<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 SECURITIES EXCHANGE
    ACT OF 1934

                  For the quarterly period ended March 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

                       2665 North First Street, Suite 300
                           San Jose, California 95134
                    (Address of principal executive offices)
                                 (408) 321-5100
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

             (Former Name, Former Address, and Former Fiscal Year,
                         if changed since last report)
                          500 Fifth Avenue, Suite 1650
                            New York, New York 10110
                 (Former Address of principal executive offices)

Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common
stock as of March 31, 2005.

Common Stock, $.001 par value            20,103,185
Class                                    Number of shares

<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      INDEX

      Financial Statements                                             Page No.
      --------------------                                             --------

      Consolidated Condensed Balance Sheets as of March 31, 2005 and
      June 30, 2004                                                         3

      Consolidated Condensed Statements of Operations for the nine
      months and three months ended March 31, 2005 and 2004                 4

      Consolidated Condensed Statements of Stockholders' Equity
      (Deficiency) for the nine months ended March 31, 2005 and 2004        5

      Consolidated Condensed Statements of Cash Flows for the nine
      months ended March 31, 2005 and 2004                                6 - 7

      Condensed Notes to Consolidated Condensed Financial Statements      8 - 26

                                       2
<PAGE>

                     SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
                      (FORMERLY SECURITY BIOMETRICS, INC.)
                      CONSOLIDATED CONDENSED BALANCE SHEETS
           ASSETS AND LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
                                                                                                   March 31,             June 30,
                                                                                                      2005                 2004
                                                                                                  ------------         ------------
<S>                                                                                               <C>                  <C>
CURRENT ASSETS                                                                                     (Unaudited)           (Audited)
    Cash                                                                                          $    501,738         $    112,880
    Accounts receivable                                                                                993,722              848,617
    Inventory                                                                                          531,035                3,884
    Prepaid expenses and other current assets                                                          181,207               58,788
                                                                                                  ------------         ------------
         TOTAL CURRENT ASSETS                                                                        2,207,702            1,024,169

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
    DEPRECIATION                                                                                       368,934               63,517

CAPITALIZED SOFTWARE, NET OF ACCUMULATED
    AMORTIZATION                                                                                     1,146,626              573,477

SECURITY DEPOSITS AND OTHER ASSETS                                                                     322,187               56,916
EXCESS COST OVER NET TANGIBLE ASSETS
     ACQUIRED                                                                                       12,960,118                   --
                                                                                                  ------------         ------------
                                                                                                  $ 17,005,567         $  1,718,079
                                                                                                  ============         ============

CURRENT LIABILITIES
    Accounts payable and accrued liabilities - non-related parties                                $  3,496,337         $  2,558,883
    Accounts payable and accrued liabilities - related parties                                         259,673              789,410
    Billings in excess of costs and estimated earnings on uncompleted
         contracts                                                                                          --               90,018
    Notes and convertible debenture payable                                                            653,395            1,358,569
    Notes payable - related parties and employees                                                      984,014              339,983
    Current portion of convertible notes                                                               661,648                   --
    Other current liabilities                                                                          129,920              227,162
                                                                                                  ------------         ------------
         TOTAL CURRENT LIABILITIES                                                                   6,184,987            5,364,025

LONG-TERM LIABILITIES
    Convertible notes, net of current portion                                                        1,323,293                   --
    Other liabilities                                                                                   17,530               16,954
                                                                                                  ------------         ------------
         TOTAL LONG TERM LIABILITIES                                                                 1,340,823               16,954

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY):
    Common Stock
         Authorized - 50,000,000 shares $0.001 par value
             Issued - 20,353,185; 20,103,185 shares outstanding and
             250,000 shares held as collateral at March 31, 2005;
             7,924,664 shares issued and outstanding at June 30, 2004                                   20,104                7,924
         Additional paid-in capital                                                                 36,431,040           14,548,456
         Accumulated other comprehensive loss                                                           (7,311)              (7,222)
         Accumulated deficit                                                                       (26,964,076)         (18,212,058)
                                                                                                  ------------         ------------
             TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                                 9,479,757           (3,662,900)
                                                                                                  ------------         ------------
                                                                                                  $ 17,005,567         $  1,718,079
                                                                                                  ============         ============
</TABLE>


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

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            Nine Months Ended                Three Months Ended
                                                                                March 31,                         March 31,
                                                                       ----------------------------    ----------------------------
                                                                           2005            2004             2005           2004
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
REVENUES
     Contract revenues earned                                          $  1,497,759    $  5,207,595    $    295,778    $  3,500,371
     Other revenues                                                          23,300          16,836           4,200           4,769
                                                                       ------------    ------------    ------------    ------------
                                                                          1,521,059       5,224,431         299,978       3,505,140
                                                                       ------------    ------------    ------------    ------------
OPERATING EXPENSES
     Cost of revenues earned                                                658,926       3,285,265         167,141       2,316,611
     Selling, general and administrative                                  5,918,691       2,660,979       2,552,523       1,426,143
     Issuance of common stock and stock options for services              3,031,400         244,000         967,400         133,000
                                                                       ------------    ------------    ------------    ------------
                                                                          9,609,017       6,190,244       3,687,064       3,875,754
                                                                       ------------    ------------    ------------    ------------
LOSS FROM OPERATIONS                                                     (8,087,958)       (965,813)     (3,387,086)       (370,614)
                                                                       ------------    ------------    ------------    ------------
OTHER EXPENSES
     Interest expense                                                       664,060         717,852         493,177         190,754
     Charge relating to issuance of warrants                                     --       2,016,000              --       2,016,000
                                                                       ------------    ------------    ------------    ------------
                                                                            664,060       2,733,852         493,177       2,206,754
                                                                       ------------    ------------    ------------    ------------
LOSS BEFORE PROVISION FOR INCOME TAXES                                   (8,752,018)     (3,699,665)     (3,880,263)     (2,577,368)
PROVISION FOR INCOME TAXES                                                       --              --              --              --
                                                                       ------------    ------------    ------------    ------------
LOSS FROM CONTINUING OPERATIONS
     BEFORE MINORITY INTEREST IN
     LOSS OF SUBSIDIARY                                                  (8,752,018)     (3,699,665)     (3,880,263)     (2,577,368)
MINORITY INTEREST IN LOSS OF SUBSIDIARY                                          --             121              --             121
                                                                       ------------    ------------    ------------    ------------
LOSS FROM CONTINUING OPERATIONS                                          (8,752,018)     (3,699,544)     (3,880,263)     (2,577,247)
     INCOME FROM DISCONTINUED OPERATIONS                                         --         182,714              --        (177,219)
                                                                       ------------    ------------    ------------    ------------
NET LOSS                                                               $ (8,752,018)   $ (3,516,830)   $ (3,880,263)   $ (2,754,466)
                                                                       ============    ============    ============    ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
     Continuing operations                                                   ($0.58)         ($0.53)         ($0.22)         ($0.36)
     Discontinued operations                                                  $0.00           $0.03           $0.00          ($0.02)
                                                                       ------------    ------------    ------------    ------------
     Net loss                                                                ($0.58)         ($0.50)         ($0.22)         ($0.38)
                                                                       ============    ============    ============    ============
WEIGHTED AVERAGE NUMBER OF
          COMMON SHARES OUTSTANDING                                      14,979,335       7,023,221      17,341,735       7,249,823
                                                                       ============    ============    ============    ============
</TABLE>


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

                                       4
<PAGE>

                     SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
                      (FORMERLY SECURITY BIOMETRICS, INC.)
     CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                    NINE MONTHS ENDED MARCH 31, 2005 AND 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, 2003 (AUDITED)                  6,214,813  $      6,216  $  8,319,588  $     (5,247)  $(14,805,398)  $ (6,484,841)

Issuance of common stock for:
   Cash (net of finders fees)                       835,588           835     1,291,189            --             --      1,292,024
   Services                                         105,000           105       243,895            --             --        244,000
   Acquisition of Datagility                        116,279           116       299,884            --             --        300,000
Issuance of common stock to
   settle debt                                       55,000            55        99,945            --             --        100,000
Issuance of common stock
   by subsidiary                                         --            --        27,593            --             --         27,593
Issuance of warrants to extend
   convertible debentures                                --            --     2,016,000            --             --      2,016,000
Other comprehensive loss for the
   nine month period ended
   March 31, 2004                                        --            --            --        (1,975)            --         (1,975)
Net loss for the nine month period
   ended March 31, 2004                                  --            --            --            --     (3,516,830)    (3,516,830)
                                              -------------  ------------  ------------  ------------   ------------   ------------
BALANCE, MARCH 31, 2004                           7,326,680  $      7,327  $ 12,298,094  $     (7,222)  $(18,322,228)  $ (6,024,029)
                                              =============  ============  ============  ============   ============   ============

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)                     2,578,124         2,578     3,345,471            --             --      3,348,049
   Services                                         843,889           844     1,974,656            --             --      1,975,500
Issuance of common stock to
   settle accounts payables and
   accrued liabilities                              420,005           420       692,108            --             --        692,528
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 and warrants
   for services                                          --            --     1,055,900            --             --      1,055,900
Issuance of common stock due to
   conversion of convertible notes                  192,500           193       432,932            --             --        433,125
Issuance of common stock and
   warrants as consideration of loans               207,600           208     1,373,620            --             --      1,373,828
Issuance of common stock for the
    acquisition of eMedRx stock and
    Viaquo assets and related costs               3,629,736         3,630     5,254,870            --             --      5,258,500
Other comprehensive loss for the
   nine month period ended
   March 31, 2005                                        --            --            --           (89)            --            (89)
Net loss for the nine month period
   ended March 31, 2005                                  --            --            --            --     (8,752,018)    (8,752,018)
                                              -------------  ------------  ------------  ------------   ------------   ------------
BALANCE, MARCH 31, 2005                          20,103,185  $     20,104  $ 36,431,040  $     (7,311)  $(26,964,076)  $  9,479,757
                                              =============  ============  ============  ============   ============   ============
</TABLE>

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


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                         Nine Months Ended
                                                                                                              March 31,
                                                                                                  ---------------------------------
                                                                                                       2005                 2004
                                                                                                  ------------         ------------
<S>                                                                                               <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss from continuing operations                                                           $ (8,752,018)        $ (3,699,544)
    Adjustments to reconcile net income to net cash
    provided by operating activities:
       Depreciation and amortization of property, equipment, and
             capitalized software                                                                      126,910               28,063
       Gain on settlement of debt                                                                           --              (35,139)
       Issuance of common stock for services                                                         1,975,500              244,000
       Issuance of options for services                                                              1,055,900                   --
       Charge relating to issuance of warrants                                                              --            2,016,000
       Deferred rent expense                                                                            (4,844)              16,185
       Amortization of warrants and common stock as non-cash interest expense                          297,730                   --
    Change in assets and liabilities:
       Accounts receivable                                                                            (145,105)          (1,923,762)
       Inventory                                                                                      (527,151)              12,805
       Prepaid expenses and other current assets                                                       (65,053)              87,931
       Security deposits                                                                               (70,580)             (56,916)
       Accounts payable and accrued liabilities                                                        786,602            1,359,516
       Billings in excess of costs and estimated earnings on
             uncompleted contracts                                                                     (90,018)           1,991,619
                                                                                                  ------------         ------------
NET  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                (5,412,127)              40,758
                                                                                                  ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Cash acquired in acquisition                                                                         5,622                   --
    Purchase of property, equipment, and capitalized software                                         (917,391)            (207,001)
                                                                                                  ------------         ------------
NET CASH USED IN INVESTING ACTIVITIES                                                                 (911,769)            (207,001)
                                                                                                  ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from the issuance of common stock                                                   3,348,049            1,319,617
    Net payments to related parties                                                                         --             (461,828)
    Proceeds from the exercise of stock warrants                                                       333,334                   --
    Repayments of shareholders' advances                                                              (115,000)                  --
    Repayments of convertible debenture                                                             (1,358,569)            (162,208)
    Proceeds from convertible debt and other notes payable                                           3,546,341                   --
    Proceeds from notes payable - related parties and employees                                        962,017             (268,505)
    Repayments of capital lease obligations                                                             (3,329)              (3,464)
    Minority interest in equity of consolidated subsidiary                                                  --                 (193)
                                                                                                  ------------         ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                            6,712,843              423,419
                                                                                                  ------------         ------------

EFFECT OF FOREIGN EXCHANGE RATE CHANGES
    ON CASH                                                                                                (89)              (1,975)
                                                                                                  ------------         ------------

NET INCREASE IN CASH                                                                                   388,858              255,201

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

CASH: END OF PERIOD                                                                               $    501,738         $    259,293
                                                                                                  ============         ============
</TABLE>

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


                                       6
<PAGE>

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

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

CASH PAID DURING THE PERIOD FOR:
    Interest                                                                                      $    188,451         $    723,107
                                                                                                  ------------         ------------
    Income taxes                                                                                            --                   --
                                                                                                  ------------         ------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
    Issuance of common stock for:
       Services                                                                                   $  1,975,500         $    244,000
                                                                                                  ------------         ------------
       Settlement of account payables and accrued liabilities                                          692,528                   --
                                                                                                  ------------         ------------
       Software                                                                                             --              300,000
                                                                                                  ------------         ------------
       Settlement of convertible debenture                                                                  --              100,000
                                                                                                  ------------         ------------
       Excess cost of net assets acquired in the purchase of:
          SiVault Analytics, Inc.                                                                    7,863,060                   --
                                                                                                  ------------         ------------
          Viaquo asset purchase                                                                      5,097,058                   --
                                                                                                  ------------         ------------
    Issuance of stock options and warrants for services                                              1,055,900                   --
                                                                                                  ------------         ------------
    Issuance of a note payable - related party to payoff a note payable -
       related party or accounts payable and
       accrued liabilities - related party                                                             150,000              325,000
                                                                                                  ------------         ------------
</TABLE>


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


                                       7
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

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

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

BASIS OF PRESENTATION

The unaudited consolidated condensed financial statements of the Company as of
March 31, 2005, have been prepared in accordance with the accounting
requirements of the Securities and Exchange Commission of the United States for
interim reporting. Accordingly, they do not include all of the disclosures
required by accounting principles generally accepted in the United States for
complete financial statements and notes thereto in the Company's Form 10-KSB for
the year ended June 30, 2004. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of the interim financial information have been included. The
results of operations for any interim period are not necessarily indicative of
the results of operations for the entire year.

PRINCIPLES OF CONSOLIDATION

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

VARIABLE INTEREST ENTITY

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" which was replaced in December 2003 by the
issuance of FIN 46R ("FIN 46R"). FIN 46R explains how to identify variable
interest entities ("VIEs") and how a company should assess its interests in a
variable interest entity to decide whether to consolidate that entity. FIN 46R
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. eMedRx, Inc. ("eMedRx Delaware") was considered to be a
primary beneficiary of the Company. Accordingly, the Company accounted for
eMedRx Delaware as a variable interest entity to be consolidated prior to
October 20, 2004. On October 20, 2004, the Company acquired, or reacquired, as
the case may be, the eMedRx subsidiaries as per Note 13 and has since accounted
for these entities as a wholly-owned consolidated subsidiary.


                                       8
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING ESTIMATES

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

REVENUE RECOGNITION

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

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

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

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

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

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


                                       9
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTS RECEIVABLE

Management performs ongoing credit evaluations of its customers and, as a
result, it estimated that an allowance for uncollectible accounts was not
necessary as of March 31, 2005. Such evaluations may change in the future.
Accounts receivable primarily represent amounts due from billings under a
contract entered into by Lightec.

Accounts are written off when significantly past due and management deems them
to be uncollectible after exhaustive collection efforts.

INVENTORY

The Company's inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market. At March 31, 2005, the Company's
inventory consists primarily of electronic point-of-sale terminals.

SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." Software development costs
are capitalized after technological feasibility has been established, which is
the earlier point in time at which the Company has developed a working prototype
or has a detailed program design for the software.

PROPERTY AND EQUIPMENT

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

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

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


                                       10
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES

The Company has issued convertible debt securities with a non-detachable
conversion feature that was "in the money" at the date of issue. The Company
accounts for such securities in accordance with Emerging Issues Task Force Topic
98-5. The Company has recorded the fair value of the beneficial conversion
feature as a debt discount and an increase in Additional Paid-In Capital.

The fair value of the beneficial conversion feature was computed by subtracting
the stock conversion price from the market price of the stock times the number
of shares and warrants eligible for conversion.

The resulting discount on the convertible notes is being amortized over the term
of the notes as interest expense.

INCOME TAXES

The Company accounts for income taxes using the liability method. The liability
method measures deferred income taxes by applying enacted statutory rates in
effect at the balance sheet date to the differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
The resulting deferred tax assets or liabilities are adjusted to reflect changes
in tax laws as they occur.

LONG-LIVED ASSETS

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. For the nine and three month periods ended
March 31, 2005 and 2004, SFAS No. 144 did not have a material effect on the
Company's results of operations, cash flows or financial condition.

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates that the fair value of all financial instruments as of
March 31, 2005, as defined in SFAS No. 107, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying consolidated balance sheet. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.


                                       11
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 not 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. The Company will adopt SFAS No. 123 (revised) for the fiscal year
beginning in July 2006.

COMPREHENSIVE INCOME (LOSS)

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

CONCENTRATIONS OF CREDIT RISK

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

The Company maintains cash balances in banks, which, at times, may exceed the
limits of the Federal Deposit Insurance Corp. The Company has not experienced
any losses to date as a result of this policy, and management believes there is
little risk of loss.

FOREIGN CURRENCY TRANSLATION

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

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform with the current
period's financial statement presentation.

                                       12
<PAGE>

NOTE 2 - DISCONTINUED OPERATIONS

The Company entered into a Stock and Note Transfer Agreement (the "Transfer
Agreement") with Pan Pacifica Ltd. ("Pan Pacifica"), effective as of August 20,
2003, to transfer all of the outstanding shares of Datadesk Technologies, Inc.
("Datadesk"), a wholly-owned subsidiary of the Company, in exchange for Pan
Pacifica assuming the net liabilities of Datadesk. The Transfer Agreement was
entered into simultaneously with a settlement agreement between the Company and
a former officer. In connection with the settlement, the Company transferred
available funds in the amount of $151,020 to Pan Pacifica. The Company realized
a net gain on the disposal of Datadesk of $382,073 for the nine months ended
March 31, 2004, which was recognized at the date of disposition.

The annual report for the year ended June 30, 2004 reported income from
discontinued operations that were based in part on estimates of certain expenses
related to Datadesk. During the nine months ended March 31, 2005, those
estimates were revised because it was determined that previously estimated costs
of $93,913 were not incurred. Consequently, the financial statements for the
nine months ended March 31, 2005 include a reduction in selling, general and
administrative expenses to reflect this change in accounting estimate.

On November 13, 2003 the Company established a subsidiary in the United Kingdom
to sell and market the Company's products in Europe. This subsidiary, Security
Biometrics Limited ("SBL") was incorporated as a private limited company in
England and Wales with 100,000 shares of authorized capital stock. The Company
was issued 60,000 shares and a minority interest was issued 10,000 shares. On
May 24, 2004 the Board of Directors approved the sale of this subsidiary to the
minority interest holder for consideration of one US dollar. The liabilities of
SBL were assumed by the minority stockholder at the date of sale.

Income (loss) from discontinued operations is as follows:

<TABLE>
<CAPTION>
                                                                                             Nine Months Ended    Three Months Ended
                                                                                               March 31, 2004       March 31, 2004
                                                                                               --------------       --------------
<S>                                                                                             <C>                  <C>
Revenues                                                                                        $      6,431         $         --
Direct expenses                                                                                           --                   --
                                                                                                ------------         ------------
Gross profit                                                                                           6,431                   --
Selling, general and administrative                                                                  111,877               83,306
                                                                                                ------------         ------------
Net operating loss                                                                                  (105,446)             (83,306)
Gain (loss) on disposition of subsidiary                                                             288,160              (93,913)
                                                                                                ------------         ------------
                                                                                                                     ------------
Income (loss) from discontinued operations for the period                                       $    182,714         $   (177,219)
                                                                                                ============         ============
</TABLE>


                                       13
<PAGE>

NOTE 3 - ACQUISITION OF VIAQUO AND SIVAULT ANALYTICS

As of November 30, 2004, the Company purchased substantially all of the assets
of Viaquo Corporation ("Viaquo") related to Viaquo's ViaSeal Access Control
Business, including physical equipment, technology, products and intellectual
property, in exchange for 3,050,000 shares of the Company's restricted common
stock which were initially valued at $2.35 per share (average market price for
the four trading days around November 30, 2004), of which (1) 750,000 of the
shares were issued and delivered to Viaquo at closing, (2) 2,050,000 of the
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 Application
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.

The results of the ViaSeal Access Control Business' operations have been
included in the Company's consolidated financial statements since the date of
the asset purchase.

SiVault agreed to assume the vacation pay liability of employees who resigned
from Viaquo and agreed to join SiVault as employees, effective as of December 1,
2004.

As of March 31, 2005, an amendment was entered into regarding the Viaquo asset
purchase agreement, pursuant to new information obtained in reference to the
ultimate issuance of the patents. SiVault agreed to release to Viaquo 2,300,000
of the Purchase Price Shares (valued at $1.52 per share - market price as of
March 31, 2005) that had been held in escrow. This transaction resulted in an
additional $3,496,000 recorded to excess cost over net tangible assets acquired.
As of March 31, 2005, there were no shares remaining in the escrow account.


                                       14
<PAGE>

NOTE 3 - ACQUISITION OF VIAQUO AND SIVAULT ANALYTICS (CONTINUED)

The following table summarizes the estimated fair values of assets acquired and
liabilities assumed from Viaquo. SiVault is in the process of evaluating the
valuations of certain intangible assets included in the asset purchase.


<TABLE>
<S>                                                                                                                     <C>
         Assets:
                        Property and equipment                                                                          $    36,269
                        Excess cost over net tangible assets acquired                                                     5,097,058
                                                                                                                        -----------
                            Total assets acquired                                                                         5,133,327
                                                                                                                        -----------

         Liabilities
                        Vacation pay liability                                                                               52,553
                                                                                                                        -----------
                            Total liabilities assumed                                                                        52,553
                                                                                                                        -----------

                                                                                                                          5,080,774
                                                                                                                        -----------

         License fee due Viaquo by Company at purchase date                                                                 250,000
                                                                                                                        -----------
         Advances made to Viaquo by Company                                                                                 (37,046)
                                                                                                                        -----------

         Net assets acquired                                                                                            $ 5,293,728
                                                                                                                        ===========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                                                                       July 9, 2004
                                                                                                                       ------------
         <S>                                                                                                            <C>
         Assets:
                        Cash                                                                                            $     5,622
                        Property and equipment                                                                               51,815
                        Deposits                                                                                                450
                        Excess cost over net tangible assets acquired                                                     7,863,060
                                                                                                                        -----------
                                                                                                                          7,920,947
                                                                                                                        -----------

         Liabilities
                        Accrued expenses                                                                                $   381,947
                        Shareholders' advance                                                                               115,000
                                                                                                                        -----------
                                                                                                                        $   496,947
                                                                                                                        -----------

         Net assets acquired                                                                                            $ 7,424,000
                                                                                                                        ===========
</TABLE>


                                       15
<PAGE>

NOTE 3 - ACQUISITION OF VIAQUO AND SIVAULT ANALYTICS (CONTINUED)

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 nine month periods ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                        Nine Months Ended March 31,    Three Months Ended March 31,
                                                                       ----------------------------    ----------------------------
                                                                           2005            2004            2005            2004
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
Revenues                                                               $  1,521,059    $  5,251,131    $    299,978    $  3,519,440
                                                                       ------------    ------------    ------------    ------------
Loss from continuing operations                                          (9,678,384)     (5,241,163)     (3,880,263)     (3,103,306)
                                                                       ------------    ------------    ------------    ------------
Income from discontinued operations                                              --         182,714              --        (177,219)
                                                                       ------------    ------------    ------------    ------------
Net Loss                                                               $ (9,678,384)   $ (5,058,449)   $ (3,880,263)   $ (3,280,525)
                                                                       ------------    ------------    ------------    ------------

Basic and Diluted Loss Per Common Share:
       Loss from continuing operations                                 $      (0.62)   $      (0.44)   $      (0.22)   $      (0.26)
                                                                       ------------    ------------    ------------    ------------
       Loss from discontinued operations                               $         --    $       0.02    $         --    $      (0.01)
                                                                       ------------    ------------    ------------    ------------
       Net loss                                                        $      (0.62)   $      (0.42)   $      (0.22)   $      (0.27)
                                                                       ============    ============    ============    ============
</TABLE>


                                       16
<PAGE>

NOTE 4 - PER SHARE INFORMATION

In accordance with SFAS No. 128, "Earnings Per Share," basic net income per
common share ("Basic EPS") is computed by dividing net income attributable to
common shareholders by the weighted-average number of common shares outstanding.
Diluted net income per common share ("Diluted EPS") is computed by dividing the
net income by the weighted-average number of common shares and dilutive common
share equivalents and shares issuable pursuant to convertible debentures then
outstanding.

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

<TABLE>
<CAPTION>
                                                                             Nine Months Ended               Three Months Ended
                                                                                  March 31,                       March 31,
                                                                               (in thousands)                  (in thousands)
                                                                       ----------------------------    ----------------------------
                                                                           2005            2004            2005            2004
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
NUMERATOR:
       Loss from continuing operations                                 $     (8,752)   $     (3,700)   $     (3,880)   $     (2,577)
       Income (loss) from discontinued operations                                --             183              --            (177)
                                                                       ------------    ------------    ------------    ------------
          Net loss                                                     $     (8,752)   $     (3,517)   $     (3,880)   $     (2,754)
                                                                       ============    ============    ============    ============

DENOMINATOR:
       Weighted average common shares outstanding                            14,979           7,023          17,342           7,250
       Dilutive effect of:
          Common stock equivalents                                               --              --              --              --
                                                                       ------------    ------------    ------------    ------------
       Weighted average common shares outstanding,
          assuming dilution                                                  14,979           7,023          17,342           7,250
                                                                       ============    ============    ============    ============

BASIC AND DILUTED PER SHARE INFORMATION:
       Loss from continuing operations                                 $      (0.58)   $      (0.53)   $      (0.22)   $      (0.36)
          Income (loss) from discontinued operations                             --            0.03              --           (0.02)
                                                                       ------------    ------------    ------------    ------------
             Net loss                                                  $      (0.58)   $      (0.50)   $      (0.22)   $      (0.38)
                                                                       ============    ============    ============    ============
</TABLE>


                                       17
<PAGE>


NOTE 5 - NOTES PAYABLE - RELATED PARTIES

<TABLE>
<CAPTION>
                                                                                                 March 31, 2005       June 30, 2004
                                                                                                 --------------       -------------
<S>                                                                                               <C>                  <C>
MARYANNE RICHARD

On June 13, 2002, the Company issued a note payable to MaryAnne Richard in the
amount of $1,000,000 as part of the consideration for the purchase of Lightec
On June 4, 2004, the Company entered into a settlement Agreement with MaryAnne
and Michael Richard (together, the "Richards") whereby the Richards agreed to
settle all obligations and disputes with the Company. The Company agreed to a
payment to the Richards of $1,189,983 (principal and accrued interest) and the
May 7, 2004 issuance of a warrant for 400,000 shares of the Company's common
stock at $2.50 per share. The Richards agreed to (i) a June 7, 2004 transfer of
850,000 shares (valued at $850,000) of the Company's common stock to a
third-party designee of the Company and (ii) settlement of the promissory note
On July 2, 2004, the parties finalized the settlement and executed a mutual
waiver and release of all claims against each other. On July 2, 2004,
the remaining balance of $339,983 was paid to the Richards                                        $         --         $    339,983

SYNERGEX GROUP LLC

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

OTHER RELATED PARTIES AND EMPLOYEES

On March 30, 2005, the Company issued $1,152,000 in promissory notes to various
related parties including individuals who are officers or employees of the
Company. The notes bear interest at an annual rate of 8 - 12%, payable at the
end of their terms, and the principal and unpaid interest is due on or after
April 29, 2005, May 15, 2005 or June 30, 2005. As consideration for the loans,
the Company issued 107,600 shares of common stock plus 252,044 warrants
exercisable for common stock at $2.25 per share. The principal amount of these
notes is reflected on the balance sheet, net of the fair market values of the
warrants and the stock issued, which are accounted for as debt discount                                834,014                   --
                                                                                                  ------------         ------------
                                                                                                  $    984,014         $    339,983
                                                                                                  ============         ============
</TABLE>


                                       18
<PAGE>

NOTE 6 - NOTES AND CONVERTIBLE DEBENTURE PAYABLE

<TABLE>
<CAPTION>
                                                                                                 March 31, 2005       June 30, 2004
                                                                                                 --------------       -------------
<S>                                                                                               <C>                  <C>
On June 30, 2002, the Company issued a convertible debenture to Edinburgh
Investments LLC ("Edinburgh") in the amount of $1,680,000.  On
January 19, 2005, the principal and accrued interest balance were paid off
Using the proceeds of the Second Closing of the convertible notes (Note 7)                        $         --         $  1,358,569

On December 28, 2004, the Company borrowed $500,000 to provide short-term
working capital. The loan was for three months and carried no explicit interest
rate. Consideration given for the loan was 50,000 shares of common stock and
50,000 warrants shares. On March 23, 2005, the loan was renewed for three
additional months with adjusted terms, including interest payable at an annual
rate of 12%, and issuance by the Company of 50,000 shares of common stock                              428,619                   --

On March 11, 2005, the Company issued a $250,000 promissory note to an
individual for short-term working capital. The three month note bears interest
at an annual rate of 12%. The Company also issued to the lender 22,222 warrants,
each of which is exercisable into a share of common stock at $2.25 per share
at any time within the next five years                                                                 224,776                   --
                                                                                                  ------------         ------------
                                                                                                  $    653,395         $  1,358,569
                                                                                                  ============         ============
</TABLE>


                                       19
<PAGE>

NOTE 7 - CONVERTIBLE NOTES

<TABLE>
<CAPTION>
                                                                                                 March 31, 2005       June 30, 2004
                                                                                                 --------------       -------------
<S>                                                                                               <C>                  <C>
On November 23, 2004 (the "First Closing") the Company issued $1,500,000 of
Convertible Notes to three investment funds. The Convertible Notes bear interest
at the prime rate of interest plus 3% per annum, and the Company is required to
pay down 1/30 of the original principal amount each month commencing on June 1,
2005. The Convertible Notes are convertible into common stock of the Company at
$2.25 per share conversion price. The interest payable on the Notes is also
convertible into common stock. Interest accrues each month, and payment
commences on June 1, 2005. The Company also issued 200,000 warrant shares which
may be exercised within five years at $3.00 per share

On January 19, 2005, after the Company's SB-2 registration statement became
effective, the Second Closing occurred in which the Company issued an additional
$1,500,000 of three year Convertible Notes to the same three investment funds,
with the same terms and conditions as in the First Closing, including issuance
of another 200,000 warrant shares. The proceeds to the Company from the Second
Closing were primarily used to pay off the Edinburgh Convertible Debenture (Note
6). The notes are secured by a first priority lien on all assets of the Company
and are reflected on the balance sheet, net of the fair market values of the
warrants and the beneficial conversion feature, which are accounted for as debt discount          $  1,984,941         $         --

        Less:  Current portion                                                                         661,648         $         --
                                                                                                  ------------         ------------
                                                                                                     1,323,293         $         --
                                                                                                  ============         ============
</TABLE>

Future payments of the Convertible Notes are as follows:

<TABLE>
<CAPTION>
                    Year ending
                      June 30,
        -------------------------------------
<S>                                                                   <C>
                   2005 remaining                                     $       --
                        2006                                             788,237
                        2007                                           1,200,000
                        2008                                             600,000
                                                                      ----------
                  Total payments                                       2,588,237
                  Debt discount                                          603,296
                                                                      ----------
                  Carrying value                                      $1,984,941
                                                                      ==========
</TABLE>


                                       20
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES

LEASES

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

<TABLE>
<CAPTION>
                     Year ending                        Minimum Annual                      Minimum Annual
                      June 30,                           Rent Expense                       Rental Income
         ------------------------------------  ------------------------           -------------------------
<S>                                                         <C>                                    <C>
                   2005 remaining                           $   155,000                            $ 16,000
                        2006                                    573,000                              65,000
                        2007                                    590,000                              65,000
                        2008                                    432,000                              33,000
                                                        ---------------                    ----------------
                                                             $1,750,000                            $179,000
                                                        ===============                    ================
</TABLE>

As of May 1, 2005, although the Company has not satisfied the sublessor with
respect to the financial covenants referred to above, the Company has expanded
its occupancy, with the consent of the sublessor, of the square footage of the
San Jose location to the entire office and data center space, except for
approximately 800 square feet. Monthly rent expenses have increased accordingly.
The increase in rent expense is incorporated in the table above.

WONDERNET, LTD. AGREEMENT

In 2002 and 2003, the Company entered into two 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
and sell, distribute and exploit the technology in North America, Central
America, Bermuda and the Caribbean Islands. The Company issued WonderNet 125,000
shares of its common stock and paid an upfront amount of $100,000 under these
contracts and was required to pay a minimum $120,000 per quarter and to pay a
minimum 12% royalty on gross sales of products. Since the inception of the
agreements, two $120,000 payments were made.

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

                                       21
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

EMPLOYMENT AND CONSULTING AGREEMENTS

Three key executives of the Company have employment agreements as of March 31,
2005. The future minimum base compensation of these three executives is as
follows:

<TABLE>
<CAPTION>
               Year ending               Minimum Annual
                 June 30,                 Compensation
         ------------------------  --------------------
<S>                                          <C>
             2005 (remaining)                $ 167,917
                   2006                        732,083
                   2007                        782,917
                                        ---------------
                                             $1,682,917
                                        ===============
</TABLE>

The three key executives are entitled to an annual bonus based upon the
assessment of their performance on revenue growth, profitability and key
milestones set by the Compensation Committee of the Board of Directors, which
then recommends a bonus for approval by the Board of Directors.

In addition, two additional executives are entitled to annual minimum
compensation of $462,000 and certain performance bonuses quarterly ranging from
7.5% to 10% of their yearly compensation. These agreements have no fixed date of
expiration.

ACQUISITION OF DATAGILITY

In accordance with the Stock Purchase Agreement entered into on February 18,
2004, the Company had an obligation to pay $100,000 in cash as fixed
consideration to the former stockholders of Datagility before December 31, 2004.
As of the date of this report, no payment had been made. In addition, the
Company may owe the former stockholders of Datagility (including one officer of
the Company) $100,000 additional cash consideration if revenues received in
connection with Datagility's CyberTrooper software application exceed $750,000
by June 30, 2005. Through March 31, 2005, CyberTrooper revenues were zero.

NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIENCY)

REVERSE STOCK SPLIT

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

INCREASE IN AUTHORIZED SHARES

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


                                       22
<PAGE>


NOTE 10 - STOCK-BASED WARRANTS

At March 31, 2005, the Company had the following warrants outstanding:

             Warrants       Exercise       Expiration
             Outstanding    Price          Date
         ------------------ -------------- ------------------
                    37,875          $3.00  November 19, 2005
                   184,525           3.60  December 22, 2005
                 1,004,975           2.00  August 22, 2006
                 1,003,150           2.00  September 13, 2006
                   187,500           4.00  September 13, 2006  (A)
                   600,998           3.00  October 18, 2006
                    35,000           4.00  March 16, 2007
                   250,000           2.61  October 1, 2008
                    11,704          0.001  October 1, 2008
                   130,000           2.00  January 21, 2010
                    66,666           2.25  March 11, 2010
                   150,000           2.25  March 31, 2010
                    57,600           2.25  March 30, 2015
         ------------------
                 3,719,993  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
         ------------------
                 1,572,000  SUBTOTAL
         ------------------

                 5,291,993   TOTAL WARRANTS
         ------------------

         Class A Warrants
                   200,000          $3.00  November 23, 2009
                   200,000           3.00  January 19, 2010
         ------------------
                   400,000   SUBTOTAL
         ------------------
                 5,691,993   TOTAL WARRANTS &  CLASS A WARRANTS
         ==================

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


                                       23
<PAGE>

NOTE 11 - STOCK OPTIONS

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

During the quarter ended March 31, 2005, the Company granted the following
equity-based payments:

<TABLE>
<CAPTION>
                                                                                                                       Fair-value
                                                                                                                      cost during
                                                  Exercise           Expected                                        quarter ended
   Grant Date       Type           Shares      (strike) Price      Life (years)  Purpose & nature                       3/31/05
------------------  -----------   ---------   ----------------    -------------  ------------------------------      --------------

<S>                 <C>              <C>             <C>                     <C> <C>                                    <C>
         2/3/2005   Option           50,000          $  2.25                 1   consulting services                    $ 80,990

        3/16/2005   Option          150,000          $  2.25                 2   consulting services                     184,875

        3/16/2005   Option           40,000          $ 0.001                 5   signing bonus - employees                71,972

        3/16/2005   Warrant          35,000          $  4.00                 2   executive recruiting services            37,114

        3/16/2005   Warrant          11,704          $ 0.001                 3   Chairman of Board services               26,558

        3/16/2005   Warrant          83,333          $  2.67                 3   Chairman of Board services              150,392
</TABLE>

All the above equity-based payments were valued at fair value using the
Black-Scholes binomial pricing model with the following assumptions:

                            Volatility             149%
               Risk free interest rate               4%
                        Dividend yield              --


                                       24
<PAGE>

NOTE 11 - STOCK OPTIONS (CONTINUED)

The table below was derived using Statement of Financial Accounting Standards
(SFAS) No. 123 and the Black-Scholes valuation model. In December 2004, the
Financial Accounting Standards Board issued SFAS No. 123 (Revised), "Share-Based
Payment", requiring companies to expense employee stock options, reflect the
fair value of share-based compensation, as an expense. SiVault Systems Inc. will
adopt the revised rules for the fiscal year beginning on July 1, 2006.

<TABLE>
<CAPTION>
                                                                            Nine Months Ended               Three Months Ended
                                                                                 March 31,                     March 31,
                                                                       ----------------------------    ----------------------------
                                                                            2005            2004            2005            2004
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
Net loss, as reported                                                  $ (8,752,018)   $ (3,516,830)   $ (3,880,263)   $ (2,754,466)
    Compensation cost under fair value-based
    accounting method                                                      (184,309)             --        (184,309)             --
                                                                       ------------    ------------    ------------    ------------
Net loss, pro forma                                                    $ (8,936,327)   $ (3,516,830)   $ (4,064,572)   $ (2,754,466)
                                                                       ============    ============    ============    ============

BASIC AND DILUTED LOSS PER COMMON SHARE:
    Continuing operations, as reported                                 $      (0.58)   $      (0.53)   $      (0.22)   $      (0.36)
    Continuing operations, pro forma                                   $      (0.60)   $      (0.53)   $      (0.23)   $      (0.36)

    Net loss, as reported                                              $      (0.58)   $      (0.50)   $      (0.22)   $      (0.38)
    Net loss, pro forma                                                $      (0.60)   $      (0.50)   $      (0.23)   $      (0.38)
</TABLE>

In addition, stock options were granted in March 2005 as signing bonuses to two
new executives of the Company for approximately $72,000.


                                       25
<PAGE>

NOTE 12 - BUSINESS  SEGMENTS

SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information", requires companies to provide certain information about their
operating segments. The Company had two reportable segments at March 31, 2005:
SiVault Systems and Lightec Professional Services division. The Company had
three reportable segments at March 31, 2004: SiVault Systems, Lightec
Professional Services division, and eMedRx.

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

<TABLE>
<CAPTION>
                                                      SiVault
        2005                                          Systems              Lightec               Total
        ---------------------------------------- ------------------  -------------------- ---------------------
<S>                                                    <C>                   <C>                   <C>
        Net sales to external companies                $    23,300           $ 1,497,759           $ 1,521,059
        Operating earnings (loss)                       (8,619,376)              531,418            (8,087,958)
        Total assets                                    15,950,238             1,055,329            17,005,567
        Depreciation and amortization                      124,822                 2,088               126,910
        Capital expenditures                               916,943                   448               917,391
        Interest expense                                   664,060                    --               664,060
</TABLE>

<TABLE>
<CAPTION>
                                                      SiVault
        2004                                          Systems              Lightec               eMedRx                Total
        ---------------------------------------- ------------------  -------------------- --------------------- --------------------
<S>                                                    <C>                   <C>                   <C>                  <C>
        Net sales to external companies                $    17,073           $ 5,205,528           $     1,830          $ 5,224,431
        Operating earnings (loss)                       (2,320,993)            1,673,468              (318,288)            (965,813)
        Total assets                                       659,169             2,260,088                15,437            2,934,694
        Depreciation and amortization                       27,603                   460                    --               28,063
        Capital expenditures                               207,001                    --                    --              207,001
        Interest expense                                   717,852                    --                    --              717,852
</TABLE>


NOTE 13 - ACQUISITION OF REMAINING OTHER INTERESTS OF EMEDRX SUBSIDIARIES

On October 20, 2004, the Company entered into three Share Exchange Agreements
with the other shareholders of eMedRx Delaware and eMedRx Canada and a
shareholder of eMedRx Nevada (the "Agreements"). The Agreements called for the
exchange of the common shares of eMedRx Delaware, eMedRx Canada and of eMedRx
Nevada not currently owned by the Company. In fulfillment of the Agreements,
579,736 restricted shares of the Company's common stock valued at $3.45 per
share, have been issued to these other eMedRx shareholders. These transactions
were accounted for as exchanges of stock. The operations of all three eMedRx
entities were recorded as part of the SiVault Systems segment of the Company
effective with the date of their acquisitions.

NOTE 14 - SUBSEQUENT EVENTS

On April 30, 2005, the Company issued a ninety day promissory note for $41,667
to the Chairman of the Board for services performed under his contract for the
period January 1 through April 30, 2005. The note bears interest at an annual
rate of 12% and includes additional consideration of 8,333 shares of common
stock and 8,333 warrant shares exercisable at $2.25 per share for ten years.


                                       26
<PAGE>

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

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

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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

REVENUE RECOGNITION

Our revenue recognition policies are significant because our revenue is a key
component of our results of operations. Revenue recognition in connection with
our Lightec business, which accounted for substantially all of our approximately
$1,520,000 and $300,000 in revenue for the nine and three months ended March 31,
2005, respectively, is particularly subjective as it has historically been
generated from fixed-price or modified fixed-price contracts. Recognition of
revenue from these contracts requires the estimation of the cost, scope and
duration of each engagement. Revenue and the related costs for these projects
are recognized using the percentage-of-completion method as costs (primarily
labor and materials) are incurred, with revisions to estimates reflected in the
period in which changes become known. If we do not accurately estimate the
resources required or the scope of work to be performed, or do not manage our
projects properly within the planned periods of time or satisfy our obligations
under the contracts, then future revenue and margins from this business may be
significantly and negatively affected or losses on existing contracts may need
to be recognized. Any such resulting changes in revenues and reductions in
margins or contract losses could be material to our results of operations.


                                       27
<PAGE>

STOCK-BASED COMPENSATION

Our accounting policies for the costs of stock-based compensation are critical
due to the fact that the Company has issued material amounts of equity-based
instruments in exchange for services from non-employees in the form of warrants
exercisable into shares of common stock, and option shares exercisable into
common stock. In the three months ended March 31, 2005, in exchange for services
from non-employees, the Company issued 130,037 warrant shares, and 200,000
option shares. Recording the cost of these grants requires estimating the
expected volatility of the Company's share price. Given the absence of exchange
traded options or convertibles for the Company which might serve as a basis for
measuring implied volatility, we have based volatility estimates on historical
volatility because we have no reason to believe that future volatility will
differ from past volatility. For employee stock options, the Company has not
adopted SFAS No. 123 (Revised) ("Statement 123R") as of March 31, 2005. We will
adopt the revised rules effective for the fiscal year beginning July 1, 2006.

INCOME TAXES

We have a history of losses. These losses generated federal net operating loss
("NOL") carryforwards of approximately $7.7 million as of June 30, 2004.
Generally accepted accounting principles require that we record a valuation
allowance against the deferred income tax asset associated with these NOL
carryforwards 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 would cause management to conclude that it is more likely than not that we
will realize all or a portion of the NOL carryforwards and other deferred tax
assets. The net operating loss carry forwards may be limited in accordance with
Section 382 of the Internal Revenue Code, as amended, based on certain changes
in ownership that have occurred, or could occur in the future. Upon being
profitable, we would immediately record the estimated net realizable value of
the deferred tax assets at that time and would then provide for income taxes at
a rate equal to our combined federal and state effective rates. Subsequent
revisions to the estimated net realizable value of the deferred tax assets could
cause our provision for income taxes to vary significantly from period to
period.

GOODWILL AND OTHER LONG-LIVED ASSETS

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

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


                                       28
<PAGE>

BUSINESS SUMMARY

We are a publicly traded services company (OTC: SVTL.OB) with an executive
office in New York, headquarters in San Jose, and operations in San Jose and
Connecticut. The Company is a result of a merger in July 2004 between Security
Biometrics, Inc. (a Nevada public company) and SiVault Analytics, Inc. (a
private Delaware company). Our services enable businesses to migrate from a
paper-based transaction platform to a fully electronic, biometrically
authenticated and cryptographically secured transaction platform. The technology
is designed as a fully financially insured hosted service that provides
paperlessly captured, authenticated, private, and secured access to
transactions, documents, data files, and content streams.

By establishing a centralized repository of biometrically captured signatures
bound to structured documents and transactions, we are able to offer a wide
range of services across the retail and healthcare sectors. Our business model
is to charge customers transaction-based fees, and provide leasing and financing
options for their hardware and software purchases to minimize barriers to entry.
We are differentiated by virtue of an innovative technology platform, a
transaction-based revenue model, a unique combination of strategic alliances and
intellectual property, the experience and strength of the management team, and
our shared vision of the importance of integrating paperless transactions with
financial settlement and certainty.

Our competitive advantage consists of four significant technology initiatives:
(1) a proven biometric signature authentication technology that analyzes the
dynamic features of a signature, (relative speed and acceleration, rhythm, and
stroke sequences) which not only authenticates the person writing the signature,
but also leads to secure validation and 3rd party authorization of the
transaction. (2) a rule-based, one-to-many and many-to-one access control
system, using strong encryption technology enabling easy and inexpensive access
control for individuals to either deposit or retrieve millions of bits of data
from multiple, geographically dispersed (Internet-based) transaction data-base
locations. Authorized individuals gain access to the data, while unauthorized
individuals cannot. (3) a robust ID-CHECK(R) technology for new-user
registration purposes which instantly reads, analyzes, and verifies the encoded
data in magnetic stripes and barcodes on government-issued IDs to determine if
the content and format is valid. (4) digital pen technology, consisting of a pen
that writes ink strokes on paper forms incorporating a camera and
character-recognition software, enabling the storage and conversion of written
characters to digital characters, thus allowing organizations to transition from
paper and ink to digital information quickly and easily.

These four technology initiatives, along with other standard information
technology product elements, including financial transaction settlement, will be
integrated together using a state-of-the-art Service Oriented Architecture
(SOA). The SOA provides the technology as a pay-per-use service, and is modular,
standardized, easy to implement and maintain, and easy to adjust and evolve. By
bundling the technology initiatives, we enable customers to transform age-old
paper-based business transactions to entirely paperless formats, and thus bring
the benefits of drastically reduced cost, better response times, lower levels of
mistakes and fraud, and the enablement of new benefits not possible with paper
systems. These include instant query capability on any transaction, easy long
term storage, and data mining for market, business, and scientific research.

The U.S. and Canadian Retail and Healthcare markets are our target markets due
to the compelling need for our solutions, recent legislation, sales cycle time,
existing business contracts, and an opportunity to quickly achieve penetration
and increase market share. Global expansion will be driven by the customers'
need to create a worldwide safety net for electronic transactions and the desire
to reduce expenses associated with paper-based transactions and processes. As we
develop our brand reputation in these initial markets, longer sales cycle
verticals such as banking and insurance will be added, followed by the
government sector.

                                       29
<PAGE>

RETAIL MARKET (PRIMARY) Our authentication and validation solutions dramatically
reduce the opportunities for identity theft, and provide a major breakthrough in
dispute resolution. This reduces charge-backs, write-offs and credit card fraud
through a bundled offering of non-repudiation and storage services that secure
paperless transactions by authenticating an individual and making online
receipts available instantly. The addition of digital pen and paper technology
to our offering will allow companies to continue to capture more complex
transactions information (e.g., buying a cell phone) on paper, and then throw
the paper away.

HEALTHCARE (PRIMARY) Our solutions will reduce prescription fraud and mistakes
while maintaining Health Insurance Portability and Accountability Act of 1996
(HIPAA) compliance for record access, and can reduce high malpractice premium
costs by biometrically validating both doctor and patient signatures when a
prescription is given. The system will work with most platforms and
infrastructures and should reduce the average management cost of a typical
paper-based prescription by a factor of seven times, while simultaneously
reducing mistakes and fraud. The use of digital pen and paper will also allow
capturing substantially more complex transactions data in the health care
system--a system buried in paper-based processing--and thus allow companies to
quickly jump the gap between paper-based and electronic-based transactions
processing, but without the cost and time involved in redesigning the entire
front end of the data capture process.

BANKING (SECONDARY) We will not only secure banking transactions, but we will
drastically reduce the back-end office costs by enabling paperless
transactions--from deposits to car, personal and mortgage loans. Multi-branch,
multinational banks will enable customers to become members of the bank, and not
just the branch, thereby removing paper from the entire system and expanding
overall services to its customers.

GOVERNMENT (SECONDARY) With the increased requirements due to legislation (e.g.
the 2000 electronic signature act or the US Patriot act) and with exacerbated
Homeland Security issues, we have identified the government sector for
electronic passports, entry and exit requirements, credential authentication and
validation. Our technology can provide far reaching benefits for Federal, Local
and State Governments through the reduction of paperwork, and by ensuring that
individuals are authenticated prior to conducting electronic communication with
government departments.

LIGHTEC COMMUNICATIONS, our Professional Services installation and servicing
subsidiary, provides out-sourced integration services. Lightec is a leading
provider of design, installation and technical support for Information
Technology (IT) systems. It fulfills a complete spectrum of network
communications infrastructure needs, from fiber optic and/or copper cable to
cable connection networking (LAN/WAN), wiring closets and network switching
components (e.g. internal, data and video security).

RESULTS OF OPERATIONS

Quarter Ended March 31, 2005 vs. Quarter Ended March 31, 2004

Our revenues for the quarter ended March 31, 2005 were $299,978, a decrease of
$3,205,162 or approximately 91% from the quarter ended March 31, 2004. This was
due to delivery of less equipment, software and services under the Bridgeport
contract, pending eRate Program approvals expected later this year. Our revenues
were substantially all generated from the Lightec Professional Services segment,
in regards to the Bridgeport School District ("Bridgeport") contract.

The cost of revenues incurred for the quarter ended March 31, 2005 was $167,141,
a decrease of $2,149,470 or approximately 93% from the quarter ended March 31,
2004. This was due to a decrease in services revenues and revenues from the
sales of hardware and software delivered, pending approval of projects which
should commence in the April to June 2005 quarter.

                                       30
<PAGE>

The gross margins, as a percentage of sales, were 44% and 34% for the quarters
ended March 31, 2005, and 2004, respectively, reflecting improved gross margins
attributable to efficiencies in delivering products and services to Bridgeport.

Our selling, general and administrative expenses for the quarter ended March 31,
2005 were $2,552,523, an increase of $1,126,380 or approximately a 79% increase
over the quarter ended March 31, 2004. The selling, general and administrative
expenses include product development and research and development. Payroll and
other related costs increased by approximately $848,000 in the quarter ended
March 31, 2005 due to an increase in employees in the San Jose operations, as we
accelerated the work to develop our biometric security products and hired
software engineers, IT and network technicians, and product developers.
Consulting fees increased by approximately $581,000 primarily due to
intensification of market and corporate development activities. In addition, the
issuance of common stock and stock options for services in the amount of
$967,400 was recorded in the quarter ended March 31, 2005 as compared to
$133,000 for the quarter ended March 31, 2004, reflecting additional corporate
development consulting services and compensation for directors and advisory
board members.

Interest expense for the quarter ended March 31, 2005 was $493,177, an increase
of $302,423 or approximately 159% from the quarter ended March 31, 2004. This
increase in interest expense was due to higher effective interest rates incurred
on the amounts owed, though average debt balances were lower in the quarter
ended March 31, 2005.

Our loss from continuing operations for the quarter ended March 31, 2005 was
$3,880,263 as compared to a loss of $2,577,247 for the quarter ended March 31,
2004, or an increase of $1,303,016 or approximately 51%. The increased loss was
primarily attributable to higher expenses from the acceleration of development
of our biometric security products, and the decrease in income from our Lightec
Professional Services segment, offset by a $2,016,000 charge in the quarter
ended March 31, 2004 for the cost of a warrant granted to extend the due date of
convertible debentures.

The net loss for the quarter ended March 31, 2005 was $3,880,263 as compared to
a net loss of $2,754,466 for the quarter ended March 31, 2004. In the quarter
ended March 31, 2004 there was a loss from discontinued operations of $177,219,
reflecting a discontinued loss of $83,306 from the Security Biometrics Limited
operation in the United Kingdom and a $93,913 reduction of the disposal of the
operations of Datadesk Technologies, Inc. ("Datadesk").

Nine Months Ended March 31, 2005 vs.  Nine Months Ended March 31, 2004

Our revenues for the nine months ended March 31, 2005 were $1,521,059, a
decrease of $3,703,372 or approximately 71% from the nine months ended March 31,
2004. This was due to delivery of less equipment, software and services under
the Bridgeport contract, pending eRate Program approvals expected later this
year. Our revenues were substantially all generated from the Lightec
Professional Services segment, in regard to the Bridgeport contract.

The cost of revenues incurred for the nine months ended March 31, 2005 was
$658,926, a decrease of $2,626,339 or approximately 80% from the nine months
ended March 31, 2004. This was due to a decrease in services, hardware and
software delivered, pending approval of projects which should commence in the
April to June 2005 quarter.

The gross margins, as a percentage of sales, were 57% and 37% for the nine
months ended March 31, 2005, and 2004, respectively, reflecting improved
efficiency in delivering services to Bridgeport.


                                       31
<PAGE>

Our selling, general and administrative expenses for the nine months ended March
31, 2005 were $5,918,691, an increase of $3,257,712 or approximately a 122%
increase over the nine months ended March 31, 2004, reflecting intensification
of development of our biometric security products. The selling, general and
administrative expenses include product development and research and
development. In addition, the issuance of common stock and stock options for
non-cash services expenses in the amount of $3,031,400 were recorded in the nine
months ended March 31, 2005 as compared to $244,000 for the nine months ended
March 31, 2004, reflecting additional corporate development consulting services
and compensation for directors and advisory board members.

Interest expense for the nine months ended March 31, 2005 was $664,060, a
decrease of $53,792, or approximately 7% from the nine months ended March 31,
2004. The interest expense in the nine months ended March 31, 2004 included a
$150,000 penalty payment on the convertible debentures. Adjusting for that
penalty payment, interest expense incurred in the nine months ended March 31,
2005 was approximately $96,000 higher than interest expense in the nine months
ended March 31, 2004, as higher effective interest rates more than offset the
lower average debt balances in the nine months ended March 31, 2005 as compared
to the nine months ended March 31, 2004.

Our loss from continuing operations for the nine months ended March 31, 2005 was
$8,752,018 as compared to a loss from continuing operations of $3,699,544 for
the nine months ended March 31, 2004, or an increased loss of $5,052,474 or
approximately 137%. The increased loss was primarily attributable to higher
expenses from the acceleration of the development of our biometric security
products, which more than offset the decrease in profitability of our Lightec
Professional Services segment.

Our net loss for the nine months ended March 31, 2005 was $8,752,018 as compared
to a net loss of $3,516,830 in the nine months ended March 31, 2004. The nine
months ended March 31, 2004, included a gain on $266,621 from disposing of the
operations of the Datadesk subsidiary in September 2003, which was partially
offset by the loss of $83,306 of the discontinued Security Biometrics Limited
operations.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended March 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 $4.0 million at March 31, 2005 as
compared with $4.3 million at June 30, 2004. Cash increased by approximately
$389,000 during the nine months ended March 31, 2005.

Net cash used in operating activities was $5,412,127 during the nine months
ended March 31, 2005, as compared to positive cash flow provided by operations
of $40,758 during the nine months ended March 31, 2004. Net cash used in
operations for the nine months ended March 31, 2005 resulted primarily from our
net loss of approximately $8.8 million, offset by certain non-cash expenses of
approximately $3,451,000 and increased accounts payable owed of approximately
$787,000. In addition, approximately $700,000 of cash was used for (i) the
inventory of electronic point-of-sale terminals (intended to be utilized for
biometric security services in future quarters) of approximately $527,000; and
(ii) security deposits and prepaid expenses for approximately $136,000. In April
2005, the Company returned approximately 75% of the point-of-sale terminals to
the manufacturer for credit.

Investing activities utilized $911,769 of cash during the nine months ended
March 31, 2005, as compared to $207,001 for the nine months ended March 31,
2004. Investments for the most recent nine months were primarily for computers,
servers, routers, storage devices and capitalized software, while investments in
the nine months ended March 31, 2004 consisted primarily of acquisition of
capitalized software.

Financing activities provided $6,712,843 of cash during the nine months ended
March 31, 2005 as compared to $423,419 for the nine months ended March 31, 2004.
Net cash provided resulted primarily from the issuance of common stock and the
exercise of stock warrants totaling $3,681,383, the issuance of approximately
$3,150,000 of new convertible notes and other note payable, offset by repayments
of $115,000 on advances from shareholders and repayments on capital lease
obligations of $3,329.

                                       32
<PAGE>

During the nine months ended March 31, 2005, we raised approximately $3,681,000
in equity capital and settled amounts owing to related parties and others
amounting to approximately $692,500 in exchange for equity in the Company. We
also issued common stock and stock options in the amount of $3,031,400 for
certain services. In addition, we reduced by $450,000 our payable balance to our
largest supplier for Lightec. That supplier was owed approximately $812,000 at
March 31, 2005.

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

The Company's biometric services business has yet to generate significant
revenues. Management anticipates revenues from this business will increase in
the first six months of the Company's 2006 fiscal year, which commences on July
1, 2005. Sales from the Company's Lightec Professional Services segment have
totaled $1,497,759 to March 31, 2005, a significant reduction over the prior
year's period. Since payments to Lightec derive, to a large extent, from Federal
eRate program, the timing and amounts of payments are difficult to predict.
Lightec believes that the approximately $900,000 in accounts receivable owed to
it, will be released for payment by the end of the fiscal year. Another $5 - $7
million in payments under existing multi-year contracts with two school
districts and a private school are expected to be billed and received by the end
of 2005. However, these payments are also dependent upon eRate reimbursement so
are difficult to predict.

Deficits in cash flow have otherwise been funded through financing activities.
During the nine months ending March 31, 2005, we raised approximately $3.7
million in equity and $3.2 million in notes and convertible debentures. In the
quarter ending June 30, 2005, we anticipate raising additional equity and/or
convertible debt from a group of institutional investors. While the terms of
this placement are not yet established, the sale of additional equity or
convertible debt securities will result in further dilution to our stockholders.
These securities may also have rights senior to those of holders of our common
stock. Any indebtedness could contain covenants which restrict our operations
and limit our ability to incur additional debt. The proceeds from this private
placement will be utilized to pay off amounts owed creditors and suppliers, and
to fund expanded operations of biometric security services.

During the nine months ended March 31, 2005, the Company has also entered into
several strategic alliances and licensing agreements which it believes, once
funded, will result in increased revenues commencing in the fourth quarter of
fiscal 2005.

While we believe that cash flows derived from Lightec and proceeds from
financing activities will be sufficient to fund operations until revenues are
generated from the Company's biometric security services business, there can be
no assurance that such will be the case. If financing is delayed or not
available, if Lightec's business is reduced, or if payments to Lightec are
delayed or reduced, then the Company may be forced to significantly curtail its
operation, sell assets or adjust or change its business plan.


                                       33
<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES AND FACTORS THAT MAY AFFECT FUTURE
RESULTS

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 are subject to interest rate risk. The Company is seeking financing from
various sources, either directly from financial institutions, or by way of lease
financing of property and equipment. Such borrowing could be impacted by changes
in interest rates. As of March 31, 2005, the Company had issued $3,000,000
principal amount of floating rate convertible notes, which carry an interest
rate of prime plus 3% per annum, equal to an interest rate on these notes as of
March 31, 2005 of 8.75%. Since November 23, 2004 when the floating rate
convertible notes commenced, the prime rate has increased three times, in 25
basis point increments, from 5.0% to 5.75% on March 31, 2005. This increased the
interest rate owed by the Company on these notes from 8.0% to 8.75% over the
same period. Further increases in the prime rate of interest will increase the
Company's cost of borrowing.

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 any evaluation of our performance, particularly in light of
our recent change in business strategy. Our Lightec Professional Services
business, which has been 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 to 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.

                                       34
<PAGE>

We incurred a net loss of $3,880,263 during the fiscal quarter ended March 31,
2005 and a net loss of $8,752,018 for the nine months ended March 31, 2005. At
March 31, 2005, we had an accumulated deficit of $26,964,076. 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 March 31, 2005, we had a working capital deficiency of $3,977,285. Despite
raising approximately $3.7 million in equity and $3.2 million in convertible
debt and other notes from July 1, 2004 through March 31, 2005, we need to raise
additional capital in order to continue to fund our plan of operations. We have
no sources of financing from which we can draw immediately. While we anticipate
raising an additional equity and/or convertible debt in the quarter which ends
June 30, 2005, we cannot assure investors that we will have adequate capital
resources to fund planned operations or that any additional funds will be
available to our company when needed, or if available, will be available on
favorable terms or in amounts required. If we are unable to obtain adequate
capital resources to fund operations, we may be required to delay, scale back or
eliminate some or all of our existing and planned operations.

We are dependent on a limited number of customers.

Substantially all of our historical revenue has been attributable to our Lightec
Professional Services business. During the nine months ended March 31, 2005,
substantially all of our revenue was attributable to one contract with the
Bridgeport School District funded by the Federal eRate program. While additional
amounts have been budgeted for this project for the 2004-2005 school quarters,
we have not yet received Federal approval under the eRate program. Lightec has
also been awarded contracts with the New Haven School Board for approximately
$200,000, as well as contracts with a private school in New York state and two
school districts in New Jersey. Our plan of operation is dependent on
successfully fulfilling the Bridgeport, New Haven and other contracts. Should we
fail for any reason to perform the balance of the contracts, or if Federal
approval is not granted, or Bridgeport or New Haven defaults on payments under
the contract, we may not have sufficient funding to continue the Lightec
Professional Services business as planned and our other activities may be
substantially harmed.

All of our assets are subject to a security agreement to ensure repayment of
convertible notes, and may be foreclosed to satisfy certain debt obligations
should we default.

We have granted a first priority lien in all of the assets of our business to
secure repayment of convertible notes in the principal amount after debt
discount of $1,984,941 as of March 31, 2005, after the Second Closing of the
convertible note financing on January 19, 2005. The existence of this security
interest, if we default, could adversely impact our liquidity and may make it
more difficult for us to obtain additional debt or equity financing from other
sources.

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

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.


                                       35
<PAGE>

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

Our products and technologies may not achieve market acceptance.

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

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

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

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

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

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

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

                                       36
<PAGE>

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

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

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

  - build and train our sales force;
  - establish and maintain relationships with channel partners;
  - develop customer support systems;
  - develop expanded internal management and financial controls adequate to
    keep pace with growth in personnel and sales;
  - manage the use of third-party manufacturers and suppliers; and
  - integrate operations and personnel from acquired businesses.

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.


                                       37
<PAGE>

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

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

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

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

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

Our net operating loss carryforwards may be limited.

At June 30, 2004, our net operating loss carryforwards was approximately $7.7
million. Our net operating loss carry forwards may be limited in accordance with
Section 382 of the Internal Revenue Code of 1986, as amended, based on certain
changes in ownership that have occurred, or could in the future occur. Net
operating loss carry forwards are utilized to offset future taxable income for
federal and state income tax purposes.

RISKS RELATED TO ID-CHECK(TM) TECHNOLOGY:

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

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


                                       38
<PAGE>

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

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

RISKS RELATED TO OUR SECURITIES:

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

Our common stock is traded on the NASD OTC Bulletin Board. Trading in our stock
has been limited and there can be no assurance that an active trading market for
our stock will develop. As a result, this could adversely affect our
shareholders' ability to sell our common stock in short time periods, or
possibly at all. Thinly traded shares can be more volatile than shares traded in
an active public market. The average daily trading volume of our common stock in
January through March 2005 was 19,689 shares. The low and high trading prices of
our common stock for the same period has ranged from $1.30 to $3.05 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.

WE HAVE ISSUED A SUBSTANTIAL NUMBER OF SECURITIES CONVERTIBLE INTO SHARES OF OUR
COMMON STOCK WHICH WILL RESULT IN SUBSTANTIAL DILUTION TO THE OWNERSHIP
INTERESTS OF OUR EXISTING SHAREHOLDERS.

As of March 31, 2005, approximately 9,739,820 shares of our common stock were
reserved for issuance upon exercise or conversion of the following securities:

    o  1,150,327 shares upon conversion of outstanding convertible term notes;

    o  8,589,493 shares upon exercise of outstanding stock options and warrants.

The exercise or conversion of these securities will result in a significant
increase in the number of outstanding shares and substantially dilute the
ownership interests of our existing shareholders.

A SUBSTANTIAL NUMBER OF OUR CONVERTIBLE SECURITIES ARE CONVERTIBLE INTO SHARES
OF COMMON STOCK AT A CONVERSION PRICE OF $2.25 PER SHARE. MOST OF THESE SHARES
ARE ELIGIBLE FOR PUBLIC RESALE. THE TRADING PRICE OF OUR COMMON STOCK AND OUR
ABILITY TO RAISE ADDITIONAL FINANCING MAY BE ADVERSELY EFFECTED BY THE INFLUX
INTO THE MARKET OF SUCH A SUBSTANTIAL NUMBER OF SHARES.


                                       39
<PAGE>

Our outstanding convertible notes are convertible into 1,150,327 shares of
common stock at a per share conversion price of $2.25 which may be less than the
current trading price of our shares. Although many of the shares issuable upon
conversion of our convertible warrants are eligible for public resale under
Securities and Exchange Commission Rule 144, we filed a registration statement
to cover the public resale of all of these shares. This significant increase in
number of shares available for public sale may have a negative impact on the
trading price of our shares and substantially dilute the ownership interest of
our existing shareholders. In the event that our stock trades below $2.25 per
share, in order to raise additional financing we would likely be required to
issue additional shares of common stock or securities convertible into common
stock at a purchase or conversion price as applicable, of less that $2.25 per
share. To the extent these factors are viewed negatively by the market, it may
provide an incentive for persons to execute short sales of our common stock that
could adversely affect the trading price of our common stock.

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

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

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

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

OFF-BALANCE SHEET ARRANGEMENTS:

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

ITEM 3 - CONTROLS AND PROCEDURES

An evaluation was performed, as of March 31, 2005, 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, 2005.

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


                                       40
<PAGE>

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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Various claims and lawsuits arising out of the normal course of business are
pending against the Company. The results of thses proceedings are not expected
to hae a material effect on the Company's consolidated financial position or
results of operations.

The Company has filed a demand for arbitration with the American Arbitration
Association in New York, New York asking that any agreements between it and
WonderNet, Ltd. ("WonderNet") be rescinded, that WonderNet pay it $340,000, and
that shares of stock previously issued to WonderNet be cancelled. On March 25,
2005, the Company obtained an order of attachment, providing that Company shares
issued to WonderNet are to be attached to secure any award that the Company may
obtain against WonderNet in the arbitration. On April 15, 2005, WonderNet filed
its response to the Company's demand in arbitration. In its response, WonderNet
claims damages of $240,000 for unpaid amounts under its contract with the
Company, as well as other unspecified damages, including alleged punitive
damages, and seeks an accounting.

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

The following sets forth certain information regarding sales of our securities
during from January 1, 2005 to April 30, 2005, which sales were not registered
under the Securities Act of 1933 (the "Act"). Unless otherwise indicated, no
underwriters were involved in these transactions.

In January and February 2005, we sold to private investors 530,000 shares of our
common stock for a total purchase price of $1,017,500. For no additional
consideration, three of the investors also received two-year warrants to
purchase a like number of shares of common stock at an exercise price of $2.00
per share.

On January 14, 2005, we issued 50,000 shares of our common stock to an
individual as consideration for investor relations services.

On March 11, 2005, we issued 250,000 shares of our common stock to two
individuals (one of whom is now an employee) as collateral to secure repayment
of promissory notes.

On March 16, 2005, we issued 60,000 shares of our common stock to two
individuals as partial payment for legal services and executive recruiting
services. Also on March 16, 2005 we issued 13,889 share of our common stock to
our Chairman pursuant to his contract to provide services to the Company.

On March 23, 2005, we issued 50,000 shares of our common stock to an individual
as consideration for renewing a loan to the Company.


                                       41
<PAGE>

On March 29, 2005, we issued 50,000 shares of our common stock to an individual
who is now an employee as consideration for making a loan to the Company.

On March 28, 2005, we issued 11,666 shares of our common stock to an individual
pursuant to the Share Exchange Agreement between eMedRx, Inc. (Canada) and
SiVault Systems, Inc. to acquire remaining minority equity interests of eMedRx,
Inc. (Canada).

On March 30, 2005, we issued 57,600 shares of our common stock to three
employees as consideration for making loans to the Company.

On April 30, 2005, the Company issued 8,333 shares of our common stock to the
Chairman of the Board as consideration for accepting a promissory note from the
Company for payments owed to him in connection with services performed under his
contract for the period January 1 through April 30, 2005.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

NONE.

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

NONE.

ITEM 5.  OTHER INFORMATION

NONE.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.  Exhibits

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

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

B. Reports on Form 8-K

       1)      Report on Form 8-K filed on February 28, 2005.

       2)      Report on Form 8-K filed on February 24, 2005.

       3)      Report on Form 8-K filed on April 8, 2005.


                                       42
<PAGE>

                                   SIGNATURES

Pursuant to the requirement of the Securities of Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                                           SiVault Systems, Inc.

Date: May 16, 2005                 By:                   /s/ Emilian Elefteratos
                                             -----------------------------------
                                   Name:                     Emilian Elefteratos
                                   Title:                Chief Executive Officer
                                                   (Principal Executive Officer)

Date: May 16, 2005
                                   By:                          /s/ Wayne Taylor
                                         ---------------------------------------
                                   Name:                            Wayne Taylor
                                   Title:        Interim Chief Financial Officer
                                                        (Principal Financial and
                                                             Accounting Officer)


                                       43
<PAGE>

                                Index of Exhibits

Number   Description

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

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