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, 2005
                                ----------------

|_|   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 |_| No |X|

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, 2005

Common Stock, $.001 par value                           23,532,044
-----------------------------                        ---------------
Class                                                Number of shares


<PAGE>


                                TABLE OF CONTENTS


PART I.
------

ITEM 1. FINANCIAL STATEMENTS
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 AND REPORTS ON FORM 8-K
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2





                                       2
<PAGE>

                                     PART I


ITEM 1. FINANCIAL STATEMENTS





SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS


                                                       September 30,    June 30,
                                                            2005         2005
                                                       -------------  ----------
                                                        (Unaudited)
CURRENT ASSETS
  Cash                                                 $       3,114  $    9,808
  Accounts receivable, net of allowance of
  $663,966 and $663,966,
  respectively                                                    --     204,042
  Inventory                                                   12,577     136,606
  Prepaid expenses and other current assets                  189,580     354,639
                                                       -------------  ----------
     TOTAL CURRENT ASSETS                                    205,271     705,095

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION                                                  68,836      70,000

OTHER ASSETS                                                 106,735     113,457
INTANGIBLE ASSETS                                          7,254,058   7,254,058
                                                       -------------  ----------

                                                       $   7,634,900  $8,142,610
                                                       =============  ==========


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


                                       3
<PAGE>


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)

<TABLE>
<CAPTION>
                                                    September 30,      June 30,
                                                         2005           2005
                                                    -------------   -------------
                                                     (Unaudited)
<S>                                                     <C>             <C>
CURRENT LIABILITIES
  Accounts payable and accrued liabilities -
    non-related parties                             $   4,324,290   $   3,886,599
  Accounts payable and accrued liabilities -
    related parties                                       449,217         812,170
  Notes and loans payable - non-related parties         1,472,852       1,370,377
  Notes and loans payable - related parties             1,525,000       1,491,856
  Convertible notes and debenture payable               2,094,009       2,039,509
  Corporate income taxes payable                          179,920         179,920
                                                    -------------   -------------
      TOTAL CURRENT LIABILITIES                        10,045,288       9,780,431
                                                    -------------   -------------


OTHER LIABILITES                                               --          15,915
                                                    -------------   -------------

COMMITMENTS

STOCKHOLDERS DEFICIENCY
  Common stock
    Authorized - 50,000,000 shares $0.001 par
    value Issued and outstanding - 23,532,044 and
    20,510,636 as of September 30 and
    June 30, 2005, respectively                            23,532          20,511
  Additional paid-in capital                           41,187,451      40,445,476

  Accumulated other comprehensive loss                     (7,311)         (7,311)
  Accumulated deficit                                 (43,614,060)    (42,112,412)
                                                    -------------   -------------
     TOTAL STOCKHOLDERS DEFICIENCY                     (2,410,388)     (1,653,736)
                                                    -------------   -------------
                                                    $   7,634,900   $   8,142,610
                                                    =============   =============
</TABLE>



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

                                       4
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

                                                      Three Months Ended
                                                        September 30,
                                                ------------    ------------
                                                    2005            2004
                                                ------------    ------------

REVENUES
  Contract revenues earned                      $         --    $    851,990
  Other revenues                                       1,400           4,200
                                                ------------    ------------
    TOTAL REVENUES                                     1,400         856,190
                                                ------------    ------------

OPERATING EXPENSES:
  Cost of revenues earned                              9,900         391,004
  Selling, general and administrative              1,075,705       1,828,507
                                                ------------    ------------
                                                   1,085,605       2,219,511
                                                ------------    ------------

LOSS FROM OPERATIONS                              (1,084,205)     (1,363,321)
OTHER EXPENSES:
  Interest expense                                   417,443          63,920
                                                ------------    ------------

LOSS BEFORE PROVISION FOR INCOME TAXES            (1,501,648)     (1,427,241)

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

NET LOSS                                        $ (1,501,648)   $ (1,427,241)
                                                ============    ============

BASIC AND DILUTED LOSS PER COMMON SHARE:

  Net loss                                      $      (0.07)   $      (0.11)
                                                ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING                                     21,378,979      12,783,494
                                                ============    ============




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


                                       5
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
THREE MONTHS ENDED SEPTEMBER 30, 2005
(UNAUDITED)

<TABLE>
<CAPTION>

                                        Common Stock           Additional        Other                          Total
                                ---------------------------     Paid In      Comprehensive   Accumulated     Stockholders'
                                   Shares         Amount        Capital          Loss           Deficit       Deficiency
                                ------------   ------------   ------------   -------------   ------------    ------------
<S>                               <C>          <C>            <C>            <C>             <C>             <C>
Balance, June 30, 2005
(Audited)                         20,510,636   $     20,511   $ 40,445,476   $      (7,311)  $(42,112,412)   $ (1,653,736)

Issuance of common stock for:
  Cash (net of finders' fees)        652,400            652        282,924              --             --         283,576

Issuance of common stock for
  consulting services              1,530,000          1,530        359,890              --             --         361,420

Issuance of common stock to
settle note payable                  839,008            839         99,161              --             --         100,000

Net loss                                  --             --             --              --     (1,501,648)     (1,501,648)
                                ------------   ------------   ------------   -------------   ------------    ------------

Balance, September 30, 2005
(Unaudited)                       23,532,044   $     23,532   $ 41,187,451   $      (7,311)  $(43,614,060)   $(2, 410,388)
                                ============   ============   ============   =============   ============    ============
</TABLE>



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


                                       6
<PAGE>

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

<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
   payable and accrued
   liabilities                       420,005            420        667,881              --             --          668,301

Issuance of common stock
  for the acquisition of
  SiVault Analytics, Inc.          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 condensed
financial statements


                                        7
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                        September 30,
                                                                 -----------    -----------
                                                                     2005           2004
                                                                 -----------    -----------
<S>                                                              <C>            <C>
CASH FLOWS FROM OPERATING
  ACTIVITIES:
  Net loss                                                       $(1,501,648)   $(1,427,241)
  Adjustments to reconcile net loss to net cash
    provided by operating activities:
    Depreciation of property and equipment                             3,166         20,632
    Issuance of common stock for consulting services                 361,420        633,500
    Issuance of options for consulting services                           --         77,000
    Amortization of debt discount as non-cash interest expense       228,418             --
    Deferred rent expense                                            (10,495)        (1,615)
    Changes in assets and liabilities:
    Accounts receivable                                              204,042        256,869
    Inventory                                                        124,029             --
    Prepaid expenses and other current assets                        165,059       (109,252)
    Security deposits                                                     --        (55,500)
    Other assets                                                       6,722             --
    Accounts payable and accrued liabilities                          74,738       (413,259)
    Other liabilities                                                 (5,420)            --
    Costs and estimated earnings in excess of billings
      on uncompleted contracts                                            --        (90,018)
                                                                 -----------    -----------
NET CASH USED IN OPERATING ACTIVITIES                               (349,969)   (1,108,884))
                                                                 -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash acquired in acquisition                                            --          5,622
  Purchase of property and equipment                                  (2,002)       (15,249)
                                                                 -----------    -----------


NET CASH USED IN INVESTING ACTIVITIES                                 (2,002)        (9,627)
                                                                 -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from the issuance of common stock                     283,576      1,625,469
  Proceeds from notes and loans payable - related parties            261,701             --
  Proceeds from the exercise of stock warrants                            --        333,334
  Repayments of shareholders' advances                                    --       (115,000)
  Repayment of note payable - related party                         (200,000)      (189,983)
  Repayments on capital lease obligations                                 --         (1,650)
                                                                 -----------    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                            345,277      1,652,170
                                                                 -----------    -----------

NET INCREASE  (DECREASE) IN CASH                                      (6,694)       533,659
                                                                 -----------    -----------
CASH, AT BEGINNING OF PERIOD                                           9,808        112,880
                                                                 -----------    -----------

CASH, AT END OF PERIOD                                           $     3,114    $   646,539
                                                                 ===========    ===========
</TABLE>



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


                                        8
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                              September 30,
                                                    --------------   --------------
                                                          2005              2004
                                                    --------------   --------------
<S>                                                 <C>              <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CASH PAID DURING THE PERIOD FOR:
  Interest                                          $          243   $       58,185
                                                    ==============   ==============
  Income taxes                                      $           --   $           --
                                                    ==============   ==============

NON-CASH INVESTING AND FINANCING ACTIVITIES
  Issuance of common stock for:

  Services                                          $      361,420   $      633,500
                                                    ==============   ==============
  Settlement  of  accounts  payables  and accrued
    liabilities                                     $           --   $      688,301
                                                    ==============   ==============
  Prepaid expenses                                              $-   $           --
                                                    ==============   ==============
  Settlement of note payable - related party        $      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 condensed
financial statements.

                                        9
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying Consolidated Condensed Financial Statements of SiVault Systems,
Inc. and subsidiaries (collectively, the "Company") have been prepared in
accordance with principles generally accepted for interim financial statement
presentation and in accordance with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted for complete financial statements
presentation. In the opinion of management, all adjustments for a fair statement
of the results of operations and financial position for the interim periods
presented have been included. All such adjustments are of a normal recurring
nature. This financial information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report of Form 10-KSB for the year ended June 30, 2005. There have been
no changes in significant accounting policies since June 30, 2005, except as
disclosed in Note 2.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Certain revenues from fixed-price and modified fixed-price contracts are
recognized on the percentage-of-completion method, measured by the percentage of
costs 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.

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. 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 resulting from
job performance, job conditions, contract penalty provision, claims change
orders and settlements, are accounted for as changes in estimates in the current
period.


                                       10
<PAGE>

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the
provisions of SFAS No. 123, " Accounting for Stock- Based Compensation", as
amended by SFAS No. 148, " Accounting for Stock- Based Compensation - Transition
and Disclosure- an Amendment of SFAS No. 123". SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No 148
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. For
employee stock options, the Company has adopted, SFAS No. 123 (revised)
"Share-Based Payment" which requires that the fair market value of share -based
compensation, such as stock options, be charged to expense over the period
earned for the fiscal year beginning July 2005.

SEGMENT INFORMATION

SFAS No 131, "Disclosure about Segments of an Enterprise and Related
Information", establishes annual and interim reporting standards for an
enterprise's operating segments, and related disclosures about its products,
services, geographic areas and major customers. As defined in SFAS No 131, the
Company had two operating segments for the three months ended September 30,
2005, and 2004.

RECLASSIFICATION:

Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the current period's presentations.

NOTE 3 - MANAGEMENT'S LIQUIDITY PLANS

As shown on the accompanying financial statements, the Company has shown
cumulative from inception recurring losses from operations, negative cash flows
from operations, and as of September 30, 2005 had a working capital deficit of
approximately $9.8 million. These factors raise significant doubt as to the
Company's ability to continue as a going concern.

Management's plan includes the following:

      1.    Significantly reducing and/or minimizing the Company's monthly
            overhead costs while the Company addresses items below concurrent
            with securing of a third party long-term revenue generating
            contract(s) or licensing agreement(s).
      2.    Raising equity through private placements. The Company has raised
            approximately $2.2 million in private placement of the Company's
            common shares from July l, 2005 through March 31, 2006.
      3.    Concluding debt settlement agreements with related and/or
            non-related parties (See Subsequent Event Note No. 12)
      4.    Additional private placements of debt or equity subsequent to date
            of this report.

However, continuation of the business thereafter is dependent on the Company's
ability to achieve profitable operations and sufficient cash flow to meet its
current obligations. Management believes that with settlement of certain debt(s)
and with the expected increase in revenues commencing in the fiscal quarter of
fiscal 2007, (the Company entered into a licensing agreement with Hypercom
Corporation in February 2006) the Company will be able to continue its business
for the next twelve months.


                                       11
<PAGE>

NOTE 4 - PER SHARE INFORMATION

In accordance with SFAS No. 128 "Earnings Per Share", basic earnings per common
share ("Basic EPS") is computed by dividing the net loss by the weighted-average
number of common shares outstanding. Diluted earnings per common share ("Diluted
EPS") is computed by dividing the net loss by the sum of the weighted-average
number of common shares and dilutive common stock equivalents and convertible
securities then outstanding. SFAS No.128 requires the presentation of both Basic
EPS and Diluted EPS on the face of the Company's Consolidated Statement of
Operations.

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

<TABLE>
<CAPTION>
                                                    Three Months Ended
                                                       September 30,
                                                      (In thousands)
                                                -----------    -----------
                                                    2005           2004

<S>                                             <C>            <C>
Numerator:
   Net loss                                     $    (1,502)   $    (1,427)
                                                ===========    ===========

Denominator:
  Weighted average common shares outstanding         21,379         12,783
  Dilutive effect of:
    Common stock equivalents                             23             --
                                                -----------    -----------
  Weighted average common shares outstanding,
    assuming dilution                                21,402         12,783
                                                ===========    ===========

Basic and Diluted Per Share Information:

  Net loss                                      $     (0.07)   $     (0.11)
                                                ===========    ===========
</TABLE>


NOTE 5 - BUSINESS ACQUISITIONS

SIVAULT ANALYTICS, INC.

In July 2004, the Company acquired all of the outstanding common shares of
SiVault Analytics, Inc. in exchange for four million shares of the Company's
restricted common shares, valued at the market price on the date of issuance of
$1.80 per share. The Company later issued 140,000 common shares, valued at the
market price on the date of issuance of $1.60 per share, as compensation for
finder's fees in conjunction with the acquisition. The acquisition was accounted
for as a business purchase and initially recorded at the estimated fair value of
the assets acquired and the liabilities assumed, as follows:

Cash                                            $     5,622
Property and equipment                               51,815
Other assets                                            450
Excess cost over net tangible assets acquired     7,863,060
                                                -----------
         Total assets                             7,920,947
                                                -----------
Accrued expenses                                   (381,947)
Advance from shareholder                           (115,000)
                                                -----------
         Total liabilities                         (496,947)
                                                -----------
Net assets acquired                             $ 7,424,000
                                                ===========


                                       12
<PAGE>

The initial allocation of the purchase price was not based on an evaluation of
the amount assigned to excess cost over net tangible assets acquired. Subsequent
to the purchase of SiVault Analytics, Inc., the Company reviewed the initially
recorded excess cost over net and identifiable intangible assets acquired amount
and determined that $2,157,000 should be assigned as the fair value of a
technology product intangible and that the remaining $5,706,060 related to other
elements, such as the associated management team, for which specific fair values
could not be quantified. As of June 30, 2005 the factors supporting the
realization of any future benefits from those other elements were no longer
present. Consequently, the Company has charged the entire $5,706,060 to expense
as an impairment of cost in excess of fair values of net assets acquired. The
$2,157,000 assigned as the fair value of a technology product intangible will be
amortized over its useful life once it is placed in service. The Company has not
yet determined the useful life of this intangible asset. Because the
marketability and functioning of this technology has not yet been proven, there
remains substantial doubt about whether this technology will ultimately provide
any value.

VIAQUO

In November 2004, the Company purchased substantially all of the assets of
Viaquo Corporation ("Viaquo") related to Viaquo's ViaSeal Access Control
Business in exchange for 3,050,000 shares of the Company's restricted common
shares, of which (1) 750,000 shares were delivered to Viaquo at closing (valued
at the market price on the date of issuance of $2.35 per share) and (2)
2,050,000 shares were placed in escrow to be held until the earlier to occur of
(i) the issuance of a U.S. Patent for certain U.S. Patent Applications acquired
by SiVault, or (ii) the abandonment by SiVault of the U.S. Patent and Trademark
Office following final rejection thereof by the U.S. Patent and Trademark
Office, and (3) the remaining 250,000 shares were placed in escrow to be held
until the earlier to occur of (i) the issuance by the European Patent Office
("EPO") of a decision to grant a European Patent with respect to an European
Patent Application acquired by SiVault, or (ii) the abandonment by SiVault of
the European Patent Application following a final refusal by EPO to grant the
European Patent.

As of March 31, 2005, an amendment to the purchase agreement was made due to new
information about the ultimate issuance of the European Patents. Under the
amendment, SiVault agreed to release the 2,300,000 shares (valued at the market
price on the date of issuance of $1.52 per share) held in escrow. The
acquisition was accounted for as a business purchase and initially recorded at
the estimated fair value of the assets acquired and the liabilities assumed, as
follows:

Property and equipment                          $    36,269
Excess cost over net tangible assets acquired     5,097,058
                                                -----------
         Total assets                             5,133,237
                                                -----------
Vacation pay liability                              (52,553)
                                                -----------
         Net                                      5,080,774
                                                -----------
License fee due to Viaquo at purchase date          250,000
                                                -----------
Advance to Viaquo from the Company                  (37,046)
                                                -----------
         Net assets acquired                    $ 5,293,728
                                                ===========


                                       13
<PAGE>

The initial allocation of the purchase price was not based on an evaluation of
the amount assigned to excess cost over net and identifiable intangible assets
acquired. Subsequent to the purchase of the ViaSeal Access Control Business, the
Company reviewed the initially recorded excess cost over net tangible assets
acquired amount and determined that all of it should be assigned as the fair
value of the technology acquired. The amount assigned as the fair value of the
technology will be amortized over its useful life, which has not yet been
determined. Because uncertainties remain about the marketability and functioning
of this technology, there is substantial doubt about whether this technology
will ultimately provide any value.

The following table shows the unaudited pro forma results of the Company, Giving
effect to the acquisition of SiVault Analytics, Inc. and the purchase of the
ViaSeal Access Control business, assuming they were consummated at the beginning
of the three months ended September 30, 2005 and 2004:


                                      --------------------------------
                                      Three Months Ended September 30,
                                      --------------------------------
                                          2005          2004
                                      -----------    -----------

Revenues                              $     1,400    $   856,190

Net Loss                              $(1,501,648)   $(1,983,907)
                                      ===========    ===========

Basic and Diluted Per Common Share:

Net loss                              $     (0.07)   $     (0.13)
                                      ===========    ===========


NOTE 6 - NOTES AND LOANS PAYABLE - NON-RELATED PARTIES

<TABLE>
<CAPTION>
                                                             September 30,      June 30,
                                                                 2005             2005
                                                             -------------     ----------
<S>                                                              <C>            <C>
As of September 30, 2005, the Company had eight
short-term promissory notes from non-related parties in
the amount of $1,373,020. These notes bear interest
ranging at annual rate of 12%, payable at the end of
their terms. The principal amount of these notes is
reflected on the balance sheet, net of the fair market
value of the warrants and the stock issued, which are
accounted for as debt discount. As of September 30,
2005, the Company was in default of all eight notes. In
December 2005 and in 2006, the Company settled and/or
restructured all four of these promissory notes. See Note 12
- Subsequent Events.                                             1,373,020        1,141,653


As of September 30, 2005, the Company had two loans from
non-related parties totaling $99,832. These loans had
no terms and bore no annual interest rate.                          99,832          393,998
                                                             -------------      -----------
                                                                 1,472,852        1,535,651

Less: Debt Discount                                                     --          165,274
                                                             -------------      -----------
                                                             $   1,472,852     $  1,370,377
                                                             =============     ============


                          14
<PAGE>

NOTE 7 - NOTES AND LOANS PAYABLE - RELATED PARTIES
                                                             September 30,       June 30,
                                                                 2005              2005
                                                             -------------     ------------

As of September 30, 2005, the Company had seven
short-term promissory notes from related parties in the
amount of $1,100,000. These notes, except for one, bear
interest ranging at annual rates between 9% - 12%,
payable at the end of their terms. One promissory note
bore interest at the LIBOR rate. The principal amount
of these notes is reflected on the balance sheet, net
of the fair market value of the warrants and the stock
issued, which are accounted for as debt discount. As of
September 30, 2005, the Company was in default of six
notes totaling $1,100,000. In December 2005 and in
2006, the Company settled and/or restructured six of
these promissory notes totaling $950,000. See Note 12 -
Subsequent Events.                                           $   1,100,000     $  1,379,667

As of September 30, 2005, the Company had three loans
from related parties totaling $425,000. These loans
had no terms and bore no annual interest rate. In
December 2005, all of these loans were settled. See
Note 12 - Subsequent Events.

                                                                   425,000          120,833
                                                             -------------      -----------
                                                                 1,525,000        1,500,500
Less: Debt Discount                                                     --            8,644
                                                             -------------      -----------
                                                             $   1,525,000     $  1,491,856
                                                            ==============     ============



                                                             September 30,        June 30,
                                                                 2005              2005
                                                             ------------      ------------
NOTE 8 - CONVERTIBLE NOTES

On November 23, 2004 (the "First Closing") the Company
issued $1,500,000 of convertible notes to three
investment funds ("Longview"). The convertible notes
bear interest at the prime rate of interest plus 3% per
annum, and the Company was required to pay down 1/30 of
the original principal amount each month commencing on
June 1, 2005. The convertible notes were convertible
into common stock of the Company at $2.25 per share
conversion price. The interest payable on the notes was
convertible into common stock. Interest accrued each
month and payment commenced on June 1, 2005. The
Company also issued 200,000 warrant shares which may be
exercised within five years at $3.00 per share.


                          15
<PAGE>



On January 19, 2005, after the Company's SB-2
registration statement became effective, a second
closing occurred in which the Company issued an
additional $1,500,000 of three year convertible notes
to Longview with the same terms and conditions as in
the First Closing, including issuance of another
200,000 warrant shares. The proceeds to the Company
from the second closing were primarily used to pay off
a convertible debenture. The notes were secured by a
first priority lien on all of the assets of the Company
and are reflected on the balance sheet, net of the fair
market values of the warrants and the beneficial
conversion feature, which are accounted for as debt
discount.

                                                                 2,588,237        2,588,237
                                                             -------------     ------------
                                                                 2,588,237        2,588,237
Less: Debt Discount                                                494,228          548,728
                                                             -------------     ------------
                                                             $   2,094,009     $  2,039,509
                                                             =============     ============
</TABLE>


Required future payments of the convertible notes as of September 30, 2005 are
as follows:

                                   Year ending
                                     June 30
                                   -----------

                                       2006                  $   788,237
                                       2007                    1,200,000
                                       2008                      600,000

                                                             -----------
                                                               2,588,237
                                 Less: Debt discount             494,228
                                                             -----------
                                                             $ 2,094,009
                                                             ===========

As of September 30, 2005, the Company was in material default on the Longview
convertible notes.

On November 21, 2005, the Company entered into a settlement and restructuring
agreement with Longview. See Note 12 - Subsequent Events.

NOTE 9 - COMMITMENTS

LEASES

On January 23, 2004, the Company entered into a sublease for its office space in
New York City and, on June 22, 2004, sub-subleased part of this office space.
The sublease and sub-sublease were to expire on December 30, 2007. In September
2004, the Company sub-subleased a facility space in San Jose, California which
was to expire on May 31, 2008. In May 2005, the Company expanded its occupancy
of the San Jose location.


                          16
<PAGE>

Subsequently, the Company defaulted on its New York and San Jose leases and
applied its security deposits towards rent, in both locations. The Company
continued its occupancies on a month-to-month basis and vacated its San Jose
office in September 2005. On January 1, 2006, the Company entered into a
sublease agreement with its former tenant at its New York location. The
Company's landlord in the San Jose office went bankrupt in late 2005. As of the
report date, the Company believes it has no remaining liabilities on its two
prior leases; however, a contingency remains with respect to rent owed by its
San Jose landlord to the ultimate landlord. Future minimum annual lease payments
as of January 1, 2006 are as follows:


Year Ending June 30,                 Minimum Annual Rental Expense
--------------------                 -----------------------------
       2006                                   $ 18,000
       2007                                     39,000
       2008                                     21,000
                                              --------
                                              $ 78,000
                                              ========

NOTE 10 - STOCK-BASED WARRANTS AND STOCK OPTIONS

WARRANTS

As of September 30, 2005, the Company had the following warrants outstanding:

  WARRANTS               EXERCISE PRICE   EXPIRATION
OUTSTANDING            PER SHARE          DATE
-------------------------   ------------------------ ---------------------
      37,875                     $3.00           November 19, 2005
     184,525                      3.60           December 22, 2005
   1,004,975                      2.00           August 22, 2006
     187,500                      4.00           September 13, 2006
   1,003,150                      6.00           September 13, 2006 (A)
     600,998                      3.00           October 18, 2006
      35,000                      4.00           March 16, 2007
     250,000                      2.67           October 1, 2008
      23,408                     0.001           October 1, 2008
     100,000                      2.00           January 21, 2010
      30,000                      2.00           February 23, 2010
      66,666                      2.25           March 11, 2010
     150,000                      2.25           March 31, 2010
     328,653                      2.25           April 29, 2010
   2,825,000                      1.76           May 2, 2010
     100,000                      2.00           June 2, 2010
     321,000                      2.25           June 10, 2010
      42,000                      2.25           June 20, 2010
      57,600                      2.25           March 30, 2015
       8,333                      2.25           April 30, 2015
------------
   7,356,683   SUBTOTAL
------------

Other Warrants (in connection with loans, etc.)

     400,000                     $2.50           May 7, 2006
      50,000                      3.00           May 9, 2006
     400,000                      2.50           May 25, 2006
      50,000                      2.50           December 23, 2006
     672,000                      3.00           September 30, 2008
     200,000                      3.00           November 23, 2009
     200,000                      3.00           January 19, 2010
     150,000                      3.00           May 26, 2010
      50,000                      3.00           June 17, 2010
------------
   2,172,000  SUBTOTAL
------------
   9,528,683 TOTAL WARRANTS
-===========

                                       17
<PAGE>

            (A)   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.

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. Stock options under the 2004 Plan become exercisable a year after an
employee's hire date.

As of September 30, 2005, substantially all of the Company's employees based in
San Jose were terminated and, under the terms of the 2004 Plan, options issued
to these employees terminated three months after the date of separation.

NOTE 11 - BUSINESS SEGMENTS

The summarized financial information, concerning the Company's reportable
segments for the three months ended September 30, 2005 and 2004, is as follows:

<TABLE>
<CAPTION>
                                                          Biometric     Professional
                                                          Security        Services         Total
          2005                                          ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>
Net sales to external companies                         $      1,400    $         --    $      1,400
Operating loss                                            (1,074,850)        (10,755)     (1,085,605)
Total assets                                               7,631,786           3,114       7,634,900
Capital expenditures                                           2,002              --           2,002
Depreciation and amortization                                  3,166              --           3,166
Interest expense                                             417,443              --         417,443


                                                          Biometric     Professional
                                                          Security        Services         Total
                                                        ------------    ------------    ------------
          2004
Net sales to external companies                         $      4,200    $    851,990    $    856,190
Operating earnings (loss)                                 (1,737,522)       (374,201)     (1,363,321)
Total assets                                               9,209,734         858,829      10,069,563
Depreciation and amortization                                 19,946             686          20,632
Capital expenditures                                          15,243              --          15,243
Interest expense                                              63,920              --          63,920
                                                        ------------    ------------    ------------
</TABLE>


                                       18
<PAGE>

NOTE 12 - SUBSEQUENT EVENTS

The following significant events have occurred since September 30, 2005:

During the period subsequent to September 2005 management and significant
shareholders devised a plan to liquidate and consolidate existing obligations
and to raise through private investments monies to fund this process. The first
settlement by the Company was with the Longview convertible notes ("Longview")
in November 2005. Other settlements followed and are detailed below.

RESTRUCTURING OF LONGVIEW DEBT. The Company and Longview have agreed to
restructure the of Longview convertible notes as follows:

All outstanding debt of the Company to Longview was restructured as follows:

         (a)      The Company to pay $400,000 to Longview on or before January
                  31, 2006 (Longview was paid $400,000 in February 2006 - there
                  was no notice of default);

         (b)      The Company to pay an additional $400,000 to Longview on or
                  before April 30, 2006;

         (c)      Convertible notes of Longview to be adjusted pro rata as
                  follows:

                  (i)   Principal amount to be reduced to $410,000;

                  (ii)  Fixed conversion price to be reduced to $.20 per share;

                  (iii) The Company granted a one year redemption right with
                        respect to any shares issued at $.25 per share, provided
                        that the Company has not had an event of default since
                        November 21, 2005;

         (d)      The balance of debt to be forgiven if Company is not in
                  default with the forgoing terms and conditions.


                                       19
<PAGE>

In addition to the settlement of Longview, the following notes, loans, accounts
payable and accrued liabilities, and lawsuits as of September 30, 2005 were
settled by payment of cash, establishing an installment payment schedule, and
the issuance and planned issuance of common stock and stock warrants.


<TABLE>
<CAPTION>
                                            Approximate amount
                                            owed as of
                                            September 30, 2005         Approximate Settlement Summary
                                            ------------------         ------------------------------

<S>                                         <C>                        <C>
Notes and loans - non-related parties       $  790,000                 Installment payables of $570,000,
                                                                       1.5 million shares of common stock
                                                                       valued at $320,000, and 580,000
                                                                       warrants valued at $300,000, and an
                                                                       additional 760,000 repriced warrants

Notes and loans - related parties            1,380,000                 Installment payable of $150,000, 8.5
million shares of common stock                                         valued at $1,230,000

Accounts payable and                         1,800,000                 $137,000 paid in cash, installment
accrued liabilities                                                    payables of $585,000, and 2.7
                                                                       million shares of common stock
                                                                       valued at $460,000

WonderNet Arbitration                          350,000                 Installment payable of $350,000
(included in accounts payable
and accrued liabilities)
                                            ----------
                                            $4,320,000
                                            ==========
</TABLE>

The Company expects to complete its restructuring and settling of its notes,
loans, and accounts payable, and amounts due to the Company's former employees
by the end of its fiscal year ending June 30, 2006.

Since the end of the three months ended September 30, 2005, the Company has
completed two private placements in which the Company raised gross proceeds of
approximately $1.9 million. The Company sold an aggregate of approximately
13,200,000 of its common shares in private placements at per share prices
between $.10 and $.45 per share.

WONDERNET, LTD, SETTLEMENT

In 2002 and 2003, the Company entered into the Distribution and Partnership
Agreements 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 issued WonderNet 325,000
shares of its common stock and paid an upfront amount of $100,000 under these
contracts. The Company was also required to pay a minimum $120,000 per quarter
and minimum 10% royalty on gross sales of products. Since the inception of the
agreements, two $120,000 payments were made.

In November 2004, the Company notified WonderNet that it was terminating the
agreements as a result of a breach by WonderNet. Subsequently, the Company filed
a demand for arbitration with the American Arbitration Association in New York,
New York asking that any agreements be rescinded, that WonderNet reimburse to it
$340,000 in monies paid and that the shares of stock issued to WonderNet be
cancelled. On April 15, 2005, WonderNet filed its response to the Company's
demand for arbitration. In its response, WonderNet claimed damages of $240,000
for unpaid amounts under its contract with the Company, as well as other
unspecified damages, including alleged punitive damages and an accounting. See
the table above for the WonderNet arbitration settlement.


                                       20
<PAGE>

See the table above for the WonderNet settlement on March 10, 2006.

As part of the Company's restructuring plan, the Company has been actively
pursuing agreements to market the Company's software products. In February 2006,
the Company entered into a licensing agreement with Hypercom Corporation
("Hypercom"). Hypercom is to pay the Company a licensing fee of 30% of the
transaction fee that pertains to the Company's products. The current (as of this
report date) Chief Technology Officer of Hypercom was a former officer and
member of the Board of Directors of the Company during the fiscal year ended
June 30, 2005 and the three months period ended September 30, 2005.

EMPLOYMENT AND CONSULTING AGREEMENTS

Three key executives of the Company had employment and consulting agreements as
of June 30, 2005. The minimum annual base compensation of these three executives
totaled approximately $750,000.These three executive were also entitled to
performances bonuses.

Effective December 31, 2005, all of these employment and consulting agreements
were terminated through settlement agreements, due to the Company's financial
difficulties.

STOCKHOLDERS EQUITY

On February 1, 2006, the Board of Directors approved that each of the nine
members of the board be issued a one-time grant of 250,000 restricted shares of
the Company's common stock valued at $495,000 at $0.22 per share. The Board of
Directors also approved the issuance of 100,000 restricted shares to each board
member for fiscal year 2006 compensation valued at $198,000 at $0.22 per share.


In February 2006, the shareholders of the Company voted to increase the amount
of authorized shares of the Company's:

(1) common stock from 50 million to 100 million; and

(2) preferred stock from 1.5 million to 3 million. The Company has not issued
any preferred stock as of May 22, 2006.


                                       21
<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,
long-lived assets and income taxes. 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 our annual report of Form 10K-SB
for the year ended June 30, 2005.

We have identified the following as critical accounting policies affecting our
company: Revenue Recognition; Income Taxes; and 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.


                                       22
<PAGE>

Income Taxes

We have a history of losses. These losses generated federal net operating loss
("NOL") carry forwards of approximately $20 million as of June 30, 2005.
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.

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."

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, 2005 vs.  Quarter Ended September 30, 2004

Our revenues for the quarter ended September 30, 2005 were $1,400 a decrease of
$854,790 or approximately 100% over the quarter ended September 30, 2004.

The costs of revenues incurred for the quarter ended September 30, 2005 were
$9,900, a decrease of $391,004 over the quarter ended September 30, 2004. This
loss of revenue resulted from the cessation of income earned under the
Bridgeport contract.

The gross margins, as a percentage of sales, were (607%) and 54% for the
quarters ended September 30, 2005, and 2004, respectively.


                                       23
<PAGE>

Our selling, general and administrative expenses for the quarter ended September
30, 2005 were $1,075,705, a decrease of $752,802 or approximately a 41% decrease
over the quarter ended September 30, 2004. There were no Board of Directors'
fees for the quarter ending September 30, 2005 as compared to $560,000 for the
same quarter in 2004. Payroll and other related costs increased by approximately
$206,000 in the quarter ended September 30, 2005 due to an increase in headcount
from the previous years' period. Consulting fees decreased by approximately
$101,000 primarily due to hiring more employees.

Other expenses for the quarter ended September 30, 2005 were $417,443, an
increase of $353,523 or approximately 553% from the quarter ended September 30,
2004. This increase resulted from higher interest expense due to higher average
balances owed on the notes payable and convertible debentures and to the
amortization of debt discount ( a non-cash charge).

Our net loss for the quarter ended September 30, 2005 was $1,501,648 as compared
to $1,427,241 for the quarter ended September 30, 2004, or an increase of
$74,407 or approximately 5%. The increase loss was attributable to sharply
reduced revenues and increased interest expense, offset by a reduction in
selling, general and administrative expenses for the quarter ended September 30,
2004.

LIQUIDITY AND CAPITAL RESOURCES

For the quarter ended September 30, 2005, our consolidated operating activities
did not generate positive cash flow. We continue to finance our operations
primarily through the placement of our common stock and convertible debt. We had
a working capital deficit of approximately $9.8 million at September 30, 2005 as
compared with $9.1 million as of June 30, 2005. Cash decreased by approximately
$7,000 during the quarter ended September 30, 2005.

Net cash used in operating activities was approximately $350,000 during the
quarter ended September 30, 2005, as compared to $1.1 million used for the
quarter ended September 30, 2004. Net cash used in operations for the year ended
June 30, 2005 resulted primarily from our approximate net loss of $1.5 million
offset by an increase in non-cash changes of $582,000 (including issuance of
common stock for consulting services of $361,420) and amortization of debt of
$228,418, and decreases in accounts receivable of $204,042, inventory of
$124,029 and prepaid expenses and other current assets of $165,059.

Investing activities utilized $2,002 of cash during the quarter ended September
30, 2005, as compared to $9,627 for the quarter ended September 30, 2004.

Financing activities provided approximately $345,000 of cash during the quarter
ended September 30, 2005 as compared to $1.65 million for the quarter ended
September 30, 2004. Net cash provided for the three months ended September 30,
2005 resulted primarily from the issuance of common stock, notes and loan
payable offset by repayments of $200,000 on a note payable - related party.

During the quarter ending September 30, 2005, we raised approximately $300,000
in equity and we reduced outstanding indebtedness to a related party by $100,000
through the issuance of equity. The Company continues to finance its operations
through the issuance of equity. 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 any such private placement will
continue to be utilized to reduce or pay-off our outstanding obligations and to
fund expanded operations.

The Company has been engaged in an intense effort at settling and/or refinancing
debts the past six months. To date approximately $6,700,000 in debts as of June
30, 2005 have been settled or restructured, including the approximately $2.5
million owed to the Longview Funds at June 30, 2005 which was restructured by
payment of $400,000 in February 2006, an additional $400,000 due April 30, 2006
and issuance of 410,000 convertible notes at a fixed conversion rate of $.20 per
share for shares (subject to repurchase rights). The Company intends to continue
to settle payables on favorable terms until such time as it is able to generate
funds from operations.


                                       24
<PAGE>

In addition to the foregoing, ongoing operations will be funded by shareholder
loans, equity and debt placements, monetization of Lightec's receivables and
settlement of claims. While the Company believes that these sources will be
sufficient to fund operations through June 30, 2006, any significant expansion
of business and realization of the Company's business plan will require a
significant institutional investment in the Company, the sale of assets,
realization of income from operations sufficient to sustain growth or a
combination of these factors. In the past, the Company has, in part, relied on
revenues from its Lightec subsidiary to fund operations. These revenues have
decreased significantly, and the Company is no longer relying on this as a
source of significant revenues. Moreover, the City of Bridgeport, CT Board of
Education has notified Lightec that it disputes amounts owed to Lightec for past
services rendered and also has stated that it may not utilize Lightec's services
in the future.

In their audit report for the fiscal year ended June 30, 2005, our independent
auditors, Miller Ellin & Company, stated that there is substantial doubt as to
our ability to continue as a going concern as well as substantial doubt about
whether our recorded intangible assets will provide future benefits. While the
Company and its management is working diligently to achieve financial stability,
it is unclear at this time whether long-term financing can be secured at all, or
if secured may be secured on terms which will enable the Company to service its
obligations out of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES AND FACTORS THAT MAY AFFECT FUTURE
RESULTS

Interest Rate Risk. The Company has an investment portfolio of fixed income
securities that are classified as cash equivalents. These securities, like all
fixed income instruments, are subject to interest rate risk and will fall in
value if the market interest rates increase. The Company attempts to limit this
exposure by investing primarily in short-term securities. The Company did not
enter into any short-term security investments during the three months ended
September 30, 2005.

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.


                                       25
<PAGE>

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 develop and deliver 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 $18,194,294 during the fiscal year ended June 30, 2005
and $3,406,660 during the prior fiscal year. We incurred a net loss of
$1,501,648 for the quarter ending September 30, 2005 as compared to a loss of
approximately $1.4 million for the quarter ended September 30, 2004. At
September 30, 2005, we had an accumulated deficit of $43,614,060. Our auditors
have issued a qualification in their report on our financial statements for the
year ended June 30, 2005, reflecting their concern about our ability to continue
as a going concern for the current fiscal year. 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.

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

As of September 30, 2005, we had a working capital deficiency of approximately
$9.8 million. Despite raising approximately $1.9 million in equity from
September 30, 2005 through March 31, 2006, we need to raise additional capital
in order to continue to fund our plan of operations and service our debts. We
have no sources of financing from which we can draw immediately. 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 year and we have received Federal
approval under the eRate program. The School District has advised Lightec that
it does not intend to authorize additional work under this contract. 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. We only had $1,400 in revenue for the three months ended
September 30, 2005, none from Lightec.

Our Lightec assets remain subject to creditors liens granted in connection with
two debt obligations which have been settled but which may be foreclosed upon
should we default in payment of settlement agreements.


                                       26
<PAGE>

We have granted a first priority lien in the assets and revenue of Lightec to
secure repayment of a debenture in the principal amount of $2,588,237 as of June
30, 2005. This balance will be reduced to $400,000 in the third quarter of
fiscal 2006.

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

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.


                                       27
<PAGE>

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.

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 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.


                                       28
<PAGE>

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

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 experienced a nearly 100% turnover in our senior management.

We 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.


                                       29
<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 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 Pink Sheets. 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 March 2006 was
20,000 shares. The high and low bid price of our common stock for the last two
years has ranged from $0.02 and $4.50 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.

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
stock:

-    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 years) or $5.0
     million (if issuer has been in continuous operation for less than three
     years), or with average revenues of less than $6.0 million for the last
     three years.

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.

ITEM 3. CONTROLS AND PROCEDURES

An evaluation was performed, as of March 31, 2006, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Interim 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 March 31, 2006.


                                       30
<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.

Management has not yet performed, and is not yet required to perform, its
assessment of the effectiveness of internal control over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act of 2002.


                                       31
<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Neither we, nor any of our subsidiaries, are a party to any material legal
proceeding, nor, to our knowledge, is any material litigation threatened
third-party lender and licensor.

ITEM 2.  RECENT SALES OF UNREGISTERED SECURITIES

During the Period July 1, 2005 to March 31, 2006, the Company sold approximately
13,892,400 shares of its common stock to approximately ten individuals at prices
between $.10 and $.45. All such shares were sold in reliance on an exemption
from registration under Section 4(2) of the Securities Act of 1933.

On February 1, 2006, the Board of Directors approved that each of the nine
members of the board to be issued a one-time grant of 250,000 restricted shares
of the Company's common stock valued at $495,000 at $0.22 per share. The Board
of Directors also approved the issuance of 100,000 restricted shares to each
board member for fiscal year 2006 compensation valued at $198,000 at $0.22 per
share.

In addition, the Company issued shares of its stock in connection with the
settlement of debt. Those issuances are summarized under "Financial Statements -
Note 12".

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 Securities
Act.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

At September 30, 2005, the Company had defaulted on its senior notes payable to
the Longview Funds. This debt was subsequently restructured in November, 2005.

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

No matters were submitted to a vote.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)  Exhibits

31.1  Certification of the Chief Executive Officer required by Rule
      13a-14(a)/15d-14(a)
31-2  Certification of the Chief Financial Officer required by Rule
      13a-14(a)/15d-14(a)
32.1  Certification of the Chief Executive Officer required by Rule
      13a-14(a)/15d-14(a) pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2  Certification of the Chief Financial Officer required by Rule
      13a-14(a)/15d-14(a) pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(B) Reports on Form 8-K

None.


                                       32
<PAGE>


                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                        SIVAULT SYSTEMS, INC.
                                        -----------------------------
                                        (Registrant)

Date:  May 22, 2006                     /s/ John Mahoney
                                        -----------------------------
                                        John Mahoney, President,
                                        Chief Executive Officer


                                       33
<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.


                                       34