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



<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

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

For the quarterly period ended March 31, 2006

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

For the transition period from _______________ to ________________

         COMMISSION FILE NUMBER                      0-30711
         ----------------------                      -------

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

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

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

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

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

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

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

State the number of shares outstanding of each of the issuer's classes of common
stock as of March 31, 2006

Common Stock, $.001 par value                           61,823,949
-----------------------------                        ----------------
Class                                                Number of shares

                                        2
<PAGE>

                                TABLE OF CONTENTS


PART I.
-------

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

PART II - OTHER INFORMATION
-------

ITEM 1. LEGAL PROCEEDINGS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS ON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND FORMS 8-K
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2




                                        3
<PAGE>

                                     PART I
                                     ------

ITEM 1. FINANCIAL STATEMENTS



SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS


                                                           March 31,   June 30,
                                                             2006        2005
                                                         -----------------------
                                                         (Unaudited)
CURRENT ASSETS
  Cash                                                   $  354,339   $    9,808
  Accounts receivable - net of allowance of $663,906
   and $663,906, respectively                                    --      204,042
  Inventory                                                  12,577      136,606
  Prepaid expenses and other current assets                  24,040      354,639
                                                         -----------------------
     TOTAL CURRENT ASSETS                                   390,956      705,095

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
 DEPRECIATION                                                64,710       70,000
OTHER ASSETS                                                  6,957      113,457
INTANGIBLE ASSETS                                         7,254,058    7,254,058
                                                         -----------------------

                                                         $7,716,681   $8,142,610
                                                         =======================


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


                                        4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    March 31,       June 30,
                                                                                      2006            2005
                                                                                 ----------------------------
                                                                                  (Unaudited)
<S>                                                                              <C>             <C>
CURRENT LIABILITIES
    Accounts payable and accrued liabilities - non-related parties               $  2,535,166    $  3,886,599
    Accounts payable and accrued liabilities - related parties                         34,402         812,170
    Notes and loans payable - non-related parties                                   1,356,998       1,370,377
    Notes and loans payable - related parties                                         289,214       1,491,856
    Convertible notes and settlement payable                                          809,800       2,039,509
    Corporate income taxes payable                                                    179,920         179,920
                                                                                 ----------------------------
      TOTAL CURRENT LIABILITIES                                                     5,205,500       9,780,431
                                                                                 ----------------------------


OTHER LIABILITIES                                                                          --          15,915
                                                                                 ----------------------------

STOCKHOLDERS' EQUITY (DEFICIENCY):
  Common stock
     Authorized - 100,000,000 shares $0.001 par value
     Issued and outstanding - 61,823,949 and 20,510,636
     shares, as of March 31, 2006 and June 30, 2005,
     respectively                                                                      61,824          20,511
  Additional paid-in capital                                                       47,109,405      40,445,476
  Accumulated other comprehensive loss                                                 (7,311)         (7,311)
  Accumulated deficit                                                             (44,652,737)    (42,112,412)
                                                                                 ----------------------------
     TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                        2,511,181      (1,653,736)
                                                                                 ----------------------------
                                                                                 $  7,716,681    $  8,142,610
                                                                                 ============================
</TABLE>

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

                                        5
<PAGE>

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

<TABLE>
<CAPTION>
                                                        Nine Months Ended                  Three Months Ended
                                                             March 31,                           March 31,
                                                  -----------------------------       -----------------------------
                                                      2006               2005             2006              2005
                                                  -----------       -----------       -----------       -----------
<S>                                                 <C>               <C>               <C>               <C>
REVENUES

     Contract revenues earned                     $        --       $ 1,497,759       $        --       $   295,778

     Other revenues                                     1,400            23,300                --             4,200
                                                  -----------       -----------       -----------       -----------
                                                        1,400         1,521,059                --           299,978
                                                  -----------       -----------       -----------       -----------
OPERATING EXPENSES

     Cost of revenues earned                            9,900           658,926                --           167,141

     Selling, general and administrative            3,319,147         8,950,091         1,792,398         3,519,923
                                                  -----------       -----------       -----------       -----------
                                                    3,329,047         9,609,017         1,792,398         3,687,064
                                                  -----------       -----------       -----------       -----------

LOSS FROM OPERATIONS                               (3,327,647)       (8,087,958)       (1,792,398)       (3,387,086)
                                                  -----------       -----------       -----------       -----------
OTHER (INCOME) EXPENSES:

     Interest expense                                 617,739           664,060            55,643           493,177
     Gain on settlement of debt                    (1,405,061)               --          (286,150)               --
                                                  -----------       -----------       -----------       -----------

                                                     (787,322)          664,060          (230,507)          493,177
                                                  -----------       -----------       -----------       -----------
LOSS BEFORE PROVISION FOR INCOME TAXES             (2,540,325)       (8,752,018)       (1,561,891)       (3,880,263)


PROVISION FOR INCOME TAXES                                 --                --                --                --
                                                  -----------       -----------       -----------       -----------
NET LOSS
                                                  $(2,540,325)      $(8,752,018)      $(1,561,891)      $(3,880,263)
                                                  ===========       ===========       ===========       ===========
BASIC AND DILUTED LOSS PER COMMON SHARE:

     NET LOSS                                     $     (0.07)      $     (0.58)      $     (0.03)      $     (0.22)
                                                  ===========       ===========       ===========       ===========
</TABLE>

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


                                        6
<PAGE>

SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)

<TABLE>
<CAPTION>

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

Issuance of common stock for:
  Cash (net of finders fees)      17,092,400         17,092      2,520,984             --              --       2,538,076

Settlement of accounts
  payables and accrued
  liabilities                      3,850,000          3,850        745,150             --              --         749,000

Settlement of notes and
  loans payable                   11,551,905         11,552      1,668,322             --              --       1,679,874

Services                           8,819,008          8,819      1,398,601             --              --       1,407,420

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

Issuance of stock warrants
  for settlement of notes
  payable                                 --             --        265,238             --              --         265,238

Issuance of stock warrants as
  consideration for a note
  payable                                 --             --         60,786             --              --          60,786

Net loss                                  --             --             --             --      (2,540,325)     (2,540,325)
                                ------------------------------------------------------------------------------------------

Balance, December  31, 2005
(Unaudited)                       61,823,949   $     61,824   $ 47,109,405   $     (7,311)   $(44,652,737)      2,511,181
                                ==========================================================================================
</TABLE>

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

                                        7
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                                        Total
                                          Common Stock              Additional       Other                          Stockholders'
                                  ----------------------------       Paid In     Comprehensive     Accumulated         Equity
                                     Shares          Amount          Capital          Loss           Deficit        (Deficiency)
                                  ------------    ------------    ------------    ------------     ------------     ------------
<S>                                 <C>           <C>             <C>             <C>              <C>              <C>
Balance, June 30, 2004
(Audited)                            7,924,664    $      7,924    $ 14,548,456    $     (7,222)    $(18,212,058)    $ (3,662,900)

Issuance of common stock for:
  Cash (net of finders fees)         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              420,003             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 service                      --              --       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
(Unaudited)                         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.


                                       7A
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  Nine months ended
                                                                                      March 31,
                                                                          ----------------------------------
                                                                               2006                2005
                                                                          ----------------------------------
<S>                                                                       <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                             $   (2,540,325)     $   (8,752,018)
     Adjustments to reconcile net loss to net cash
     provided by operating activities:
        Depreciation and amortization of property and equipment                    9,498             126,910
        Issuance of common stock for services                                  1,407,420           1,975,500
        Issuance of stock options for services                                     4,848           1,055,900
        Gain on settlement of notes and loans payable                           (804,601)                 --
        Gain on settlement of accounts payable and
          accrued liabilities                                                   (600,460)                 --
        Amortization of debt discount as non-cash interest expense               256,518             297,730
        Deferred rent expense                                                    (10,495)             (4,844)
     Change in assets and liabilities:
        Accounts receivable                                                      204,042            (145,105)
        Inventory                                                                124,029            (527,151)
        Prepaid expenses and other current assets                                167,255             (65,053)
        Security deposits                                                             --             (70,580)
        Other assets                                                             106,500                  --
        Accounts payable and accrued liabilities                                (319,647)            786,513
        Other liabilities                                                         (5,420)                 --
        Billings in excess of costs and estimated earnings on
          uncompleted contracts                                                       --             (90,018)
                                                                          ----------------------------------
NET CASH USED IN OPERATING ACTIVITIES                                         (2,000,838)         (5,412,216)
                                                                          ----------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash acquired in acquisition                                                     --               5,622
     Purchase of property and equipment                                           (4,208)           (917,391)
                                                                          ----------------------------------

NET CASH USED IN INVESTING ACTIVITIES                                             (4,208)           (911,769)
                                                                          ----------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from the issuance of common stock                            2,538,076           3,348,049
     Proceeds from the exercise of stock warrants                                     --             333,334
     Proceeds from convertible debt and other notes payable                           --           3,546,341
     Proceeds from notes payable - related parties                               461,701             962,017
     Repayments of shareholders' advances                                             --            (115,000)
     Repayment of notes and loans payable                                       (250,000)                 --
     Repayments of convertible debenture and settlement payable                 (400,200)         (1,358,569)
     Repayments of capital lease obligations                                          --              (3,329)
                                                                          ----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                      2,349,577           6,712,843
                                                                          ----------------------------------

NET INCREASE IN CASH                                                             344,531             388,858

CASH: BEGINNING OF PERIOD                                                          9,808             112,880
                                                                          ----------------------------------
CASH: END OF PERIOD                                                       $      354,339      $      501,738
                                                                          ==================================
</TABLE>

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


                                        8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Nine Months Ended
                                                                                            March 31,
                                                                                 ----------------------------
                                                                                     2006              2005
                                                                                 -----------       ----------
<S>                                                                              <C>                  <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

CASH PAID DURING THE PERIOD FOR:

Interest                                                                         $      243        $  188,451
                                                                                 ============================
Income taxes                                                                             --                --
                                                                                 ============================

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Issuance of common stock for:

     Services                                                                    $1,407,420        $1,975,500
                                                                                 ============================
     Settlement of account payables and accrued liabilities                      $  749,000        $  692,528
                                                                                 ============================
     Settlement of notes and loans payable                                       $1,679,874                --
                                                                                 ============================
     Due to conversion of convertible notes                                              --        $  433,125
                                                                                 ============================
     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 for services                                           $    4,848        $1,055,900
                                                                                 ============================

Issuance of stock warrants for settlement of notes payable                       $  265,238        $       --
                                                                                 ============================

Issuance of common stock and stock warrants as consideration
     of notes and loans payable                                                  $   60,786        $1,373,828
                                                                                 ============================

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

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

                                        9
<PAGE>

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

NOTE 1 - BASIS OF PRESENTATION

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

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

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

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

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

Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provision, claims change
orders and settlements, are accounted for as changes in estimates in the current
period.

                                       10
<PAGE>

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 the excess of revenues recognized.

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

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the
provisions of SFAS No. 123, "Accounting for Stock Based Compensation", as
amended by SFAS No. 148 " Accounting for Stock-Based Compensation - Transition
and Disclosure- an Amendment of SFAS No. 123". SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock based employee compensation and the effect of the method
used on reported results. Stock warrants and options issued to consultants and
others are expensed in accordance with SFAS No. 123, as amended by SFAS No. 148.
For employee stock options, the Company has adopted SFAS No. 123 (revised),
"Share-Based Payment" which requires that the fair market value of share-based
compensation, such as stock options, be charged to expense over the period
earned, for the fiscal year beginning July 2005.

SEGMENT INFORMATION

SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information", establishes annual and interim reporting standards for an
enterprise's operating segments, and related disclosures about its products,
services, geographic areas and major customers. As defined in SFAS No. 131, the
Company had two operating segments for the nine months ended March 31, 2006 and
2005.

RECLASSIFICATIONS

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


NOTE 3 - MANAGEMENT'S LIQUIDITY PLANS

As shown on the accompanying financial statements, the Company has shown
cumulative from inception, recurring losses from operations, negative cash flows
from operations, and as of March 31, 2006 had a working capital deficit of
approximately $4.8 million. These factors raise significant doubt as to the
Company's ability to continue as a going concern.

Management's plan includes the following:

      1.    Significantly reducing and/or minimizing the Company's monthly
            overhead costs while the Company addresses items below concurrent
            with securing of a third party long-term revenue generating
            contract(s) or licensing agreement(s);
      2.    Raising equity through private placements. The Company has raised
            approximately $2.5 million in private placement of the Company's
            common shares from July l, 2005 through March 31, 2006;
      3.    Concluding debt settlement agreements with related and/or
            non-related parties;
      4.    Additional private placements of debt or equity subsequent to date
            of this report.

                                       11
<PAGE>

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

NOTE 4 - PER SHARE INFORMATION

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

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

<TABLE>
<CAPTION>
                                                          Nine Months Ended       Three Months Ended
                                                               March 31,               March 31
                                                            (in thousands)          (in thousands)
                                                       ----------------------------------------------
                                                         2006         2005        2006         2005
                                                       --------     --------    --------     --------
<S>                                                    <C>          <C>         <C>          <C>
Numerator:

        Net loss                                       $ (2,540)    $ (8,752)   $ (1,562)    $ (3,880)
                                                       ========     ========    ========     ========
Denominator:

        Weighted average common shares outstanding       34,020       14,979      52,581       17,342
                                                       ========     ========    ========     ========

Basic (and Diluted) Loss Per Share:

Net loss                                               $  (0.07)    $  (0.58)   $  (0.03)    $  (0.22)
                                                       ========     ========    ========     ========
</TABLE>

                                       12
<PAGE>

NOTE 5 - BUSINESS ACQUISITIONS

SIVAULT ANALYTICS, INC.

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



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

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

VIAQUO

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

                                       13
<PAGE>

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

Property and equipment                                          $       36,269
Excess cost over net tangible assets acquired                        5,097,058
                                                                --------------
         Total assets                                                5,133,327
                                                                --------------
Vacation pay liability                                                 (52,553)
                                                                --------------
         Net                                                         5,080,774
                                                                --------------
License fee due to Viaquo at purchase date                             250,000
                                                                --------------
Advance to Viaquo from the Company                                     (37,046)
                                                                --------------
         Net assets acquired                                    $    5,293,728
                                                                ==============

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

The following table shows the unaudited pro forma results of the Company, giving
effect to the acquisition of SiVault Analytics, Inc. and the purchase of the
ViaSeal Access Control business, assuming they were consummated at the beginning
of the nine months ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                    Nine months ended March 31,            Three months ended March 31,
---------------------------------------------------------------------------------------------------------
                                     2006                2005                2006                2005
---------------------------------------------------------------------------------------------------------
<S>                            <C>                 <C>                 <C>                 <C>
Revenues                       $        1,400      $    1,521,059      $           --      $      299,978
---------------------------------------------------------------------------------------------------------
Net loss                       $   (2,540,325)     $   (9,678,384)     $   (1,561,891)     $   (3,880,263)
---------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------
Basic and diluted net          $        (0.07)     $        (0.55)     $        (0.03)     $        (0.20)
loss per common share
---------------------------------------------------------------------------------------------------------
</TABLE>


                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        March 31,            June 30,
                                                                                          2006                 2005
                                                                                      -----------           -----------
<S>                                                                                    <C>                  <C>
As of March 31, 2006, the Company had four short-term promissory notes from
non-related parties totalling $731,367. These notes bear interest at an annual
rate of 12%, payable at the end of their terms. The principal amount of the June
30, 2005 notes is reflected on the balance sheet, net of the fair market value
of the warrants and the stock issued, which are accounted for as debt discount.
As of March 31, 2006, the Company was in default of payment on all four notes.        $   731,367           $ 1,141,653

As of March 31, 2006, the Company has two note settlements totaling $525,800
to be paid within a year bearing no annual interest rates. The Company had two
other loans totaling $99,831 with no terms and bearing no annual interest rates,          625,631               393,998
                                                                                      -----------           -----------
                                                                                        1,356,998             1,535,651

Less: Debt Discount                                                                            --               165,274
                                                                                      -----------           -----------
                                                                                      $ 1,356,998           $ 1,370,377
                                                                                      ===========           ===========

For the three and nine months ended March 31, 2006, the Company had a loss on
the settlement of notes and loans payable - non-related parties (including
accrued interest) of $331,557. There was no gain or loss for the three and nine
months ended March 31, 2005.

NOTE 7 - NOTES AND LOANS PAYABLE - RELATED PARTIES
                                                                                        March 31,            June 30,
                                                                                          2006                 2005
                                                                                      -----------           ----------
As of March 31, 2006, the Company had a four-month promissory note from a
related party bearing an interest rate of 8%, payable on July 31, 2006. The
principal amount of this note is reflected on the balance sheet, net of the
fair market value of the warrants and the stock issued, which are
accounted for as debt discount.                                                       $   200,000           $ 1,379,667

As of March 31, 2006, the Company had one note settlement from a related party
totaling $150,000 bearing no annual interest rate. Final payment of the settled
note was due May 15, 2006, but has been extended.                                         150,000               120,833
                                                                                      -----------           -----------
                                                                                          350,000             1,500,500
Less: Debt Discount                                                                        60,786                 8,644
                                                                                      -----------           -----------
                                                                                      $   289,214           $ 1,491,856
                                                                                      ===========           ===========
For the three and nine months ended March 31, 2006, the Company had a gain on
the settlement of notes and loans payable - related parties (including accrued
interest) of $17,250 and $192,037, respectively. There was no gain or loss for
the three and nine months ended March 31, 2005.
</TABLE>

                                       15
<PAGE>

NOTE 8 - CONVERTIBLE NOTES AND SETTLEMENT PAYABLE

<TABLE>
<CAPTION>
                                                                                        March 31,            June 30,
                                                                                          2006                 2005
                                                                                      -----------           ----------
<S>                                                                                   <C>                   <C>
On November 23, 2004 and January 19, 2005, the Company issued $3 million of
convertible notes to three investment funds ("Longview"). The convertible notes
bore interest at the prime rate plus 3%. The Company also issued a total of
400,000 warrant shares, which may be converted within five years of issuance at
$3 per share. The convertible notes were secured by a first priority lien on all
of the assets of the Company and are reflected on the balance sheet, net of the
fair market values of warrants and the beneficial conversion feature, which are
accounted for as debt discount.                                                       $        --           $ 2,588,237

On November 21, 2005, the Company entered into a settlement and restructuring
agreement with Longview to restructure the convertible notes, as follows:

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

            (b)   The Company to pay an additional $400,000 to Longview on or
                  before April 30, 2006. The Company has received a payment
                  extension to June 15, 2006;

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

                  (i)   principal amount to be reduced to $410,000 from
                        $2,588,237;
                  (ii)  fixed conversion price to be reduced to $0.20 per share;
                  (iii) the Company granted a one year redemption right with
                        respect to any shares issued at $0.25 per share;
                        provided that the Company has not had an event of
                        default since November 21, 2005;

            (d)   Balance of debt to be forgiven if Company is not in default of
                  the foregoing terms and conditions.

                                                                                          809,800                    --
                                                                                      -----------           -----------
                                                                                          809,800             2,588,237

Less: Debt Discount                                                                            --               548,728
                                                                                      -----------           -----------

                                                                                      $   809,800           $ 2,039,509
                                                                                      ===========           ===========
</TABLE>

                                       16
<PAGE>

For the three and nine months ended March 31, 2006, the Company had a gain on
settlement of the convertible debt, net of deferred finance costs and accrued
interest of $0 and $944,121, respectively. There was no gain or loss for the
three and nine months ended March 31, 2005.


NOTE 9 - STOCKHOLDERS' EQUITY

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

In February 2006, the shareholders of the Company voted to increase the amount
of authorized shares of the Company, as follows:

      1)    Common stock from 50 million to 100 million, and
      2)    Preferred stock from 1.5 million to 3 million. The Company has not
            issued any preferred stock as of March 31, 2006.

NOTE 10 - STOCK-BASED WARRANTS AND STOCK OPTIONS

WARRANTS

As of March 31, 2006, the Company had the following warrants outstanding:

     WARRANTS             EXERCISE PRICE         EXPIRATION
   OUTSTANDING              PER SHARE                DATE
------------------        --------------       ------------------
    1,004,975               $  2.00            August 22, 2006
      187,500                  4.00            September 13, 2006
    1,003,150                  6.00            September 13, 2006
      600,998                  3.00            October 18, 2006
       35,000                  4.00            March 16, 2007
      250,000                  2.67            October 1, 2008
       23,408                 0.001            October 1, 2008
      100,000                  2.00            January 21, 2010
       30,000                  2.00            February 23, 2010
       66,666                  0.75            March 11, 2010
      150,000                  2.25            March 31, 2010
      328,653                  0.75            April 29, 2010
    2,825,000                  1.76            May 2, 2010
      100,000                  2.00            June 2, 2010
      321,000                  0.75            June 10, 2010
       42,000                  0.75            June 20, 2010
       57,600                  2.25            March 30, 2015
        8,333                  2.25            April 30, 2015
      581,500                  0.75            March 1, 2011
      200,000                  0.45            March 31, 2011
-------------
    7,915,783   SUBTOTAL
-------------

                                       17
<PAGE>

Other Warrants (in connection with loans, etc.)

      400,000                 $2.50            May 7, 2006
       50,000                  3.00            May 9, 2006
      400,000                  2.50            May 25, 2006
       50,000                  2.50            December 23, 2006
      672,000                  3.00            September 30, 2008
      200,000                  3.00            November 23, 2009
      200,000                  3.00            January 19, 2010
      150,000                  3.00            May 26, 2010
       50,000                  3.00            June 17, 2010
   ----------
    2,172,000  SUBTOTAL
   ----------
   10,087,783 TOTAL WARRANTS
   ==========

STOCK OPTIONS

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

By March 31, 2006, all of the Company's employees based in San Jose were
terminated and, under the terms of the 2004 Plan, options issued to these
employees terminated three months after the date of their separation.

NOTE 11 - BUSINESS SEGMENTS

The summarized financial information, concerning the Company's reportable
segments for the nine months ended March 31, 2006 and 2005, is as follows:


                                     Biometric       Professional
                                     Security        Services         Total
                                     ---------       ------------     -----
          2006
          ----
Net sales                          $     1,400     $        --     $     1,400
Operating loss                      (3,313,778)        (13,869)     (3,327,647)
Total assets                         7,716,681              --       7,716,681
Depreciation and amortization            9,498              --           9,498
Capital expenditures                     4,208              --           4,208
Interest expense                       617,739              --         617,739
Gain on settlement of debt             893,592         511,469       1,405,061

                                       18
<PAGE>

                                     Biometric       Professional
                                     Security        Services         Total
                                     ---------       ------------     -----
           2005
           ----
Net sales                         $     23,300    $  1,497,759   $  1,521,059
Operating 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


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

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

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

CRITICAL ACCOUNTING POLICIES

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

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

The following discussion of critical accounting policies represents our attempt
to report on those accounting policies which we believe are critical to our
consolidated financial statements and other financial disclosure. It is not
intended to be a comprehensive list of all of our significant accounting
policies, which are more fully described in Note 1 of the Notes to the
Consolidated Financial Statements included in our annual report on Form 10KSB
for the year ended June 30, 2005.

                                       19
<PAGE>

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

Revenue Recognition

Our revenue recognition policies are significant because our revenue is a key
component of our results of operations. Revenue recognition in connection with
our Lightec business, which accounted for substantially all of our approximately
$1,500,000 in revenues for the nine months ended March 31, 2005 is particularly
subjective as it has historically been generated from fixed-price or modified
fixed-price contracts. Recognition of revenue from these contracts requires the
estimation of the cost, scope and duration of each engagement. Revenue and the
related costs for these projects are recognized using the
percentage-of-completion method as costs (primarily labor and materials) are
incurred, with revisions to estimates reflected in the period in which changes
become known. If we do not accurately estimate the resources required or the
scope of work to be performed, or do not manage our projects properly within the
planned periods of time or satisfy our obligations under the contracts, then
future revenue and margins from this business may be significantly and
negatively affected or losses on existing contracts may need to be recognized.
Any such resulting changes in revenues and reductions in margins or contract
losses could be material to our results of operations.

Income Taxes

We have a history of losses. These losses generated federal net operating loss
("NOL") carry forwards of approximately $20 million as of June 30, 2005.
Generally accepted accounting principles require that we record a valuation
allowance against the deferred income tax asset associated with these NOL carry
forwards and other deferred tax assets if it is "more likely than not" that we
will not be able to utilize them to offset future income taxes. Due to our
history of unprofitable operations, we only recognize net deferred tax assets in
those subsidiaries in which we believe that it is "more likely than not" that we
will be able to utilize them to offset future income taxes in the future. We
currently provide for income taxes only to the extent that we expect to pay
taxes on current income.

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

Long-Lived Assets

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

                                       20
<PAGE>

RESULTS OF OPERATIONS

Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005
-----------------------------------------------------------------------

Our revenues for the three months ended March 31, 2006 were $0, a decrease of
$299,978 or 100% from the three months ended March 31, 2005. Our revenues were
substantially all generated in 2005 from the Lightec subsidiary, in regards to
the Bridgeport School District ("Bridgeport") contract. The loss of revenues in
2006 resulted from the cessation of income earned under the Bridgeport contract.

The cost of revenues for the three months ended March 31, 2006 was $0, a
decrease of $167,141 from the three months ended March 31, 2005 due to the
cessation of income earned under the Bridgeport contract.

Our selling, general and administrative expenses for the three months ended
March 31, 2006 were $1,792,398, a decrease of approximately $1.7 million or
approximately 49% from the three months ended March 31, 2005. The decrease in
the selling, general and administration expense for the three months ended March
31, 2006 was primarily attributable to the closing of the San Jose office in
September 2005, where most of our employees and operations were located. For the
three months ended March 31, 2006, payroll and related costs and consulting fees
decreased by approximately $1.1 million, and $500,000, respectively, as compared
to the three months ended March 31, 2005.

Our other (income) expenses for the three months ended March 31, 2006 was
$230,507 of income, an increase in income of $723,684, as compared to the three
months ended March 31, 2005. Interest expense for the three months ended March
31, 2006 was $55,643, a decrease of $437,534, or approximately 89% from the
three months ended March 31, 2005. The decrease in interest expense can be
attributable to lower average note and loan balances as a result of debt
settlements. We had a gain on settlement of debt of $286,150 for the three
months ended March 31, 2006, and none for the three months ended March 31, 2005.

Our net loss for the three months ended March 31, 2006 was $1,561,891, as
compared to the loss of $3,880,263 for three months ended March 31, 2005, a
decrease in loss of $2,318,372, or approximately 60%. The decrease in net loss
was primarily attributable to the reduction in selling, general and
administrative costs due to the closing of the San Jose office in September
2005, where most of our employees and operations were located, and a gain on
settlement of debt of $286,150 for the three months ended March 31, 2006.

Nine Months Ended March 31, 2006 vs. Nine Months Ended March 31, 2005
----------------------------------------------------------------------

Our revenues for the nine months ended March 31, 2006 were $1,400, a decrease of
approximately $1.5 million or 100% from the nine months ended March 31, 2005.
Our revenues were substantially all generated for the nine months ended March
31, 2005 from the Lightec subsidiary, in regards to the Bridgeport contract. The
loss of revenues for the nine months ended March 31, 2006 resulted from the
cessation of income earned under the Bridgeport contract.

The cost of revenues for the nine months ended March 31, 2006 was $9,900, a
decrease of $649,026 or approximately 98% from the nine months ended March 31,
2005 due to the cessation of income earned under the Bridgeport contract.

Our selling, general and administrative expenses for the nine months ended March
31, 2006 were $3,319,147, a decrease of approximately $5.6 million or
approximately 63% over the nine months ended March 31, 2005. The decrease in the
selling, general and administration expense for the nine months ended March 31,
2006 was primarily attributable to the closing of the San Jose office in
September 2005, where most of our employees and operations were located. For the
nine months ended March 31, 2006 payroll and related costs, consulting fees,
board of directors/advisory board fees, professional fees, and travel and
entertainment decreased by approximately $2 million, $1.3 million, $550,000,
$300,000, and $300,000, respectively, as compared to the nine months ended March
31, 2005.

                                       21
<PAGE>

Our other (income) expenses for the nine months ended March 31, 2006 was
$787,322 of income, an increase in income of $1,451,382, as compared to the nine
months ended March 31, 2005. Interest expense for the nine months ended March
31, 2006 was $617,739, a decrease of $46,321, or approximately 7% from the nine
months ended March 31, 2005. The decrease in interest expense can be
attributable to lower average note and loan balances as a result of debt
settlements for the nine months ended March 31, 2006, as compared to the nine
months ended March 31, 2005. We had a gain on settlement of debt of $1,405,061
for the nine months ended March 31, 2006, and none for the nine months ended
March 31, 2005.

Our net loss for the nine months ended March 31, 2006 was $2,540,325, as
compared to the net loss of $8,752,018 for the nine months ended March 31, 2005,
a decreased in loss of $6,211,693, or approximately 71%. The decrease in net
loss was primarily attributable to the reduction in selling, general and
administrative costs due to the closing of the San Jose office in September
2005, where most of our employees and operations were located, and a gain on
settlement of debt of $1,405,061 for the nine months ended March 31, 2006.



                                       22
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended March 31, 2006, 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 $4.8 million as of March 31, 2006 as
compared with $9.1 million at June 30, 2005. Cash increased by $344,531 during
the nine months ended March 31, 2006.

Net cash used in operating activities was $2,000,838 during the nine months
ended March 31, 2006, as compared to $5,412,216 during the nine months ended
March 31, 2005. Net cash used in operations for the nine months ended March 31,
2005 resulted primarily from our net loss of approximately $2.5 million, offset
by an increase in non-cash income and expenses of approximately $260,000
(including a going on settlement of debt of approximately $1.4 million issuance
of common stock for services of approximately $1.4 million and amortization of
debt of $256,518), and decreases in accounts receivable of $204,042, inventory
of $124,029 and prepaid expenses and other current assets of $167,255.

Investing activities utilized $4,208 of cash during the nine months ended March
31, 2006, as compared to $911,769 for the nine months ended March 31, 2005.
Purchases of property and equipment for the nine months ended March 31, 2005
were primarily for computers, servers, routers, storage devices and software.

Financing activities provided $2,349,577 of cash during the nine months ended
March 31, 2006 as compared to $6,712,843 for the nine months ended March 31,
2005. Net cash provided resulted primarily from the issuance of common stock
totaling approximately $2.5 million.

During the nine months ending March 31, 2006, we raised approximately $2.5
million in equity and we reduced outstanding indebtedness to a related party.
The Company continues to finance its operations through the issuance of equity.
The sale of additional equity or debt securities will result in further dilution
to our stockholders. These securities may also have rights senior to those of
holders of our common stock. Any indebtedness could contain covenants, which
restrict our operations and limit our ability to incur additional debt. The
proceeds from any such private placement will continue to be utilized to reduce
or pay-off our outstanding obligations and to fund expanded operations.

The Company has been engaged in an intense effort at settling and/or refinancing
debts the past nine months. To date approximately $6,700,000 in debts as of June
30, 2005 have been settled or restructured, including the approximately $2.5
million owed to the Longview Funds as of June 30, 2005 which was restructured by
payment of $400,000 in February 2006, an additional payment of approximately
$400,000 due June 15, 2006 and the issuance of convertible notes of $410,000 at
a fixed conversion rate of $.20 per share for shares (subject to repurchase
rights). The Company intends to continue to settle payables on favorable terms
until such time as it is able to generate funds from operations.

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

                                      -23-
<PAGE>

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES AND FACTORS THAT MAY AFFECT FUTURE
RESULTS

Interest Rate Risk:

Our exposure to market risk for changes in interest rates relates primarily to
our short-term debt. Currently, only our convertible notes of $410,000 has a
variable rate of interest based on the Libor rates.

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

Risks related to our business.

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

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

Our business model is unproven and may not succeed.

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

-     our ability develop and deliver our technology solutions within budgeted
      costs;

-     our ability to enter into and implement successful channel partner
      arrangements;

-     acceptance in the market of our technology solutions;

-     our ability to price our technology solutions at competitive rates.

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

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

                                      -24-
<PAGE>

We incurred a net loss of $18,194,294 during the fiscal year ended June 30, 2005
and $3,406,660 during the prior fiscal year. For the nine months ended March 31,
2006, we incurred a net loss of $2,540,325 as compared with a net loss of
$8,752,018 for the nine months ended March 31, 2005. As of March 31, 2006, we
had an accumulated deficit of $44,652,737. Our auditors have issued a
qualification in their report on our financial statements for the year ended
June 30, 2005, reflecting their concern about our ability to continue as a going
concern for the current fiscal year. We expect to make significant expenditures
in connection with the implementation of our new business strategy, including
expenditures relating to sales and marketing activities, technology development
and integration, potential acquisitions and administrative resources. As a
result, we expect our losses to continue for the foreseeable future and we may
never achieve profitability.

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

As of March 31, 2006, we had a working capital deficiency of approximately $4.8
million. Despite raising approximately $2.5 million in equity from July 1, 2005
through March 31, 2006, we need to raise additional capital in order to continue
to fund our plan of operations and service our debts. We have no sources of
financing from which we can draw immediately. We cannot assure investors that we
will have adequate capital resources to fund planned operations or that any
additional funds will be available to our company when needed, or if available,
will be available on favorable terms or in amounts required. If we are unable to
obtain adequate capital resources to fund operations, we may be required to
delay, scale back or eliminate some or all of our existing and planned
operations.

We are dependent on a limited number of customers.

Substantially all of our historical revenue has been attributable to our Lightec
business. During the nine months ended March 31, 2005, substantially all of our
revenue was attributable to a contract with the Bridgeport School District
funded by the Federal eRate program. While additional amounts have been budgeted
for this project for the 2004-2005 school year and we have received Federal
approval under the eRate program, the School District has advised Lightec that
it does not intend to authorize additional work under this contract. We earned
only $1,400 of income during the nine months ended March 31, 2006, none from
Lightec.

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

We have granted a first priority lien in the assets and revenue of Lightec to
secure repayment of a debenture in the principal amount of $2,588,237 as of June
30, 2005. This balance was reduced to an installment payment of approximately
$400,000 , along with a convertible note of $410,000 as of March 31, 2006.

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

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

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

                                      -25-
<PAGE>

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 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.

                                      -26-
<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; and

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

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

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

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

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

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

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

                                      -27-
<PAGE>

We recently experienced a nearly 100% turnover in our senior management.

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

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

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

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

Our Net Operating Loss Carry-Forwards May Be Limited.

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

Risks Related to Our Securities

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

Our common stock is traded on the NASD OTC Pink Sheets. Trading in our stock has
been limited and there can be no assurance that an active trading market for our
stock will develop. As a result, this could adversely affect our shareholders'
ability to sell our common stock in short time periods, or possibly at all.
Thinly traded shares can be more volatile than shares traded in an active public
market. The average daily trading volume of our common stock in March 2006 was
20,000 shares. The high and low bid price of our common stock for the last two
years has ranged from $0.02 and $4.50 per share. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations, which could adversely affect the market price of our common
stock without regard to our operating performance.

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

                                      -28-
<PAGE>

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

-     With a price of less than $5.00 per share;

-     That are not traded on a "recognized" national exchange;

-     Whose prices are not quoted on the NASDAQ automated quotation system; or

-     Of issuers with net tangible assets of less than $2.0 million (if the
      issuer has been in continuous operation for at least three years) or $5.0
      million (if issuer has been in continuous operation for less than three
      years), or with average revenues of less than $6.0 million for the last
      three years.

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

ITEM 3. CONTROLS AND PROCEDURES.

An evaluation was performed, as of March 31, 2006, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Interim Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on such evaluation,
our management has concluded that our disclosure controls and procedures were
effective as of March 31, 2006.

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

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


                                      -29-
<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth certain information regarding sales of our securities
during the nine months ended Mach 31, 2006, which sales were not registered
under the Securities Act of 1933. Unless otherwise indicated, no underwriters
were involved in these transactions.

During the nine months period ended March 31, 2006, the Company sold
approximately $14 million shares of its common stock to approximately ten
individuals at prices between $.10 and $.45. All such shares were sold in
reliance on an exemption from registration under Section 4(2) of the Securities
Act of 1933.

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

In addition, the Company issued shares of its stock in connection with the
settlement of debt.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

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

In February 2006, the shareholders of the Company voted to increase the amount
of authorized shares of the Company as follows:

            1) Common stock from 50 million to 100 million, and
            2) Preferred stock from 1.5 million to 3 million.

ITEM 5. OTHER INFORMATION

None.

                                      -30-
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

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

(B) Reports on Form 8-K

None.




                                      -31-
<PAGE>

                                   SIGNATURES

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


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

Date: June 15, 2006                                 /s/  John Mahoney
                                                    ------------------------
                                                    John Mahoney, President,
                                                    Chief Executive Officer





                                      -32-
<PAGE>

                                INDEX OF EXHIBITS


Number Description

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

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

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

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






                                      -33-