FORM 10QSB
SIVAULT SYSTEMS, INC. - SVTL.OB
FILED: MAY ___, 2006 (PERIOD: DECEMBER 31, 2005)
Quarterly report filed by small businesses



<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   FORM 10-QSB
(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURTIES
      EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 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 December 31, 2005

Common Stock, $.001 par value                          40,722,044
-----------------------------                        ---------------
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 FORMS 8-K
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2


                                       3
<PAGE>

                                     PART I


ITEM 1. FINANCIAL STATEMENTS


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        December 31,    June 30,
                                                                            2005         2005
                                                                        ------------------------
<S>                                                                     <C>          <C>
                                                                         (Unaudited)

CURRENT ASSETS
  Cash                                                                  $   146,863   $    9,808
  Accounts receivable - net of allowance of $663,906 and $663,906,
    respectively                                                                 --      204,042
  Inventory                                                                  12,577      136,606
  Prepaid expenses and other current assets                                     600      354,639
                                                                        ------------------------
     TOTAL CURRENT ASSETS                                                   160,040      705,095

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
    DEPRECIATION                                                             65,670       70,000

OTHER ASSETS                                                                105,457      113,457
INTANGIBLE ASSETS                                                         7,254,058    7,254,058
                                                                        ------------------------
                                                                        $ 7,585,225   $8,142,610
                                                                        ========================


The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>


                                                4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                       December 31,    June 30,
                                                                           2005         2005
                                                                      --------------------------
<S>                                                                   <C>            <C>
                                                                        (Unaudited)
CURRENT LIABILITIES
    Accounts payable and accrued liabilities - non-related parties    $  4,218,689   $ 3,886,599
    Accounts payable and accrued liabilities - related parties             126,591       812,170
    Notes and loans payable - non-related parties                        1,622,851     1,370,377
    Notes and loans payable - related parties                              250,000     1,491,856
    Convertible notes and settlement payable                             1,210,000     2,039,509
    Corporate income taxes payable                                         179,920       179,920
                                                                      --------------------------
      TOTAL CURRENT LIABILITIES                                          7,608,051     9,780,431
                                                                      --------------------------
OTHER LIABILITIES                                                               --        15,915
                                                                      --------------------------

STOCKHOLDERS' DEFICIENCY:
  Common stock
     Authorized - 50,000,000 shares $0.001 par value 40,722,044
     and 20,510,636 as of December 31 and June 30, 2005, respectively       40,722        20,511
  Additional paid-in capital                                            43,034,609    40,445,476
  Accumulated other comprehensive loss                                      (7,311)       (7,311)
  Accumulated deficit                                                  (43,090,846)  (42,112,412)
                                                                      --------------------------
     TOTAL STOCKHOLDERS' DEFICIENCY                                        (22,826)   (1,653,736)
                                                                      --------------------------
                                                                      $  7,585,225   $ 8,142,610
                                                                      ==========================


The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>


                                               5
<PAGE>


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

<TABLE>
<CAPTION>

                                                           Six Months Ended               Three Months Ended
                                                              December 31,                    December 31,
                                                      -------------------------     -------------------------------
                                                         2005          2004              2005            2004
                                                      -------------------------     -------------------------------
<S>                                                   <C>           <C>             <C>              <C>
REVENUES
   Contract revenues earned                           $       --    $ 1,201,981     $          --    $      349,991
   Other revenues                                          1,400         19,100                --            14,900
                                                      -------------------------     -------------------------------
                                                           1,400      1,221,081                --           364,891
                                                      -------------------------     -------------------------------
OPERATING EXPENSES
   Cost of revenues earned                                 9,900        491,785                --           100,781
   Selling, general and administrative                 1,526,749      5,430,168           451,044         3,601,661
                                                      -------------------------     -------------------------------
                                                       1,536,649      5,921,953           451,044         3,702,442
                                                      -------------------------     -------------------------------
LOSS FROM OPERATIONS                                  (1,535,249)    (4,700,872)         (451,044)       (3,337,551)
                                                      -------------------------     -------------------------------
OTHER (INCOME) EXPENSES:
   Interest expense                                      562,096        170,884           144,653           106,964
   Gain on settlement of debt                         (1,118,911)            --        (1,118,911)               --
                                                      -------------------------     -------------------------------
                                                        (556,815)       170,884          (974,258)          106,964
                                                      -------------------------     -------------------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES         (978,434)    (4,871,756)          523,214        (3,444,515)

PROVISION FOR INCOME TAXES                                    --             --                --                --
                                                      -------------------------     -------------------------------
NET INCOME (LOSS)                                     $ (978,434)   $(4,871,756)     $    523,214    $   (3,444,515)
                                                      =========================     ===============================
BASIC AND DILUTED LOSS PER COMMON SHARE
   NET INCOME (LOSS)                                      ($0.04)        ($0.34)            $0.02            ($0.22)
                                                      =========================     ===============================


The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>


                                       6
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
SIX MONTHS ENDED DECEMBER 31, 2005
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 ACCUMULATED
                                                  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)                 5,442,400     5,442       717,634             --             --        723,076

   Settlement of accounts payables
     and accrued liabilities                  1,087,500     1,088       143,912             --             --        145,000

   Settlement of note payables                8,512,500     8,512     1,126,488             --             --      1,135,000

   Services                                   5,169,008     5,169       596,251                                      601,420

Issuance of stock options for services               --        --         4,848             --             --          4,848

Net loss                                             --        --            --             --       (978,434)      (978,434)
                                             ----------  --------  ------------  -------------  -------------  -------------
Balance, December  31, 2005 (Unaudited)      40,722,044  $ 40,722  $ 43,034,609  $      (7,311) $ (43,090,846) $     (22,826)
                                             ==========  ========  ============  =============  =============  =============


The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>


                                                              7
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED DECEMBER 31, 2004
(UNAUDITED)

<TABLE>
<CAPTION>
                                                   OUTSTANDING                    ACCUMULATED                     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)                 2,048,124     2,048     2,485,235             --             --      2,487,283
   Services                                     720,000       720     1,703,280             --             --      1,704,000

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.
   and related costs                          4,140,000     4,140     7,419,860             --             --      7,424,000

Exercise of warrants                            166,667       167       333,167             --             --        333,334
Issuance of stock options for services               --        --       360,000             --             --        360,000
Issuance of common stock and warrants as
consideration of loan                            50,000        50       487,383             --             --        487,433
Issuance of common stock for the
   acquisition of eMedRx stock and
   Viaquo assets and related costs            1,318,070     1,318     1,761,182             --             --      1,762,500

Other comprehensive loss for the six month
  period ended December 31, 2004                     --        --            --            (89)            --            (89)

Net loss for the six month period
 ended December 31, 2004                             --        --            --             --     (4,871,756)    (4,871,756)

                                             ----------  --------  ------------  -------------  -------------  -------------
BALANCE, DECEMBER 31, 2004 (UNAUDITED)       16,787,530  $ 16,787  $ 29,766,444  $      (7,311) $ (23,083,814) $   6,692,106
                                             ==========  ========  ============  =============  =============  =============


The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>


                                                         8
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                       December 31,
                                                                                 -----------------------
                                                                                    2005         2004
                                                                                 -----------------------
<S>                                                                              <C>          <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Net loss                                                                        $ (978,434)  $(4,871,756)
 Adjustments to reconcile net loss to net cash provided by operating activities:
  Depreciation of property and equipment                                              6,332       69,207
  Gain on settlement of debt                                                     (1,118,911)          --
  Issuance of common stock for services                                             601,420    1,704,000
  Issuance of options and warrants for services                                       4,848      360,000
  Amortization of debt discount as non-cash interest expense                        256,518           --
  Deferred rent expense                                                             (10,495)      (3,230)
 Changes in assets and liabilities:
  Accounts receivable                                                               204,042      (87,827)
  Inventory                                                                         124,029     (527,151)
  Prepaid expenses and other current assets                                         190,695     (159,037)
  Other assets                                                                        8,000      (61,000)
  Accounts payable and accrued liabilities                                           66,656       33,498
  Other liabilities                                                                  (5,420)          --
  Billings  in excess of costs and  estimated  earnings  on  uncompleted
  contracts                                                                              --      (90,018)
                                                                                 -----------------------
NET CASH USED IN OPERATING
ACTIVITIES                                                                         (650,720)  (3,633,314)
                                                                                 -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Cash acquired in acquisition                                                            --        5,622
 Purchase of property and equipment                                                  (2,002)    (305,458)
                                                                                 -----------------------
NET CASH USED IN INVESTING ACTIVITIES                                                (2,002)    (299,836)
                                                                                 -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net proceeds from the issuance of common stock                                     728,076    2,487,283
 Proceeds from the exercise of stock warrants                                            --      333,334
 Repayment of shareholders' advances                                                     --     (115,000)
 Repayment from convertible debt and notes and loans payable                        261,701    1,718,705
 Repayment of note payable - related parties                                       (200,000)    (189,983)
 Repayments of capital lease obligations                                                 --       (3,329)
                                                                                 -----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                           789,777    4,231,010
                                                                                 -----------------------
NET INCREASE IN CASH                                                                137,055      297,860
                                                                                 -----------------------
CASH:  BEGINNING OF PERIOD                                                            9,808      112,880
                                                                                 -----------------------
CASH:  END OF PERIOD                                                             $  146,863   $  410,740
                                                                                 =======================


The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>


                                                   9
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                     Six Months Ended
                                                                                       December 31,
                                                                                 -----------------------
                                                                                    2005         2004
                                                                                 -----------------------
<S>                                                                              <C>          <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

CASH PAID DURING THE PERIOD FOR:
Interest                                                                         $      243   $  149,160
                                                                                 =======================
Income taxes                                                                     $       --   $       --
                                                                                 =======================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for:

        Services                                                                 $  601,420   $1,704,000
                                                                                 =======================
        Settlement of account payables and accrued liabilities                   $  145,000   $  668,301
                                                                                 =======================
        Settlement of notes and loans payable                                    $1,135,000   $       --
                                                                                 =======================
        Excess cost of net assets acquired in the purchase of:

                   SiVault Analytics, Inc.                                       $       --   $7,863,060
                                                                                 =======================
                   Viaquo asset purchase                                         $       --   $1,601,057
                                                                                 =======================
Issuance of stock options for services                                           $    4,848   $  360,000
                                                                                 =======================
Issuance of a note payable - related party to pay off a note
  payable - related party                                                        $       --   $  150,000
                                                                                 =======================


The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>


                                       10
<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. That 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.

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


                                       11
<PAGE>

costs and estimated earnings on uncompleted contracts", represents billings in
excess of revenues recognized.

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

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 six months ended December 31, 2005
and 2004.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior period's 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 December 31, 2005 had a working capital deficit
of approximately $7.4 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 to March 31, 2006,

      3.    Concluding debt settlement agreements with related and/or
            non-related parties (See Note 11 - Subsequent Events),

      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. The Company entered into a licensing agreement with
Hypercom Corporation in February 2006. Management believes that the agreement
with Hypercom will increase in revenues


                                       12
<PAGE>

commencing in the first fiscal quarter of fiscal 2007. Consequently the Company
will be able to settle certain debt(s) and continue its business for the next
twelve months.

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 income (loss) by the
weighted-average number of common shares outstanding. Diluted earnings per
common share ("Diluted EPS") is computed by dividing the net income (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>
                                                              Six Months Ended       Three Months Ended
                                                                 December 31,           December 31,
                                                               (in thousands)          (in thousands)
                                                            --------------------    --------------------
                                                              2005        2004        2005        2004
                                                            --------------------    --------------------
<S>                                                         <C>         <C>         <C>         <C>
Numerator:
        Net income(loss)                                    $   (978)   $ (4,872)   $    523    $ (3,445)
                                                            ====================    ====================
Denominator:
        Weighted average common shares outstanding            24,942      14,280      28,504      15,934
        Dilutive effect of:
              Common stock equivalents                            63          --          63          --
                                                            --------------------    --------------------
              Weighted average common shares outstanding,
              assuming dilution                               25,005      14,280      28,567      15,934
                                                            ====================    ====================
Basic and Diluted Per Share:
        Net income(loss)                                    $  (0.04)   $  (0.34)   $   0.02    $  (0.22)
                                                            ====================    ====================
</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:


                                       13
<PAGE>


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
                                                ===========

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 tangible 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, 2005, the factors
supporting the realization of any future benefits from those other elements were
no longer present. Consequently, the Company charged the entire $5,706,060 to
expense for the year ended June 30, 2005 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 issued and delivered to Viaquo at
closing (valued at the market price in 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 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 Patent. 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                                                 5,133,327
                                                                    -----------
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
                                                                    ===========

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 and
identifiable intangible 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 six months ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                        --------------------------    ------------------------
                                              Six Months Ended          Three Months Ended
                                                December 31,                 December 31,
                                        --------------------------    ------------------------
                                            2005           2004          2005          2004
                                        --------------------------    ------------------------
<S>                                     <C>            <C>            <C>          <C>
Revenues                                $     1,400    $ 1,221,081    $       --   $   364,891
                                        --------------------------    ------------------------
  Net income (loss)                     $  (978,434)   $(5,798,122)   $  523,214   $(3,815,061)
                                        ==========================    ========================
 Basic and diluted net income (loss)
 per common share                       $     (0.04)   $     (0.31)   $     0.02   $     (0.20)
                                        ==========================    ========================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                 December 31,    June 30,
                                                                                    2005           2005
                                                                                 -----------   -----------
<S>                                                                              <C>           <C>
As of December 31, 2005, the Company had nine short-term promissory notes from
non-related parties in the amount of $1,523,020. These notes bear interest
ranging at an annual
</TABLE>


                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                                 December 31,    June 30,
                                                                                    2005           2005
                                                                                 -----------   -----------
<S>                                                                              <C>           <C>
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
December 31, 2005, the Company was in default of all nine notes. In March 2006,
the Company settled five of these promissory notes totaling $791,653
See Note 11 - Subsequent Events.                                                 $ 1,523,020   $ 1,141,653

As of December 31, 2005, the Company had two loans to
non-related parties totaling $99,831. These loans had
no terms and bore no annual interest rate.                                            99,831       393,998
                                                                                 -----------   -----------
                                                                                   1,622,851     1,535,651
Less: Debt Discount                                                                       --       165,274
                                                                                 -----------   -----------
                                                                                 $ 1,622,851   $ 1,370,377
                                                                                 ===========   ===========

NOTE 7 - NOTES AND LOANS PAYABLE - RELATED PARTIES

                                                                                 December 31,    June 30,
                                                                                    2005           2005
                                                                                 -----------   -----------
As of December 31, 2005, the Company had a one-year promissory note from a
related party bearing an annual interest rate of 12%, payable on July 20, 2006.
The principal amount of these note(s) 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. In March 2006, the Company settled the one-year promissory
note. See Note 11 - Subsequent Events.                                           $   250,000   $ 1,379,667

As of June 30, 2005, the Company had two loans to related parties totaling
$120,833. These loans had no terms and bore no annual interest rate. The
$100,000 loan was settled in December 2005 and the $20,833 loan was
reclassified as of December 21, 2005 as due to a non-related party.                       --       120,833
                                                                                 -----------   -----------
                                                                                     250,000     1,500,500
Less: Debt Discount                                                                       --         8,644
                                                                                 -----------   -----------
                                                                                 $   250,000   $ 1,491,856
                                                                                 ===========   ===========
</TABLE>

For the three and six months ended December 31, 2005, the Company had a gain on
settlement of notes and loans payable - related parties (including accrued
interest) of $174,790. There was no gain or loss for the three and six months
ended December 31, 2004.


                                       15
<PAGE>

NOTE 8 - CONVERTIBLE NOTES AND SETTLEMENT PAYABLE

<TABLE>
<CAPTION>
                                                                                 December 31,    June 30,
                                                                                    2005           2005
                                                                                 -----------   -----------
<S>                                                                              <C>           <C>
On November 23, 2004 and January 19, 2005, the Company issued $3 million of
convertible notes to three investment funds ("Longview"). The convertible notes
bore interest at the prime rate plus 3% . The Company also issued a total of
400,000 warrant shares, which may be converted within five years of issuance at
$3 per share. The convertible 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 warrants and the beneficial conversion feature, which are
accounted for as debt discount                                                   $        --   $ 2,588,237

On November 21, 2005, the Company entered into a settlement and restructuring
agreement with Longview to restructure the convertible notes, 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. The Company has received a payment extension to June
            15, 2006;

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

            (i)   principal amount to be reduced to $410,000 from $2,588,237;

            (ii)  Fixed conversion price to be reduced to $0.20 per share;

            (iii) The Company granted a one year redemption right with respect
                  to any shares issued at $0.25 per share; provided that the
                  Company has not had an event of default since November 21,
                  2005.

      (d)   Balance of debt to be forgiven if Company is not in default of the
            foregoing terms and conditions.
                                                                                   1,210,000            --
                                                                                 -----------   -----------
                                                                                   1,210,000     2,588,237
Less: Debt Discount
                                                                                          --       548,728
                                                                                 -----------   -----------
                                                                                 $ 1,210,000   $ 2,039,509
                                                                                 ===========   ===========
</TABLE>

For the three and six months ended December 31, 2005, the Company had a gain on
settlement of the convertible debt net of deferred finance costs and accrued
interest of $944,121. There was no gain or loss for the three and six months
ended December 31, 2004.

NOTE 9 - STOCK-BASED WARRANTS AND STOCK OPTIONS

WARRANTS

As of December 31, 2005, the Company had the following warrants outstanding:


                                       16
<PAGE>

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

  1,004,975                      2.00   August 22, 2006
    187,500                      4.00   September 13, 2006
  1,003,150                      6.00   September 13, 2006
    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
-----------
  7,134,283   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
-----------
  9,306,283   TOTAL WARRANTS
===========

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


                                       17
<PAGE>

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.

By December 31, 2005, 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 10 - BUSINESS SEGMENTS

The summarized financial information, concerning the Company's reportable
segments for the six months ended December 31, 2005 and 2004, is as follows:



                                     Biometric   Professional
2005                                 Security      Services        Total
-------------------------------    ------------  ------------  ------------
Net sales to external companies    $      1,400  $         --  $      1,400
Operating loss                       (1,521,380)      (13,869)   (1,535,249)
Total assets                          7,585,225            --     7,585,225
Depreciation and amortization             6,332            --         6,332
Capital expenditures                      2,002            --         2,002
Interest expense                        562,096            --       562,096
Gain on settlement of debt           (1,118,911)           --    (1,118,911)


                                     Biometric   Professional
2004                                 Security      Services        Total
-------------------------------    ------------  ------------  ------------
Net sales to external companies    $     19,100  $  1,201,981  $  1,221,081

Operating earnings (loss)            (5,201,635)      500,763    (4,700,872)
Total assets                         11,655,365     1,122,565    12,777,930

Depreciation and amortization            67,828         1,379        69,207

Capital expenditures                    305,010           448       305,458

Interest expense                        170,884            --       170,884


NOTE 11 - SUBSEQUENT EVENTS

The following significant events have occurred since December 31, 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 following notes, loans, accounts payable and accrued liabilities, and
lawsuits as of December 31, 2005 were settled by payment of cash, establishing
an installment payment schedule, and the issuance and planned issuance of common
stock and stock warrants.


                                       18
<PAGE>

<TABLE>
<CAPTION>
                                      Approximate amount
                                      owed as of
Description                           December 31, 2005       Approximate Settlement Summary
---------------                       ------------------      --------------------------------------------
<S>                                   <C>                     <C>
Notes - non-related parties           $    790,000            Installment payables of $570,000,
                                                              issuance of 1.45 million shares of common
                                                              stock valued at $320,000, and 580,000
                                                              warrants valued at $300,000, and an
                                                              additional 760,000 repriced warrants

Note - related party                       250,000            Issuance of 830,000 shares of common
                                                              stock valued at $100,000

Accounts payable and                     1,250,000            Installment payables of $380,000,
 accrued liabilities                                          and issuance of 970,000 shares of common
                                                              stock valued at $190,000

WonderNet Arbitration                      350,000            Installment payable of $350,000
(included in accounts payable
and accrued liabilities)
                                      ------------
                                      $  2,640,000
                                      ============
</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 fiscal quarter ending December 31, 2005, the Company has
completed two private placements in which the Company raised gross proceeds of
approximately $1,450,000. The Company sold an aggregate of approximately
8,450,000 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 the
Company $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.


                                       19
<PAGE>

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 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.

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 as follows:

      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 24, 2006.


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,


                                       20
<PAGE>

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 10-KSB
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
$1,220,000 in revenue for the six months ended December 31, 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.

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


                                       21
<PAGE>

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

Three Months Ended December 31, 2005 vs. Three Months Ended December 31, 2004

Our revenues for the three months ended December 31, 2005 were $0, a decrease of
$364,891 or 100% from the quarter ended December 31, 2004. Our revenues were
substantially all generated in 2004 from the Lightec subsidiary, in regards to
the Bridgeport School District ("Bridgeport") contract. The loss of revenues in
2005 resulted from cessation of income earned under the Bridgeport contract.

The cost of revenues incurred for the three months ended December 31, 2005 was
$0, a decrease of $100,781 from the quarter ended December 31, 2004 due to the
cessation of income earned under the Bridgeport contract.

Our selling, general and administrative expenses for the quarter ended December
31, 2005 were $451,044, a decrease of $3,150,617 or approximately 87% from the
quarter ended December 31, 2004. The decrease in the selling, general and
administration expense for the three months ended December 31, 2005 was
primarily attributable to the closing of the San Jose office in September 2005,
where most of our employees and operations were located. For the three months
ended December 31,2005, payroll and related costs, consulting fees, board of
directors' fees, and professional fees decreased by approximately $1 million,
$750,000, $600,000, and $230,000, respectively, as compared to three months
ended December 31, 2004.

Our other (income) expenses for the three months ended December 31, 2005 was
$974,258 of income, an increase in other (income) expenses of $1,081,222, as
compared to the three months ended December 31, 2004. Interest expense for the
three months ended December 31, 2005 was $144,653, an increase of $37,689, or
approximately 35% from the three months ended December 31, 2004. The increase in
interest expense can be attributable to higher average note and loan balances
for the three months ended December 31, 2005, as compared to the three months
ended December 31, 2004. We had a gain on settlement of debt of $ 1,118,911 for
the three months ended December 31, 2005, an increase of $1,118,911, as compared
to none for the three months ended December 31, 2004.

Our net income for the quarter ended December 31, 2005 was $523,214 as compared
to a loss of $3,444,515 for the quarter ended December 31, 2004, an increase of
approximately $4 million. The net income was primarily attributable to the
reduction of selling, general and administrative costs due to the closing of the
San Jose office in September 2005, where most of our employees and operations
were located, and a gain on settlement of debt of $1,118,911 for the three
months ended December 31, 2005.


                                       22
<PAGE>

Six Months Ended December 31, 2004 vs.  Six Months Ended December 31, 2004
--------------------------------------------------------------------------

Our revenues for the six months ended December 31, 2005 were $1,400 a decrease
of approximately $1.2 million or 100% from the six months ended December 31,
2004. Our revenues in 2004 were substantially all generated from the Lightec
subsidiary, in regards to the Bridgeport contract. The loss of revenues resulted
from cessation of income earned under the Bridgeport contract.

The cost of revenues incurred for the six months ended December 31, 2005 was
$9,900, a decrease of $481,885 from the six months ended December 31, 2004 due
to the cessation of income earned under the Bridgeport contract in 2005.

Our selling, general and administrative expenses for the six months ended
December 31, 2005 were $1,526,749, a decrease of $3,903,419 or approximately 72%
for the six months ended December 31, 2004. The decrease in the selling,
general and administration expense for the six months ended December 31, 2005
was primarily attributable to the closing of the San Jose office in September
2005, where most of our employees and operations were located. For the six
months ended December 31, 2005, payroll and related costs, consulting fees,
board of directors' fees, and professional fees decreased by approximately
$830,000, $850,000, $1,160,000, and $280,000, respectively, as compared to the
six months ended December 31, 2004.

Our other (income) expenses for the six months ended December 31, 2005 was
$556,815 of income, an increase in other (income) expenses of $727,699, as
compared to the six months ended December 31, 2004. Interest expense for the six
months ended December 31, 2005 was $562,096, an increase of $391,212, or
approximately 229% from the six months ended December 31, 2004. The increase in
interest expense can be attributable to higher average note and loan balances
for the six months ended December 31, 2005, as compared to the six months ended
December 31, 2004. We had a gain on settlement of debt of $1,118,911 for the six
months ended December 31, 2005, an increase of $ 1,118,911 as compared to none
for the six months ended December 31, 2004.

Our net loss for the six months ended December 31, 2005 was $978,434 as compared
to a loss of $4,871,756 for the six months ended December 31, 2004, or a
decrease of approximately $3.9 million or 80%. The decreased loss was primarily
attributable to the reduction of selling, general and administrative costs due
to the closing of our San Jose office in September 2005 where most of our
employees and operations were located and a gain on settlement of debt of
$1,118,911 for the six months ended December 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended December 31, 2005, our consolidated operating
activities did not generate positive cash flow. We financed our operations
primarily through the placement of our common stock and the issuance of new
debt. We had a working capital deficit of approximately $7.4 million at December
31, 2005 as compared with $9.1 million at June 30, 2005. Cash increased by
$137,055 during the six months ended December 31, 2005.

Net cash used in operating activities was $650,720 during the six months ended
December 31, 2005, as compared to $3,633,314 during the six months ended
December 31, 2004. Net cash used in operations for the six months ended December
31, 2005 resulted primarily from our net loss of approximately $1 million,
increased by certain non-cash income and expenses of approximately $260,000
(including a gain on settlement of debt of approximately $1.1 million, issuance
of common stock for services of approximately $600,000, and amortization of debt
discount of approximately $260,000), offset by decreases in accounts receivable,
prepaid expenses and other current assets, and inventory of approximately
$200,000, $190,000 and $124,000, respectively, for the six months ended December
31, 2005.

Investing activities utilized $2,002 of cash during the six months ended
December 31, 2005, as compared to $299,836 for the six months ended December 31,
2004. Purchases of property and equipment for the six


                                       23
<PAGE>

months ended December 31, 2004 were primarily for computers, servers, routers
and storage devices.

Financing activities provided $789,777 of cash during the six months ended
December 31, 2005 as compared to $4,231,010 for the six months ended December
31, 2004. Net cash provided resulted primarily from the issuance of common stock
totaling approximately $700,000 for the six months ended December 31, 2005.

During the six months ending December 31, 2005, we raised approximately $700,000
in equity and we reduced outstanding indebtedness to related parties and others
amounted to approximately $1.3 million, 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 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 convertible notes of $410,000 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.

In addition to the foregoing, ongoing operations will be funded by shareholder
loans, equity and debt placements, collection 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 six months ended
December 31, 2005.


                                       24
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Risks related to our business.

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

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

Our business model is unproven and may not succeed.

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

-     our ability 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. For the six months ended December
31, 2005, we incurred a net loss of $978,434 as compared with a net loss of
$4,871,756 for the six months ended December 31, 2004. At December 31, 2005, we
had an accumulated deficit of $43,090,846. 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 December 31, 2005, we had a working capital deficiency of approximately
$7.4 million. Despite raising approximately $1,450,000 in equity from January 1,
2006 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


                                       25
<PAGE>

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 six months ended December 31, 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 and we
received no income from this contract during the six months ended December 31,
2005. 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 will 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 six months
ended December 31, 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.

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 was reduced to $400,000 in the quarter ended March 31,
2006, along with a convertible note of $410,000.

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


                                       26
<PAGE>

business may suffer if the market develops more slowly than anticipated and does
not sustain market acceptance.

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

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

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

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

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

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.


                                       27
<PAGE>

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

-     build and train our sales force;

-     establish and maintain relationships with channel partners;

-     develop customer support systems;

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

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

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

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

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.


                                       28
<PAGE>

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;
-     In ability 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.

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


                                       29
<PAGE>

-     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.

We do not expect that our disclosure controls and procedures and there can be no
assurance that error and fraud 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.


                                       30
<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

The following sets forth certain information regarding sales of our securities
during the six months ended December 31, 2005, which sales were not registered
under the Securities Act of 1933. Unless otherwise indicated, no underwriters
were involved in these transactions.

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 "Consolidated Condensed
Financial Statements - Note 11 - Subsequent Events".

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)


                                       31
<PAGE>

      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:  June 6, 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