNITION

The Company recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is reasonably assured. In instances where the customer specifies
final acceptance of the product, system, or solution, revenue is deferred until
all acceptance criteria have been met. Service revenue is generally deferred
and, in most cases, recognized ratably over the period during which the services
are to be performed, which is typically approximately one year. Cash payments
received in advance of product or service revenue are recorded as deferred
revenue.

When a sale involves multiple elements, such as sales of products that include
services, the entire fee from the arrangement is allocated to each respective
element based on its relative fair value and recognized when revenue recognition
criteria for each element are met. Fair value for each element is established
based on the sales price charged when the same element is sold separately.

Lightec recognizes revenues from fixed-price and modified fixed-price contracts
on the percentage-of-completion method, measured by the percentage of cost
incurred to date to estimated total cost for each contract. This method is used
because management considers total cost to be the best available measure of
progress on the contracts. Because of inherent uncertainties in estimating
costs, it is at least reasonably possible that the estimates used will change
within the near term.


                                       14
<PAGE>



NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue from time-and-materials contracts is recognized currently as the work is
performed.

Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability may result in revisions
to costs and income, which are recognized in the period in which the revisions
are determined. Changes in estimated job profitability are accounted for as
changes in estimates in the current
period.

The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts", represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts", represents billings in excess of revenues recognized.

Revenue from claims is recognized when realization is probable and the amount
can be reliably estimated. When realization is probable, but the amount cannot
be reliably estimated, revenue is recognized to the extent of costs incurred.

ACCOUNTS RECEIVABLE

Management performs ongoing credit evaluations of its customers and estimated
that an allowance was not necessary at September 30, 2004 and 2003. Such
estimates may change in the future. Accounts receivable represent amounts due
from a contract entered into by Lightec.

Accounts would be written off if significantly past due and management deemed
them to be uncollectible after exhaustive efforts to collect them. However, no
write-offs have been necessary.

INVENTORY

The Company's inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market.

SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed."

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed. At
the time property and equipment are retired or otherwise disposed of, the asset
and related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.



                                       15
<PAGE>


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company depreciates its property and equipment for financial reporting
purposes using the straight-line method based upon the following useful lives of
the assets:

               Furniture and fixtures                               7 Years
               Machinery and equipment                              5 Years
               Computer equipment                                   5 Years
               Software                                             3 Years

INCOME TAXES

The Company adopted SFAS No. 109, "Accounting for Income Taxes," which requires
the use of the liability method of accounting for income taxes. The liability
method measures deferred income taxes by applying enacted statutory rates in
effect at the balance sheet date to the differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
The resulting deferred tax assets or liabilities are adjusted to reflect changes
in tax laws as they occur.

PATENTS AND TRADEMARK

Costs incurred for the application of patents and trademarks are capitalized and
amortized on the straight-line method, based on their estimated useful lives,
commencing upon approval of the patent and trademarks. These costs are charged
to expense if the patent or trademark is unsuccessful. As of the date of this
report, no patents have yet been approved.

GOODWILL

The Company adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," for the accounting for goodwill. According to the FASB
requirements, goodwill is capitalized and not amortized. Each year, management
is required to review goodwill to determine if there has been an impairment loss
to recognize on the carrying value of goodwill.

LONG-LIVED ASSETS

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. For the three month period ended September 30,
2004 and 2003, SFAS No. 144 did not have a material effect on the Company's
results of operations, cash flows or financial condition.

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates that the fair value of all financial instruments as of
September 30, 2004 and 2003, as defined in SFAS No. 107, does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying consolidated balance sheet. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable judgment is
required in interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.



                                       16
<PAGE>


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the
provision of SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of SFAS No. 123." This statement amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. Warrants and options issued to consultants and others
are expensed in accordance with SFAS No. 123, as amended by SFAS No. 148.

STOCK ISSUED BY SUBSIDIARY

The issuance of stock by a subsidiary to third parties reduces the proportionate
ownership interest in the investee. The subsidiary had raised funds through
private placements and, as a result, the additional equity raised was included
in additional paid-in capital.

COMPREHENSIVE INCOME

The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive
Income". Comprehensive income is comprised of foreign currency translation
adjustments.

CONCENTRATIONS OF CREDIT RISK

The Company derived substantially all of its revenues from one customer.

The Company maintains cash balances in banks, which, at times, may exceed the
limits of the Federal Deposit Insurance Corp.

SHIPPING AND HANDLING COSTS

The Company's policy is to classify shipping and handling costs as part of cost
of goods sold in the statement of operations.

FOREIGN CURRENCY TRANSLATION

The financial statements of the Company are measured using the United States
dollar as the functional and reporting currency. Assets, liabilities and equity
accounts of the Company are translated from foreign currency to United States
currency at exchange rates as of the balance sheet date or historical
acquisition date, depending on the nature of the account. Revenues and expenses
are translated at average rates of exchange in effect during the year. The
resulting cumulative translation adjustments have been recorded as a separate
component of stockholders' equity.



                                       17
<PAGE>


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATION

Certain 2003 amounts have been reclassified to conform with the 2004 financial
statement presentation.

NOTE 2 DISCONTINUED OPERATIONS

The Company entered into a Stock and Note Transfer Agreement (the "Transfer
Agreement") with Pan Pacifica Ltd. ("Pan Pacifica"), effective as of August 20,
2003, to transfer all of the outstanding shares of Datadesk, a wholly-owned
subsidiary of the Company, in exchange for Pan Pacifica assuming the net
liabilities of Datadesk. The Transfer Agreement was entered into simultaneously
with a settlement agreement between the Company and its former officer. In
connection with the settlement, the Company transferred available funds in the
amount of $151,020 to Pan Pacifica. The Company realized a net gain on the
disposal of Datadesk subsidiary of $382,073 for the three months ended September
30, 2003, which was recognized at the date of disposition. During the year ended
June 30, 2003, the Company had adopted a formal plan to dispose of Datadesk.

The consolidated financial statements include the following amounts related to
discontinued operations of Datadesk:

<TABLE>
<CAPTION>

                                                                   SEPTEMBER 30,      JUNE 30,
                                                                       2004            2004
                                                                   -------------   -----------

<S>                                                                <C>             <C>
            Accounts payable                                       $      93,912   $    93,912
                                                                   -------------   -----------

            Current liabilities of discontinued
            operations                                             $       93,912  $    93,912
                                                                   ==============  ===========

Income from discontinued operations is as follows:

                                                                        THREE MONTHS ENDED
                                                                           SEPTEMBER, 30,
                                                                    -------------------------
                                                                       2004           2003
                                                                    ------------  -----------

            Revenue                                                 $          -  $     6,431
            Direct expenses                                                    -            -
                                                                    ------------  -----------

            Gross profit                                                       -        6,431

            Selling, general and administrative                                -       28,571
                                                                    ------------  -----------
             Net operating loss                                                -      (22,140)
             Gain on disposition of subsidiary                                 -      382,073
                                                                    ------------  -----------
             Income from discontinued
              operations for the period                             $          -  $   359,933
                                                                    ============  ===========
</TABLE>



                                       18
<PAGE>


NOTE 2 DISCONTINUED OPERATIONS (CONTINUED)

Cash flows from discontinued operations are as follows:
<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED
                                                                            SEPTEMBER 30,
                                                                     -------------------------
                                                                         2004          2003
                                                                     -----------  ------------
<S>                                                                  <C>          <C>
Cash Flows From Operating Activities:
  Net income for the period                                          $       -    $   359,933
  Items not involving cash:
     Gain on disposition of subsidiary                                       -       (382,073)
  Changes in non-cash working capital balances consist of:
     Accounts receivable                                                     -         (2,910)
     Inventories                                                             -          2,375
     Accounts payable and accrued liabilities                                -       (182,198)
                                                                     -----------  -----------

NET CASH USED IN OPERATING ACTIVITIES                                        -       (204,873)
                                                                     -----------  -----------

Cash Flows From Financing Activities:
  Bank indebtedness                                                          -          5,904
  Advances from parent company                                               -        198,969
                                                                     -----------  -----------

 NET CASH USED IN FINANCING ACTIVITIES                                       -        204,873
                                                                     -----------  -----------

 Net change in cash from discontinued operations during the period           -              -
                                                                     -----------  -----------

 CASH, beginning of the period                                               -              -
                                                                     -----------  -----------

 CASH, end of the period                                             $       -    $         -
                                                                     ===========  ===========
</TABLE>

NOTE 3 - ACQUISITION OF SIVAULT ANALYTICS

On July 9, 2004, the Company acquired all of the outstanding common shares of
SiVault Analytics in exchange for 4 million of the Company's restricted common
stock valued at $1.80 per share (market price as of July 9, 2004). The Company
issued 140,000 of its common shares valued at $1.60 as finders fees in
conjunction with this acquisition. The results of SiVault Analytics' operations
have been included in the Company's consolidated financial statements since the
date of acquisition.

The following table summarizes the estimated fair values of assets acquired and
liabilities assumed from SiVault Analytics at the date of acquisition. SiVault
is in the process of evaluating the valuations of certain intangible assets.

         Assets:
             Cash                                           $       5,622
             Property and equipment                                51,815
             Deposits                                                 450
             Excess cost over net assets acquired               7,863,060
                                                            -------------
                                                            $   7,920,947
                                                            -------------
         Liabilities:
             Accrued expenses                               $     381,947
             Shareholders' advance                                115,000
                                                            -------------
                                                                  496,987
                                                            -------------

         Net assets acquired                                $   7,424,000
                                                            =============


                                       19
<PAGE>


NOTE 3 - ACQUISITION OF SIVAULT ANALYTICS (CONTINUED)

The pro forma (unaudited) results of operations as if SiVault Analytics was
acquired at the beginning of fiscal 2005 would not be materially different from
the consolidated statement of operations for the quarter ended September 30,
2004.

NOTE 4 - PER SHARE INFORMATION

In accordance with SFAS No. 128, "Earnings Per Share," basic net income per
common share ("Basic EPS") is computed by dividing net income attributable to
common shareholders by the weighted-average number of common shares outstanding.
Diluted net income per common share ("Diluted EPS") is computed by dividing the
net income by the weighted-average number of common shares and dilutive
common share equivalents and convertible debentures then outstanding. SFAS No.
128 requires the presentation of both Basic EPS and Diluted EPS on the face of
the Company's consolidated statements of operations. Common stock equivalents
totaling 4,314,609 and 2,000,093 were excluded from the calculation of Diluted
EPS for the three months ended September 30, 2004 and 2003, respectively, as the
exercise prices of the stock options and warrants and convertible debentures
were greater than the average share price for the three months ended September
30, 2004, and, therefore, their inclusion would have been anti-dilutive.

The following table sets forth the computation of basic and diluted per share
information:

<TABLE>
<CAPTION>

                                                                                THREE MONTHS ENDED
                                                                                  SEPTEMBER 30,
                                                                                  (IN THOUSANDS)
                                                                           ---------------------------
                                                                                2004           2003
                                                                           -------------   -----------
<S>                                                                        <C>             <C>
  NUMERATOR:
    Loss from continuing operations                                        $     (1,427)   $      (681)
    Income from discontinued operations                                               -            360
                                                                           ------------    -----------
       Net loss                                                            $     (1,427)   $      (321)
                                                                           ============    ===========

  DENOMINATOR:
     Weighted average common shares outstanding                                  12,783          6,250
     Dilutive effect of:
       Common stock equivalents                                                       -              -
                                                                           ------------    -----------
     Weighted average common shares outstanding, assuming dilution               12,783          6,250
                                                                           ============    ===========

   BASIC AND DILUTED PER SHARE INFORMATION:
    Loss from continuing operations                                        $      (0.11)   $     (0.11)
     Income from discontinued operations                                              -           0.06
                                                                           ------------    -----------
       Net loss                                                            $      (0.11)   $     (0.05)
                                                                           ============    ===========
</TABLE>


                                       20
<PAGE>


NOTE 5 - NOTES PAYABLE - RELATED PARTIES

<TABLE>
<CAPTION>

                                                                                       SEPTEMBER 30            JUNE 30,
                                                                                           2004                  2004
                                                                                   --------------------  --------------------
<S>                                                                                 <C>                    <C>

MARYANNE RICHARD

On June 13, 2002, the Company issued a note payable to MaryAnne Richard in the
amount of $1,000,000 as part of the consideration for the purchase of Lightec.
Pursuant to an agreement dated October 29, 2003, the Company agreed to set the
principal of the note at $1,105,000 ("new principal"). Interest accrued on the
new principal at the rate of 9% per annum commencing on the date of the first
receipt of funds generated from the Lightec contract with the City of Bridgeport
Board of Education. 9% of the receipts from the Bridgeport School contract was
applied against the new principal and accrued interest.

On June 4, 2004, the Company entered into a settlement Agreement with MaryAnne
and Michael Richard (together, the "Richards") whereby the Richards agreed to
settle all obligations and disputes with the Company. The Company agreed to a
payment to the Richards of $1,189,983 (new principal and accrued interest) and
the May 7, 2004 issuance of a warrant for 400,000 shares of the Company's common
stock at $2.50 per share. The Richards agreed to (i) a June 7, 2004 transfer of
850,000 shares (valued at $850,000) of the Company's common stock to a
third-party designees of the Company and (ii) settlement of the promissory note.
On July 2, 2004, the parties finalized the settlement and executed a mutual
waiver and release of all claims against each other. On July 2, 2004, the
remaining balance of $339,983 was paid to the Richards.                               $           -         $      339,983

SYNERGEX GROUP LLC

On July 2, 2004, the Company issued a $150,000 unsecured note to Synergex Group
LLC ("Synergex"), a related party. The principal and any accrued and unpaid
interest on this note is payable on demand by Synergex at any time on or after
July 2, 2005. Interest on the note is equal to the LIBOR Rate plus one percent
per annum and is payable on a quarterly basis commencing October 1, 2004. The
proceeds from this note were utilized to
payoff the remaining balance on the Richard note.                                           150,000                      -
                                                                                      -------------         --------------
                                                                                      $     150,000         $      339,983
                                                                                      =============         ==============
</TABLE>


                                       21
<PAGE>


NOTE 6 - CONVERTIBLE DEBENTURE PAYABLE

On June 30, 2002, the Company issued a convertible debenture to Edinburgh
Investments LLC ("Edinburgh") in the amount of $1,680,000. The debenture was
secured by a first priority interest in the revenues and assets of Lightec and
originally matured on June 30, 2003. Accrued interest at 10% was payable
quarterly. Edinburgh has the option to convert the debenture into the Company's
common stock at a conversion price of $6.00 per share, subject to anti-dilution
adjustments.

On August 29, 2003, Edinburgh and the Company entered into a settlement
agreement requiring the Company to pay the following:

i) $50,000 on each of October 31, 2003, November 28, 2003 and December 31, 2003,
($150,000 paid as penalty has been included in interest expense);

ii) principal plus all interest accrued on the outstanding principal balance at
the rate of 18% per annum from June 28, 2002. All outstanding principal and
accrued interest shall be paid to Edinburgh no later than December 31, 2004;

iii) accrued interest at the rate of 18% from September 1, 2003 payable on
January 5, 2004, April 5, 2004, July 5, 2004 and October 5, 2004;

iv) 15% of all funds received from Lightec's Bridgeport School contract until
the principal and interest is fully paid;

The Company delivered to Edinburgh a five-year warrant to purchase 672,000
shares of common stock at an exercise price of $3.00 per share. This warrant was
issued as consideration for extending the maturity date to December 31, 2004.

The Company has not paid 15% of all the receipts from the Bridgeport School
Contract and was notified by Edinburgh that it was not in technical compliance
with the terms of the settlement.

The convertible debenture balance at September 30 and June 30, 2004 was
$1,358,569.



                                       22
<PAGE>


NOTE 7 - COMMITMENTS AND CONTINGENCIES

LEASES

On January 23, 2004, the Company entered into a sublease for its new office
space in New York City. On June 22, 2004, the Company entered into a
sub-sublease for part of this office space. The sublease and sub-sublease
expires on December 30, 2007. In September 2004, the Company sub-subleased a
facility space in San Jose, California which expires on May 31, 2008. The
sublessor, in the San Jose lease, has the option to terminate, if, on or before
January 2, 2005, the Company fails to provide the sublessor with satisfactory
evidence that (i) the Company has net cash of at least $3 million, or (ii) the
Company has obtained new equity financing of $5 million. If these requirements
are not met, the sublessor could terminate the lease after January 2, 2005 with
a written notice of at least thirty days prior to such termination. Future
annual minimum lease payments as of September 30, 2004 are as follows:

          YEAR ENDING JUNE 30,           MINIMUM ANNUAL    MINIMUM ANNUAL
                                         RENTAL EXPENSE     RENTAL INCOME
      -----------------------------    ----------------    ---------------

                2005 (remaining)       $        321,000    $       49,000
                2006                            573,000            65,000
                2007                            590,000            65,000
                2008                            432,000            33,000
                                       ----------------    --------------

                                       $      1,916,000    $      212,000
                                       ================    ==============

Lightec rents its Connecticut facilities on a month-to-month basis.

WONDERNET, LTD. AGREEMENT

On August 15, 2003, the Company entered into new exclusive distribution and
partnership agreement with WonderNet, Ltd. ("WonderNet") whereby the Company was
granted the right to develop products based on WonderNet's technology and to
use, market, sell, distribute and exploit the technology in North America,
Central America, Bermuda and the Caribbean Islands. The Company is required to
pay WonderNet a minimum of $120,000 per quarter and to pay a 12% royalty on
gross sales of the product. As of the date of this report, the Company is
intending to end their exclusive distribution agreement, thereby ending the
Company's minimum $120,000 quarterly payment. For the three month period ended
September 30, 2004, there was no payment or accrual of the $120,000 quarterly
amount since management believes that it has ended its exclusive distribution
agreement.

EMPLOYMENT AND CONSULTING AGREEMENTS

Four key executives of the Company have employment agreements as of October 1,
2004. The future minimum base compensation of the four executives is as follows:

             YEAR ENDING JUNE 30,          MINIMUM ANNUAL
                                           COMPENSATION
        -----------------------------    ----------------

                 2005 (remaining)        $        468,750
                 2006                             658,750
                 2007                             682,500
                 2008                             315,000
                 2009                              90,000
                                         ----------------

                                         $      2,215,000
                                         ================


                                       23
<PAGE>


NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The four key executives are entitled to a bonus each quarter for 15% of their
yearly compensation based upon the performance and approval by the Board of
Directors.

In addition, three additional executives are entitled to minimum compensation of
$472,000 and certain performance bonuses. These agreements have no fixed date of
expiration.

ACQUISITION  OF  DATAGILITY

In accordance with the Stock Purchase Agreement entered into on February 18,
2004, the Company is required to pay $100,000 in cash as fixed consideration to
the former stockholders of Datagility before December 31, 2004. In addition, the
Company may owe the former stockholders of Datagility (including one officer of
the Company) the following additional cash consideration if, on or before the
following dates, revenues received in connection with Datagility's CyberTrooper
software application exceed the following amounts:

          CYBERTROOPER               ACHIEVEMENT        CONTINGENT ADDITIONAL
            REVENUES                    DATES            CASH CONSIDERATION
      --------------------     --------------------    ----------------------

         $      500,000          December 31, 2004        $      100,000
                750,000          June 30, 2005                   100,000

CONVERTIBLE DEBENTURE PAYABLE

The Company is currently not in technical compliance of its obligations under a
convertible debenture held by Edinburgh Investments LLC, as further discussed in
Note 6.

PIVOT GROUP

The Company and a subsidiary received a summary judgment against them dated
September 12, 2003 for $93,912 for an unpaid account. Management is currently in
negotiations to settle this claim. This amount has been provided for in the
current liabilities of discontinued operations.

NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIENCY)

REVERSE STOCK SPLIT

On April 30, 2004, the Company's stockholders approved a one-for-twenty reverse
stock split which was effective on June 7, 2004. All references in the
accompanying consolidated financial statements and notes thereto relating to
common stock an additional paid-in capital and warrants per share and share data
have been retroactively adjusted to reflect the one-for-twenty reverse stock
split.

INCREASE IN AUTHORIZED SHARES

On April 30, 2004, the Company's stockholders approved an increase in the
authorized number of common shares to 50 million from 15 million which became
effective on the date of the reverse stock split.


                                       24
<PAGE>


NOTE 9 - STOCK-BASED WARRANTS

At September 30, 2004 the Company had the following warrants outstanding:

               WARRANTS            EXERCISE PRICE
              OUTSTANDING             PER SHARE              EXPIRATION DATE
           ----------------     --------------------     ---------------------

                90,500   (A)          $3.00              February 17, 2005
                 1,000   (A)           3.00              February 27, 2005
                 3,375   (A)           3.00              March 20, 2005
               137,875                 3.00              November 19, 2005
               184,525                 3.60              December 22, 2005
               400,000                 2.50              May 7, 2006
                55,000                 3.00              May 9, 2006
               400,000                 2.50              May 25, 2006
               988,308                 2.00              August 22, 2006
               267,100                 2.00              September 13, 2006
               187,500   (B)           2.00              September 13, 2006
               600,998   (A)           3.00              October 18, 2006
               672,000                 3.00              September 29, 2008
         -------------
         $   3,988,181
         =============

(A)      The Company extended the warrants by a term of one year.

(B)      The Company repriced warrants expiring on June 14, 2005 with an
         exercise price of $7.00 per share. The exercise price of the repriced
         warrants dated September 13, 2004 are as follows: if exercised within
         30 days $2.00 per share, within one year $4.00 per share, and within 2
         years $6.00 per share. 166,667 warrants were exercised in September
         2004 at $2.00 per share.

NOTE 10 - STOCK OPTIONS

On April 30, 2004, the Company's stockholders approved the SiVault Systems, Inc.
2004 Incentive Stock Plan (the "2004 Plan") which provides for the issuance of
up to 2,250,000 shares. The 2004 Plan permits the grant of stock options, stock
awards and restricted stock purchase awards. Stock options granted under the
2004 Plan may be options intended to qualify as incentive stock options ("ISOs")
under Section 422 of the Internal Revenue Code or nonqualified stock options
("NSOs"), which are options that are not intended to qualify as ISOs. Stock
options granted to a person who owns more than 10% of the Company's voting power
shall have exercise prices of at least 110% of fair market value of the
Company's stock on the date of the grant. Stock options granted to others will
have exercise prices of not less than 100% of the fair market value of the
Company's stock on the date of grant if they are ISOs, and not less than 85% of
the fair market value of the Company's stock on the date of grant if they are
NSOs. Stock options granted under the 2004 Plan will have terms of not more than
10 years.

On September 1, 2004, a stock option to purchase 100,000 shares at an exercise
price of $1.50 with a five year expiration date was issued to an individual for
investment banking services.

The fair value of the options issued in September 2004 is estimated on the date
of grant using the Black-Scholes binomial pricing model with the following
assumptions:

              Expected life       5  years
              Interest rate       7%
              Volatility         78%
              Dividend yield       -


                                       25
<PAGE>


NOTE 11 - BUSINESS  SEGMENTS

SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information", requires companies to provide certain information about their
operating segments. The Company has three reportable segments: SiVault Systems,
Inc., Lightec, and eMedRx.

The summarized financial information, concerning the Company's reportable
segments for the three months ended September 30, 2004, as follows:

<TABLE>
<CAPTION>

                                            SIVAULT
                                            SYSTEMS              LIGHTEC              EMEDRX               TOTAL
                                        -----------------     ---------------     ----------------    ----------------

<S>                                     <C>                   <C>                 <C>                 <C>
   Net sales to external companies      $          4,200      $      851,990      $             -     $      856,190
   Operating earnings (loss)                 (1,676,506)             374,201             (61,016)        (1,363,321)
   Total assets                                9,130,474             859,829               79,260         10,069,563
   Depreciation and
    amortization                                  19,946                 686                    -             20,632
   Capital expenditures                           15,243                   -                    -             15,243
   Interest expense                               63,920                   -                    -             63,920
</TABLE>

NOTE 12 - SUBSEQUENT EVENT

On October 19, 2004, the Company entered into three Share Exchange Agreements
with shareholders of eMedRx Delaware and eMedRx Canada and a shareholder of
eMedRx Nevada (the "Agreements"). The Agreements call for the exchange of common
shares of eMedRx Delaware, eMedRx Canada and of eMedRx Nevada not currently
owned by the Company for 567,893 restricted shares of the Company's common
stock.



                                       26
<PAGE>

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

When used in this report, the words "anticipate", "estimate", "expect", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions including
the possibility that we will fail to generate planned revenues. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.

The following discussion and analysis of financial conditions and results of
operation should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere in this report. It is intended
to assist the reader in understanding and evaluating our financial position.


CRITICAL ACCOUNTING POLICIES

Management discussion addresses our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenue and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgment, including those related to revenue recognition,
goodwill and other long-lived assets, income taxes, and contingent liabilities.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments as to
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions and conditions.

The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.

The following discussion of critical accounting policies represents our attempt
to report on those accounting policies which we believe are critical to our
consolidated financial statements and other financial disclosure. It is not
intended to be a comprehensive list of all of our significant accounting
policies, which are more fully described in Note 1 of the Notes to the
Consolidated Financial Statements included in this report.


We have identified the following as critical accounting policies affecting our
company: Revenue Recognition; Income Taxes; and Goodwill and Other Long-Lived
Assets.


Revenue Recognition

Our revenue recognition policies are significant because our revenue is a key
component of our results of operations. Revenue recognition in connection with
our Lightec business, which accounted for substantially all of our approximately
$856,000 in revenue for the quarter ended September 30, 2004, is particularly
subjective as it has historically been generated from fixed-price or modified
fixed-price contracts. Recognition of revenue from these contracts requires the
estimation of the cost, scope and duration of each engagement. Revenue and the
related costs for these projects are recognized using the
percentage-of-completion method as costs (primarily labor and materials) are
incurred, with revisions to estimates reflected in the period in which changes
become known. If we do not accurately estimate the resources required or the
scope of work to be performed, or do not manage our projects properly within the
planned periods of time or satisfy our obligations under the contracts, then
future revenue and margins from this business may be significantly and
negatively affected or losses on existing contracts may need to be recognized.
Any such resulting changes in revenues and reductions in margins or contract
losses could be material to our results of operations.


                                       27
<PAGE>

Income Taxes

We have a history of losses. These losses generated federal net operating loss
("NOL") carry forwards of approximately $3.3 million as of June 30, 2004.
Generally accepted accounting principles require that we record a valuation
allowance against the deferred income tax asset associated with these NOL carry
forwards and other deferred tax assets if it is "more likely than not" that we
will not be able to utilize them to offset future income taxes. Due to our
history of unprofitable operations, we only recognize net deferred tax assets in
those subsidiaries in which we believe that it is "more likely than not" that we
will be able to utilize them to offset future income taxes in the future. We
currently provide for income taxes only to the extent that we expect to pay cash
taxes on current income.

It is possible, however, that we could be profitable in the future at levels
which cause management to conclude that it is more likely than not that we will
realize all or a portion of the NOL carry forwards and other deferred tax
assets. The net operating loss carry forwards may be limited in accordance with
Section 382 of the Internal Revenue Code, as amended, based on certain changes
in ownership that have occurred, or could occur in the future. Upon being
profitable, we would immediately record the estimated net realizable value of
the deferred tax assets at that time and would then provide for income taxes at
a rate equal to our combined federal and state effective rates. Subsequent
revisions to the estimated net realizable value of the deferred tax assets could
cause our provision for income taxes to vary significantly from period to
period.

Goodwill and Other Long-Lived Assets

We review the carrying value of our long-lived assets held for use whenever
circumstances indicate there may be an impairment. For all assets excluding
goodwill, the carrying value of a long-lived asset is considered impaired if the
sum of the undiscounted cash flows is less than the carrying value of the asset.
If this occurs, an impairment charge is recorded for the amount by which the
carrying value of the long-lived asset exceeds its fair value. The fair value is
determined by applying a market-rate multiple to the estimated near-term future
revenue stream expected to be produced by the segment. We have adopted SFAS No.
142, "Goodwill and Other Intangible Assets."

Under this accounting standard, we do not amortize our goodwill and are required
to complete an annual impairment test. For the purpose of implementing SFAS No.
142, we have designated the fourth fiscal quarter as the period of the annual
test.

RESULTS OF OPERATIONS

Quarter Ended September 30, 2004 vs.  Quarter Ended September 30, 2003



                                       28
<PAGE>

Our revenues for the quarter ended September 30, 2004 were $856,190, an increase
of $685,423 or approximately 401% over the quarter ended September 30, 2003. Our
revenues were substantially all generated from the Lightec subsidiary, in
regards to the Bridgeport School District ("Bridgeport") contract.

The costs of revenues incurred for the quarter ended September 30, 2004 were
$391,004, an increase of $313,893 over the quarter ended September 30, 2003.
This was due to the costs associated with the increase in revenues from the
Bridgeport contract.

The gross margins, as a percentage of sales, were 54% and 55% for the quarters
ended September 30, 2004, and 2003, respectively. These relatively consistent
gross margins can be attributed to the continued efficiencies in delivering
product and services to Bridgeport.

Our selling, general and administrative expenses for the quarter ended September
30, 2004 were $1,118,007, an increase of $446,030 or approximately a 66%
increase over the quarter ended September 30, 2003. Payroll and other related
costs increased by approximately $300,000 in the quarter ended September 30,
2004 due to an increase in officers and employees, including the opening of San
Jose office. Consulting fees increased by approximately $150,000 primarily due
to hiring more consultants for product and corporate development. Travel costs
increased primarily due to the corporate office moving from New York to San Jose
in the quarter ended September 30, 2004, and the development through strategic
partnerships of our biometric security products. In addition, the issuance of
common stock and stock options for non-cash services expenses in the amount of
$710,500 were recorded in the quarter ended September 30, 2004 as compared to
$12,500 for the quarter ended September 30, 2003. The increase was for
additional corporate development consulting services and for compensation for
directors and certain officers reflecting an increase in full board and
committee meetings to accomplish the acquisition of SiVault Analytics, Inc. and
set our strategic direction.

Other expenses for the quarter ended September 30, 2004 were $63,920, a decrease
of $26,269, or approximately 29% from the quarter ended September 30, 2003. This
reduction in interest expense was primarily due to lower average balances owed
on the notes payable and convertible debentures.

For the quarter ended September 30, 2004 there was no income or loss from
discontinued operations, as compared to the quarter ended September 30, 2003,
which had income from discontinued operations of $359,933. This was comprised of
an operating loss of $22,140 from Datadesk Technologies, Inc. ("Datadesk") and a
gain on disposition of Datadesk of $382,073. Datadesk was a wholly owned
subsidiary of the Company until disposed of on August 20, 2003, when we entered
into a Stock and Transfer Agreement with Pan Pacifica Ltd. ("Pan Pacific") to
transfer all of the outstanding shares of Datadesk in exchange for Pan Pacifica
assuming the net liabilities of Datadesk, which resulted in the gain on
settlement.

Our net loss for the quarter ended September 30, 2004 was $1,427,241 as compared
to a loss of $321,077 for the quarter ended September 30, 2003, or an increased
loss of $1,106,164 or approximately 345%. The increased loss was primarily
attributable to: (i) larger losses from continuing operations of approximately
$746,231 as discussed above, and (ii) a reduction in income from discontinued
operations of $359,933 associated with the gain on disposition of Datadesk in
the quarter ended September 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

For the quarter ended September 30, 2004, our consolidated operating activities
did not generate positive cash flow. We financed our operations primarily
through the placement of our common stock and cash flows from our Lightec
subsidiary. We had a working capital deficit of approximately $3.0 million at
September 30, 2004 as compared with $4.3 million at June 30, 2004. Cash
increased by approximately $533,000 during the quarter ended September 30, 2004.


                                       29
<PAGE>

Net cash used in operating activities was $1,108,795 during the quarter ended
September 30, 2004, as compared to $468,504 used for the quarter ended September
30, 2003. Net cash used in operations for the quarter ended September 30, 2004
resulted primarily from our net loss of $1.4 million and a decrease in accounts
payable and accrued liabilities of approximately $413,000, offset by net
collection of accounts receivable of approximately $257,000 and certain non-cash
expenses of approximately $730,000.

Investing activities utilized $9,627 of cash during the quarter ended September
30, 2004, as compared to $201,056 for the quarter ended September 30, 2003. The
reduction in cash used in investing activities was mainly due to the
approximately $199,000 in advances to a discontinued subsidiary being made in
the quarter ended September 30, 2003.

Financing activities provided $1,652,170 of cash during the quarter ended
September 30, 2004 as compared to $819,021 for the quarter ended September 30,
2003. Net cash provided resulted primarily from the issuance of common stock and
the exercise of stock warrants of approximately $1,959,000, offset by repayments
of $115,000 on advances from shareholders and of $189,983 on notes payable.

During the quarter ended September 30, 2004, we raised approximately $1,958,000
in equity capital and settled amounts owing to related parties and others
amounting to approximately $668,000 in exchange for equity in the Company. We
also issued common stock and stock options in the amount of $710,000 for certain
services. In addition, we reduced by $300,000 our payable balance to our largest
supplier for Lightec. That supplier was owed approximately $960,000 at September
30, 2004.

In their audit report for the fiscal year ended June 30, 2004, our independent
auditors, Miller Ellin & Company, expressed a qualification as to our ability to
continue as a going concern. In our annual report on Form 10KSB for the fiscal
year ended June 30, 2004, management outlined its plans for dealing with this
situation during the 2005 fiscal year. These plans included expanding operations
and additional capital raising activities.

During the quarter ending September 30, 2004, we raised approximately two
million dollars in equity and we reduced outstanding indebtedness to related
parties and others amounted to approximately $668,000, through the issuance of
equity. We expect, in the quarter ending December 31, 2004, to raise an
additional $3,000,000 in equity or convertible debt. The sale of additional
equity or debt securities will result in further dilution to our stockholders.
These securities may also have rights senior to those of holders of our common
stock. Any indebtedness could contain covenants, which restrict our operations
and limit our ability to incur additional debt. The proceeds from this private
placement will be utilized to pay-off our outstanding obligations to Edinburgh
Investments LLC and to fund expanded operations. During the quarter ended
September 30, 2004 and in the quarter ended December 31, 2004, the Company has
also entered into several strategic alliances and licensing agreements which it
believes will result in increased revenues commencing in the fourth quarter of
fiscal 2005. Management has projected that the Lightec business will expand to
approximately $9.6 million for the fiscal year ending June 30, 2005.

We believe that our existing cash, cash flow from operations and financing
activities will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for the balance of the fiscal year.



                                       30
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES AND FACTORS THAT MAY AFFECT FUTURE
RESULTS

Interest Rate Risk. The Company is seeking financing from various sources,
either directly from financial institutions, or by way of lease financing of
property and equipment. Such borrowing could be impacted by changes in interest
rates. The Company does not currently have any variable interest rate debt.

FACTORS THAT MAY AFFECT FUTURE RESULTS

We may from time to time make written or oral statements that contain
forward-looking information. However, our actual results may differ materially
from our expectations, statements or projections. The following risks and
uncertainties could cause actual results to differ from our expectations,
statements or projections.

Risks related to our business

We have a limited history of operations, which makes it difficult to anticipate
our future performance.

We have a limited operating history and limited historical financial information
upon which to base your evaluation of our performance, particularly in light of
our recent change in business strategy. Our Lightec business, which is largely
independent of our new technology solution offerings, has historically generated
substantially all of our revenue. We have not generated any meaningful revenue
from our new business strategy and our historical performance is not indicative
of future performance.

Our business model is unproven and may not succeed.

We recently changed and continue to refine our business model and strategy.
Although we have some customers for the turnkey solutions that form the core of
our new business strategy, we have not yet validated our business model or
strategy in the market. The success of our business model and strategy is
dependent on a number of factors including:

-     our ability develops and delivers our technology solutions within budgeted
      costs;
-     our ability to enter into and implement successful channel partner
      arrangements;
-     acceptance in the market of our technology solutions
-     our ability to price our technology solutions at competitive rates

Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies starting a new business,
particularly companies in rapidly evolving markets such as the markets for our
technology solutions.

We have incurred and expect to continue to incur significant losses and may
never achieve profitability.

We incurred a net loss of $1,427,241 during the fiscal quarter ended September
30, 2004 and a loss of $321,077 during the fiscal quarter ended September 30,
2003. At September 30, 2004, we had an accumulated deficit of $19,639,299. We
expect to make significant expenditures in connection with the implementation of
our new business strategy, including expenditures relating to sales and
marketing activities, technology development and integration, potential
acquisitions and administrative resources. As a result, we expect our losses to
continue for the foreseeable future and we may never achieve profitability.


                                       31
<PAGE>

We need and may not be able to obtain additional financing.

As of September 30, 2004, we had a working capital deficiency of approximately
$2,973,000. Despite raising approximately $2,000,000 in equity from July 1, 2004
through September 30, 2004, we need to raise additional capital in order to
continue to fund our plan of operations. We have no sources of financing from
which we can draw immediately. While we expect to close a funding of up to
$3,000,000 in the second quarter, we cannot assure investors that we will have
adequate capital resources to fund planned operations or that any additional
funds will be available to our company when needed, or if available, will be
available on favorable terms or in amounts required. If we are unable to obtain
adequate capital resources to fund operations, we may be required to delay,
scale back or eliminate some or all of our existing and planned operations.

We are dependent on a limited number of customers.

Substantially all of our historical revenue has been attributable to our Lightec
business. During the quarter ended September 30, 2004, substantially all of our
revenue was attributable to a contract with the Bridgeport School District
funded by the Federal eRate program. While additional amounts have been budgeted
for this project for the 2004-2005 school quarters, we have not yet received
Federal approval under the eRate program. We have also been awarded contracts
with the New Haven School Board for a total of $500,000. Our plan of operation
is dependent on successfully fulfilling the Bridgeport and New Haven contracts.
Should we fail for any reason to perform the balance of the contracts, or if
Federal approval is not granted, or Bridgeport or New Haven defaults on payments
under the contract, we may not have sufficient funding to continue the Lightec
business as planned and our other activities will be substantially harmed.

Our Lightec assets may be foreclosed to satisfy certain debt obligations under
which we are in default.

We have granted a first priority lien in the assets and revenue of Lightec to
secure repayment of a convertible debenture in the principal amount of
$1,358,569 at September 30, 2004. On August 29, 2003, the holder of the
debenture obtained a court order requiring us, among other things, to make
scheduled payments of principal and interest on the debenture and to allocate to
the debenture holder 15% of all proceeds received under Lightec's contract with
the City of Bridgeport Board of Education until the debenture is fully repaid.
As of the date hereof, we have not fully complied with the 15% allocation
requirement of the court order and on or about March 2004 we were so notified by
the debenture holder. We expect to pay off this obligation in late December 2004
or in January 2005. Should we be unable to do so, the debenture holder may
choose to enforce its rights as a secured party, and the assets of Lightec could
be sold in a foreclosure action and a portion of the proceeds thereof could be
applied to satisfy our obligations to the debenture holder. The existence of
this security interest, as well as the lack of compliance with the court order,
could adversely impact our liquidity and may make it more difficult for us to
obtain additional debt or equity financing from other sources.

Our refocused business strategy exposes us to long sales and implementation
cycles for our products.


                                       32
<PAGE>

Our target customers in the electronic transaction authentication, data storage
and retrieval and access control markets include large retailers, financial
institutions and government agencies, which typically require longer sales and
implementation cycles than smaller, independent customers. We expect the longer
sales and implementation cycles for these larger companies to continue to delay
our ability to realize meaningful revenue from these prospective customers. In
addition, budgetary constraints and economic slowdowns may also continue to
delay purchasing decisions by these prospective customers. These initiatives
have costs associated with them, and we cannot assure you that they ultimately
will prove successful or result in meaningful revenue.

In addition, the loss or significant reduction in government spending by
government entities could materially limit our ability to obtain government
contracts. These limitations could also have a material adverse effect on our
business, financial condition and results of operations. In addition, we will
need to develop additional strategic relationships with large government
contractors in order to successfully compete for government contracts. Our
inability to develop these strategic relationships may limit our ability to
implement our business strategy.

Our products and technologies may not achieve market acceptance.

The markets for our products and technology are relatively new. Because of the
emerging nature of these markets we are unable to predict whether we can
sufficiently commercialize our products and technology and obtain and retain
significant market acceptance. Demand and market acceptance for our electronic
document authentication, data storage and retrieval and access control products
and services is evolving and uncertain. Our products and technology involve
changes to traditional ways of doing business and related processes, which,
despite its efficiencies and potential cost savings, will likely encounter
resistance to implementation. Our business may suffer if the market develops
more slowly than anticipated and does not sustain market acceptance.

We face competition in the markets for our products and services.

We face competition in each of our markets. Our competitors are generally more
established, benefit from greater market recognition and have greater financial,
development and marketing resources than we have. As such, our competitors may
develop products or technologies that are more effective, easier to use or less
expensive than ours. This could make our products and technologies obsolete or
non-competitive.

We may not be successful in keeping pace with the rapid technological changes
that characterize our industry.

The technology incorporated in our technology solutions is characterized by
rapid changes. Moreover, the emergence of new technologies can rapidly render
existing products obsolete and unmarketable. Our ability to anticipate changes
in technology and industry standards and successfully develop and introduce new
and enhanced products which can gain market acceptance on a timely basis will be
a critical factor in our ability to grow and to remain competitive. In addition,
we may diversify our business by developing new products and applications based
on our core technologies. There can be no assurance that we will timely or
successfully complete the development of new or enhanced products or
applications or successfully manage transitions from one release to the next, or
that our future products or applications will achieve market acceptance.

If we are unable to adequately protect our intellectual property, third parties
may be able to use our technology, which could adversely affect our ability to
compete in the market as well as our financial condition and results of
operations.


                                       33
<PAGE>

We seek to rely on a combination of patents, copyrights, trademarks, trade
secrets and contractual provisions to protect our proprietary rights in our
products and technologies. These protections may not adequately protect us for a
number of reasons. First, our competitors may independently develop technologies
that are substantially equivalent or superior to ours. Second, the laws of some
of the countries in which our products may be licensed do not protect those
products and our intellectual property rights to the same extent as do the laws
of the United States. Third, because of the rapid evolution of technology and
uncertainties in intellectual property law in the United States and
internationally, our current and future products and technologies could be
subject to infringement claims by others. Fourth, a substantial portion of our
technology and know-how are trade secrets and are not protected by patent,
trademark or copyright laws. We require our employees and contractors to execute
written agreements that seek to protect our proprietary information. We also
have a policy of requiring prospective business partners to enter into
non-disclosure agreements before any of our proprietary information is revealed
to them. However, measures taken by us to protect our technology, products and
other proprietary rights may not be enforceable; to the extent they involve
contractual restrictions, and otherwise might not adequately protect us against
improper use.

We may be required to take legal action to protect or defend our proprietary
rights. Litigation or third-party claims of intellectual property infringement
could require us to spend substantial time and money and adversely affect our
ability to develop and commercialize products. If we are required to defend
against lawsuits brought by third parties, or if we sue to protect our
proprietary rights, we may be required to pay substantial litigation costs, and
our management and technical personnel's attention may be diverted from
operating our business. If the results of any litigation are adverse to us, we
may be required to expend significant resources to develop non-infringing
technology or obtain licenses from third parties. If we are not successful in
those efforts or if we are required to pay any substantial litigation costs, our
business would be materially and adversely affected.

Failure to manage our operations if they expand could impair our future growth.

If we are able to expand our operations, particularly through sales to large
retailers, financial institutions and government agencies, as well as
implementation of our e-prescription solution, the expansion will place
significant strain on our management, financial controls, operating systems,
personnel and other resources. Our ability to manage future growth, should it
occur, will depend to a large extent upon several factors, including our ability
to do the following:

  -  build and train our sales force;

  -  establish and maintain relationships with channel partners;

  -  develop customer support systems;

  -  develop expanded internal management and financial controls adequate to
     keep pace with growth in personnel and sales; and

  -  manage the use of third-party manufacturers and suppliers.

If we are able to grow our business but do not manage our growth successfully,
we may experience increased operating expenses, loss of customers, distributors
or suppliers and declining or slowed growth of revenues.

We are subject to risks associated with product failure and technological flaws.


                                       34
<PAGE>

Our technology solutions incorporate complex software and hardware products that
require extensive development and testing to ensure that they operate as
intended. These solutions may contain undetected errors or result in failures
when first introduced or when new versions are released. Despite vigorous
product testing efforts and testing by current and potential customers, it is
possible that errors will be found in a new product or enhancement after
commencement of commercial shipments. The occurrence of product defects or
errors could result in adverse publicity, delay in product introduction,
diversion of resources to remedy defects, loss, of or a delay in market
acceptance, claims by customers against us, or could cause us to incur
additional costs, all of which could adversely affect our business.

Our business is dependent on our ability to attract and retain management and
other key personnel

We depend to a significant degree on the skills, experience and efforts of our
executive officers and other key management, technical, finance, sales and other
personnel. Our failure to attract, integrate, motivate and retain existing or
additional personnel could disrupt or otherwise harm our operations and
financial results. While we have employment agreements with a number of our
executives, many of these agreements do not have fixed terms. We do not
presently carry key man life insurance policies covering any employees. The loss
of services of certain of our key employees, an inability to attract or retain
qualified personnel in the future, or delays in hiring additional personnel
could delay the development of our business and could hurt our existing
business.

We may not be able to successfully manage and assimilate acquisitions,
investments and strategic alliances, which would adversely affect our results of
operations.

We recently acquired SiVault Analytics, Inc., and may, in the future, acquire,
make investments in, or enter into strategic alliances with companies which have
technologies, customer bases, channel relationships and other value-added
services or assets in our current markets or in areas into which we intend to
expand our business.

Any acquisitions, investments, strategic alliances, or related efforts will be
accompanied by risks such as the:

-     Difficulty of identifying appropriate acquisition candidates;
-     Difficulty of assimilating operations of respective entities;
-     Potential disruption of our ongoing business;
-     Potential liability for unknown debts;
-     Loss of key management and operating personnel;
-     Difficulties managing joint ventures especially those in which we may hold
      less than a majority interest;
-     Inability of management to integrate businesses and capitalize on
      opportunities presented by acquisitions, investments, strategic alliances
      or related efforts;
-     Failure to successfully incorporate licensed or acquired technology and
      rights into our services;
-     Inability to maintain uniform standards, controls, procedures and
      policies; and
-     Impairment of relationships with employees and customers as a result of
      changes in management.

If we are not able to successfully overcome these risks or any other problems
encountered with such acquisitions, investments, strategic alliances or related
efforts, the benefits of such transaction may not be realized and we could incur
significant costs and suffer reductions in revenue form existing operations.


                                       35
<PAGE>

Our net operating loss carry-forwards may be limited.

Our net operating loss carry forwards may be limited in accordance with Section
382 of the Internal Revenue Code of 1986, as amended, based on certain changes
in ownership that have occurred, or could in the future occur. Net operating
loss carry forwards are utilized to offset future taxable income for federal and
state income tax purposes.

Risks related to ID-Check(TM) technology

Our licensed ID-Check software relies on reference data provided by government
and quasi-government agencies. If these governmental and quasi-government
agencies were to stop sharing data with our licensor, the utility of the
Id-check software would be diminished in those jurisdictions and our business
would be damaged.

Our licensor of the ID-Check software relies on the cooperation of US state and
Canadian provincial governmental agencies to cooperate with the licensor by
providing sample identification cards so that the licensor may modify the
ID-Check system terminal and other software products to read and analyze the
encoded information found on such jurisdiction's identification cards. The data
is generally encoded in a format that conforms to guidelines established by
certain organizations responsible for implementing industry standards. We cannot
assure you that each of these jurisdictions will continue to cooperate with our
licensor. In the event that one or more of these jurisdictions do not continue
to provide this reference data, the utility of the ID-Check software may be
diminished in those jurisdictions.

Future government regulation restricting the capture of information
electronically stored on identification cards could adversely affect our
business.

Our licensed ID-Check software and other proprietary software products are
Designed to read and capture information from identification cards. In certain
States, such as New Hampshire, North Carolina and Texas, our customers are
Legally restricted from using this information for their own use without the
card-holders' consent. Because issues of personal privacy continue to be a major
topic of public policy debate, it is possible that in the future additional
customers in these and other jurisdictions may be restricted from capturing this
information. Therefore, the implementation of unfavorable regulations or
unfavorable interpretations of existing regulations by courts or regulatory
bodies could require us to incur significant compliance costs, cause the
development of the affected markets to become impractical and otherwise
adversely affect our business.


Risks Related to Our Securities

Our stock may be affected by limited trading volume and may fluctuate
significantly in price.

Our common stock is traded on the NASD OTC Bulletin Board. Trading in our stock
has been limited and there can be no assurance that an active trading market for
our stock will develop. As a result, this could adversely affect our
shareholders' ability to sell our common stock in short time periods, or
possibly at all. Thinly traded shares can be more volatile than shares traded in
an active public market. The average daily trading volume of our common stock in
September was 25,416 shares. The high and low bid price of our common stock for
the same period has ranged from $1.01 and $4.40 per share. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations, which could adversely affect the market price of our common
stock without regard to our operating performance.


                                       36
<PAGE>

Our common stock is deemed to be a "Penny Stock" which may make it more
difficult for investors to sell their shares due to suitability requirements.

Our common stock is deemed to be a "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are
stocks:

-     With a price of less than $5.00 per share;
-     That are not traded on a "recognized" national exchange;
-     Whose prices are not quoted on the NASDAQ automated quotation system; or
-     Of issuers with net tangible assets of less than $2.0 million (if the
      issuer has been in continuous operation for at least three quarters) or
      $5.0 million (if issuer has been in continuous operation for less than
      three quarters), or with average revenues of less than $6.0 million for
      the last three quarters.

Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for our shareholders to
sell shares to third parties or to otherwise dispose of them. This could cause
our share price to decline.


Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on us that is material to investors.

ITEM 3 CONTROLS AND PROCEDURES

An evaluation was performed, as of September 30, 2004, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on such evaluation, our management
has concluded that our disclosure controls and procedures were effective as of
September 30, 2004. There have been no significant changes in our internal
controls or other factors that could significantly affect our internal controls
subsequent to September 30, 2004.


                                       37
<PAGE>

We do not expect that our disclosure controls and procedures will prevent all
error and all fraud. A control procedure, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control procedure are met. Because of the inherent limitations
in all control procedures, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the control. The design of any control procedure also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control procedure, misstatements due to error or
fraud may occur and not be detected.


                                       38
<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Neither we, nor any of our subsidiaries, is a party to any material legal
proceeding, nor, to our knowledge, is any material litigation threatened against
us or our subsidiaries.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following sets forth certain information regarding sales of our securities
during the quarter ended September 30, 2004, which sales were not registered
under the Securities Act of 1933 (the "Act"). Unless otherwise indicated, no
underwriters were involved in these transactions.

On July 21, 2004 we issued a total of 4,000,000 shares of our common stock to
Emilian Elefteratos, Jonatan Schmidt, Alex Gelf, Steve Pollini and Maria Diaconu
in consideration of the purchase of SiVault Analytics, Inc.

In July, August and September 2004 we sold to private investors 904,974 shares
of our common stock for a total purchase price of $1,357,463 in our July 2004
Private Placement. For no additional consideration, the investors also received
two-year warrants to purchase a like number of shares of common stock at an
exercise price of $2.00 per share.

On August 4, 2004 we issued a total of 207,500 shares of our common stock to two
individuals pursuant to a consulting agreement and finders fee in the raising
of capital.

On August 9, 2004 we issued a total of 125,000 shares of our common stock to two
individuals pursuant to a finders fee agreement in the acquisition of SiVault
Analytics, Inc.

On August 9, 2004 we issued a total of 375,355 shares of S8 common stock to
settle $600,570 of debts due to related parties.

On August 9, 2004 we issued 15,000 shares of S8 common stock to an officer,
in consideration of signing a new employment contract.

On August 9, 2004 we issued 6,600 shares of S8 common stock to an individual,
to settle $10,656 of debt.

On August 9, 2004 we issued a total of 70,000 shares of S8 common stock to three
individuals pursuant to a consulting agreement and a finders agreement in the
acquisition of SiVault Analytics, Inc. and raising of capital.

On August 10, 2004 we issued a total of 350,000 shares of S8 common stock to
seven directors of the company in consideration of services rendered in fiscal
2005.

On August 28, 2004 we issued a total of 166,667 shares of our common stock in
consideration of the excising of warrants for a total purchase price of
$333,334.

On September 1, 2004, we issued to Orhan Sadik Khan options to purchase 100,000
shares of common stock at an exercise price of $1.50 per share. The options are
scheduled to expire on September 1, 2009. The options were issued pursuant to a
consulting contract.

In September 2004 we sold to private investors 267,100 of our common stock for a
total purchase price of $400,650. For no additional consideration, the investors
also received two-year warrants to purchase a like number of shares of common
stock at an exercise price of $2.00 per share.

On September 9, 2004 we issued a total of 38,050 shares to a law firm to settle
a debt of $57,075.

                                       39
<PAGE>

On September 21, 2004 we issued 7,500 shares of our common stock to a
consultant.

Each of the foregoing sales was made in reliance on the exemption afforded by
Section 4(2) of the Securities Act. No advertising or general solicitation was
employed in offering the securities, the securities were offered to a limited
number of individuals and the transfer thereof was appropriately restricted by
us, all purchasers were believed to be accredited or sophisticated investors
capable of evaluating the merits and risks of the investment and each purchaser
represented that the securities were acquired for investment and not with a view
to re-sale in contravention of the registration provisions of the Act.

On October 19, 2004, the Company entered into three Share Exchange Agreements
with shareholders of eMedRx Delaware and eMedRx Canada and a shareholder of
eMedRx Nevada (the "Agreements"). The Agreements call for the exchange of the
common shares of eMedRx Delaware, eMedRx Canada and of eMedRx Nevada not
currently owned by the Company for 567,893 restricted shares of the Company's
common stock.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

NONE.

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

NONE.

ITEM 5.  OTHER INFORMATION

NONE.

ITEM 6.  EXHIBITS

31.1     Certificate of Chief Executive Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

31.2     Certificate of Chief Financial Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

32.1     Certificate of Chief Executive Officer pursuant to 18 U.S.C.1350, as
         adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

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


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<PAGE>

                                   SIGNATURES

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


                                    SiVault Systems, Inc.

Date: November 12, 2004             By:  /s/ Emilian Elefteratos
                                        -----------------------------------
                                        Name:  Emilian Elefteratos
                                        Title: Chief Executive Officer
                                                  (Principal Executive Officer

Date: November 12, 2004             BY:  /s/ Wayne Taylor
                                         ---------------------------------------
                                         Name: Wayne Taylor
                                         Title: Interim Chief Financial Officer
                                                   (Principal Financial and
                                                    Accounting Officer)











                                       41
<PAGE>


                                Index of Exhibits

Number Description

31.1     Certificate of Chief Executive Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act 2002

31.2     Certificate of Chief Financial Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

32.1     Certificate of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
         adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

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







                                       42