<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10QSB

                         SIVAULT SYSTEMS, INC. - SVTL.OB
              FILED: February 14, 2005 (PERIOD: December 31, 2004)
                   Quarterly report filed by small businesses

<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
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2

                                        2
<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   Form 10-QSB

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2004


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

For the transition period from _______________ to ________________

                         COMMISSION FILE NUMBER 0-30711

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

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

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

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

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

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

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

State the number of shares outstanding of each of the issuer's classes of common
stock as of December 31, 2004

Common Stock, $.001 par value                        16,787,530
Class                                                Number of shares

                                        3
<PAGE>

                     SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
                                      INDEX

PART I

  Item 1

   Financial Statements                                                Page No.
   --------------------                                                ---------
   Consolidated Balance Sheets as of December 31, 2004 and
   June 30, 2004                                                            5

   Consolidated Statements of Operations for the six months and three
   months ended December 31, 2004 and 2003                                  6

   Consolidated Statements of Stockholders' Equity for the six months
   ended December 31, 2004 and 2003                                         7

   Consolidated Statements of Cash Flows for the six months
   ended December 31, 2004 and 2003                                       8 - 9

   Condensed Notes to Consolidated Financial Statements for the periods
   ended December 31, 2004                                               10 - 26

                                        4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   December 31,       June 30,
                                                                                       2004             2004
                                                                                   -------------    -------------
                                                                                    (Unaudited)
<S>                                                                                <C>              <C>
CURRENT ASSETS
  Cash                                                                             $     410,740    $     112,880
  Accounts receivable                                                                    936,444          848,617
  Inventory                                                                              531,035            3,884
  Prepaid expenses and other current assets                                              221,639           58,788
                                                                                   -------------    -------------
    TOTAL CURRENT ASSETS                                                               2,099,858        1,024,169
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
 DEPRECIATION                                                                            277,292           63,517
CAPITALIZED SOFTWARE, NET OF ACCUMULATED
 AMORTIZATION                                                                            684,038          573,477

SECURITY DEPOSITS AND OTHER ASSETS                                                       252,624           56,916
EXCESS COST OVER NET ASSETS AND OTHER
 INTANGIBLES ACQUIRED                                                                  9,464,118                -
                                                                                   -------------    -------------
                                                                                   $  12,777,930    $   1,718,079
                                                                                   =============    =============

CURRENT LIABILITIES
  Accounts payable and accrued liabilities - non-related parties                   $   2,674,366    $   2,558,883
  Accounts payable and accrued liabilities - related parties                             320,379          789,410
  Billings in excess of costs and estimated earnings on uncompleted
   contracts                                                                                   -           90,018
  Note and convertible debenture payable                                               1,570,774        1,358,569
  Notes payable - related parties                                                        150,000          339,983
  Current portion of convertible notes                                                   286,221                -
  Other current liabilities                                                              129,920          227,162
                                                                                   -------------    -------------
    TOTAL CURRENT LIABILITIES                                                          5,131,660        5,364,025

LONG-TERM LIABILITIES
  Convertible notes payable                                                              940,440                -
  Deferred rent                                                                           13,724           16,954
                                                                                   -------------    -------------
    TOTAL LONG TERM LIABILITIES                                                          954,164           16,954

STOCKHOLDERS' EQUITY (DEFICIENCY):
  Common Stock
    Authorized - 50,000,000 shares $0.001 par value Issued - 19,087,530;
     16,787,530 shares outstanding and 2,300,000 shares held in escrow
     at December 31, 2004;
     7,924,664 shares issued and outstanding at June 30, 2004                             16,787            7,924
    Additional paid-in capital                                                        29,766,444       14,548,456
    Accumulated other comprehensive loss                                                  (7,311)          (7,222)
    Accumulated deficit                                                              (23,083,814)     (18,212,058)
                                                                                   -------------    -------------
      TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                          6,692,106       (3,662,900)
                                                                                   -------------    -------------
                                                                                   $  12,777,930    $   1,718,079
                                                                                   =============    =============

</TABLE>

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

                                        5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Six Months Ended                 Three Months Ended
                                                                     December 31,                      December 31,
                                                            -------------    -------------    -------------    -------------
                                                                2004             2003             2004             2003
                                                            -------------    -------------    -------------    -------------
<S>                                                         <C>              <C>              <C>              <C>
REVENUES
  Contract revenues earned                                  $   1,201,981    $   1,707,224    $     349,991    $   1,548,524
  Other revenues                                                   19,100           12,067           14,900                -
                                                            -------------    -------------    -------------    -------------
                                                                1,221,081        1,719,291          364,891        1,548,524
                                                            -------------    -------------    -------------    -------------
OPERATING EXPENSES
  Cost of revenues earned                                         491,785          968,654          100,781          891,543
  Selling, general and administrative                           3,366,168        1,234,836        2,248,161          625,359
  Issuance of common stock and stock options for services       2,064,000          111,000        1,353,500           36,000
                                                            -------------    -------------    -------------    -------------
                                                                5,921,953        2,314,490        3,702,442        1,552,902
                                                            -------------    -------------    -------------    -------------
LOSS FROM OPERATIONS                                           (4,700,872)        (595,199)      (3,337,551)          (4,378)
                                                            -------------    -------------    -------------    -------------
OTHER EXPENSES
  Interest expense                                                170,884          527,098          106,964          436,909
                                                            -------------    -------------    -------------    -------------
                                                                  170,884          527,098          106,964          436,909
                                                            -------------    -------------    -------------    -------------
LOSS BEFORE PROVISION FOR INCOME TAXES                         (4,871,756)      (1,122,297)      (3,444,515)        (441,287)
  PROVISION FOR INCOME TAXES                                            -                -                -                -
                                                            -------------    -------------    -------------    -------------
LOSS FROM CONTINUING OPERATIONS                                (4,871,756)      (1,122,297)      (3,444,515)        (441,287)
  INCOME FROM DISCONTINUED OPERATIONS                                   -          359,933                -                -
                                                            -------------    -------------    -------------    -------------
NET LOSS                                                    $  (4,871,756)   $    (762,364)   $  (3,444,515)   $    (441,287)
                                                            =============    =============    =============    =============
BASIC AND DILUTED LOSS PER COMMON SHARE:
  Continuing operations                                     $       (0.34)   $       (0.17)   $       (0.22)   $       (0.06)
  Discontinued operations                                   $        0.00    $        0.06    $        0.00    $        0.00
                                                            -------------    -------------    -------------    -------------
  Net loss                                                  $       (0.34)   $       (0.11)   $       (0.22)   $       (0.06)
                                                            =============    =============    =============    =============
WEIGHTED AVERAGE NUMBER OF
 COMMON SHARES OUTSTANDING                                     14,279,996        6,417,914       15,933,655        6,826,644
                                                            =============    =============    =============    =============
</TABLE>



                                       6
<PAGE>


SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY SECURITY BIOMETRICS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003
(Unaudited)

<TABLE>
<CAPTION>
                                                 Outstanding                           Accumulated                      Total
                                                 Common Stock           Additional        Other                     Stockholders'
                                         ----------------------------     Paid In     Comprehensive   Accumulated      Equity
                                            Shares         Amount        Capital          Loss          Deficit     (Deficiency)
                                         -------------  -------------  -------------  -------------  -------------  -------------
<S>                                         <C>         <C>            <C>            <C>            <C>            <C>
BALANCE, June 30, 2003 (audited)             6,214,813  $       6,216  $   8,319,588  $      (5,247) $ (15,134,954) $  (6,814,397)

Issuance of common stock for:
  Cash (net of finders fees)                   790,588            790      1,210,242              -              -      1,211,032
  Services                                      40,000             40        110,960              -              -        111,000
Issuance of common stock to
  settle debt                                   55,000             55         99,945              -              -        100,000
Issuance of common stock
 by subsidiary                                       -              -            653              -              -            653
Other comprehensive loss for the
 six month period ended
 December 31,2003                                    -              -              -         (1,206)             -         (1,206)
Net loss for the six month period
 ended December 31, 2003                             -              -              -              -       (762,364)      (762,364)
                                         -------------  -------------  -------------  -------------  -------------  -------------
BALANCE, December 31, 2003                   7,100,401  $       7,100  $   9,741,389  $      (6,453) $ (15,897,318) $  (6,155,282)
                                         =============  =============  =============  =============  =============  =============

BALANCE, June 30, 2004 (audited)             7,924,664  $       7,924  $  14,548,456  $      (7,222) $ (18,212,058) $  (3,662,900)

Issuance of common stock for:
  Cash (net of finders fees)                 2,048,124          2,048      2,485,235              -              -  $   2,487,283
  Services                                     720,000            720      1,703,280              -              -  $   1,704,000
Issuance of common stock to
 settle accounts payables and
 accrued liabilities                           420,005            420        667,881              -              -  $     668,301
Issuance of common stock for the
 acquisition of SiVault Analytics, Inc.
 and related costs                           4,140,000          4,140      7,419,860              -              -  $   7,424,000
Exercise of warrants                           166,667            167        333,167              -              -  $     333,334
Issuance of stock options for
 services                                            -              -        360,000              -              -  $     360,000
Issuance of common stock and
 warrants as consideration of loan              50,000             50        487,383              -              -  $     487,433
Issuance of common stock for the
 acquisition of eMedRx stock and
 Viaquo assets and related costs             1,318,070          1,318      1,761,182              -              -  $   1,762,500
Other comprehensive loss for the
 six month period ended
 December 31,2004                                    -              -              -            (89)             -  $         (89)
Net loss for the six month period
 ended December 31, 2004                             -              -              -              -     (4,871,756) $  (4,871,756)
                                         -------------  -------------  -------------  -------------  -------------  -------------
BALANCE, December 31, 2004                  16,787,530  $      16,787  $  29,766,444  $      (7,311) $ (23,083,814) $   6,692,106
                                         =============  =============  =============  =============  =============  =============
</TABLE>

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

                                        7
<PAGE>

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

<TABLE>
<CAPTION>
                                                                       Six Months Ended
                                                                         December 31,
                                                                ------------------------------
                                                                    2004              2003
                                                                -------------    -------------
<S>                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss from continuing operations                           $  (4,871,756)   $  (1,122,297)
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization of property, equipment, and
     capitalized software                                              69,207            5,014
    Gain on settlement of debt                                              -          (35,139)
    Issuance of common stock for consulting services                1,704,000           61,000
    Issuance of options for consulting services                       360,000                -
    Deferred rent expense                                              (3,230)               -
  Change in assets and liabilities:
    Accounts receivable                                               (87,827)          79,502
    Inventory                                                        (527,151)          (7,769)
    Prepaid expenses and other current assets                        (159,037)          15,269
    Security deposits                                                 (61,000)               -
    Accounts payable and accrued liabilities                           33,587          (84,245)
    Billings in excess of costs and estimated earnings on
     uncompleted contracts                                            (90,018)       1,755,270
                                                                -------------    -------------
NET  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES               (3,633,225)         666,605
                                                                -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash acquired in acquisition                                          5,622                -
  Purchase of property, equipment, and capitalized software          (305,458)          (3,405)
  Advances to discontinued subsidiary                                       -         (198,969)
                                                                -------------    -------------
NET CASH USED IN INVESTING ACTIVITIES                                (299,836)        (202,374)
                                                                -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from the issuance of common stock                    2,487,283        1,211,685
  Proceeds from the exercise of stock warrants                        333,334                -
  Repayments of shareholders' advances                               (115,000)               -
  Proceeds from convertible debt and other note payable             1,718,705          (80,893)
  Repayment of note payable - related party                          (189,983)               -
  Repayments on capital lease obligations                              (3,329)          (2,615)
                                                                -------------    -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                           4,231,010        1,128,177
                                                                -------------    -------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
 ON CASH                                                                  (89)          (1,206)
                                                                -------------    -------------
NET INCREASE IN CASH                                                  297,860        1,591,202
CASH: BEGINNING OF PERIOD                                             112,880            4,092
                                                                -------------    -------------
CASH: END OF PERIOD                                             $     410,740    $   1,595,294
                                                                =============    =============
</TABLE>

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

                                        8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  Six Months Ended
                                                                                    December 31,
                                                                            -----------------------------
                                                                                2004            2003
                                                                            -----------------------------
<S>                                                                         <C>             <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION

CASH PAID DURING THE PERIOD FOR:
  Interest                                                                  $     149,160   $     450,237
                                                                            =============   =============
  Income taxes                                                              $           -   $           -
                                                                            =============   =============
NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for:
    Services                                                                $   1,704,000   $      61,000
                                                                            =============   =============
    Settlement of account payables and accrued liabilities                  $     668,301             $ -
                                                                            =============   =============
    Prepaid expenses                                                        $           -   $      50,000
                                                                            =============   =============
    Settlement of convertible debenture                                     $           -   $     100,000
                                                                            =============   =============
  Excess cost of net assets acquired in the purchase of:

      SiVault Analytics, Inc.                                               $   7,863,060   $           -
                                                                            =============   =============
      Viaquo asset purchase                                                 $   1,601,057   $           -
                                                                            =============   =============
  Issuance of stock options for services                                    $     360,000   $           -
                                                                            =============   =============
  Issuance of a note payable - related party to payoff a note
   payable - related party                                                  $     150,000   $           -
                                                                            =============   =============
</TABLE>

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

                                        9
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

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

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

BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company as of December
31, 2004, and for the three months and six months ended December 31, 2004 and
2003 have been prepared in accordance with the accounting requirements of the
Securities and Exchange Commission of the United States for interim reporting.
Accordingly, they do not include all of the disclosures required by accounting
principles generally accepted in the United States for complete financial
statements and notes thereto in the Company's Form 10-KSB for the year ended
June 30, 2004. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
the interim financial information have been included. The results of operations
for any interim period are not necessarily indicative of the results of
operations for the entire year.

PRINCIPLES OF CONSOLIDATION

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

VARIABLE INTEREST ENTITIES

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" which was replaced in December 2003 by the
issuance of FIN 46R ("FIN 46R"). FIN 46R explains how to identify variable
interest entities ("VIEs") and how a company should assess its interests in a
variable interest entity to decide whether to consolidate that entity. FIN 46R
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. The Company was considered the primary beneficiary of
eMedRx Delaware, eMedRx Canada and eMedRx Nevada, and accordingly, had
consolidated the results of operations of these three entities as of, and for,
the three and six month periods ended December 31, 2004. On October 20, 2004,
the Company acquired, or reacquired, as the case may be, the eMedRx subsidiaries
as per Note 13.

                                       10
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING ESTIMATES

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

REVENUE RECOGNITION

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

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

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

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

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

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

                                       11
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTS RECEIVABLE

Management performs ongoing credit evaluations of its customers and it estimated
that an allowance for uncollectible accounts was not necessary at December 31,
2004 or June 30, 2004. Such estimates may change in the future. Accounts
receivable represent amounts due from billings under a contract entered into by
Lightec.

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

INVENTORY

The Company's inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market. At December 31, 2004, the Company's
inventory consists primarily of electronic point-of-sale terminals.

SOFTWARE DEVELOPMENT COSTS

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

PROPERTY AND EQUIPMENT

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

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

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

INCOME TAXES

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

                                       12
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PATENTS AND TRADEMARK

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

GOODWILL

The Company follows the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," for the accounting for goodwill. According to those
requirements, goodwill is capitalized, rather than being amortized, and
management performs a review each year to determine if there has been an
impairment. Impairment losses are recognized on the carrying value of goodwill.

LONG-LIVED ASSETS

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. For the six month and three month periods ended
December 31, 2004 and 2003, SFAS No. 144 did not have a material effect on the
Company's results of operations, cash flows or financial condition.

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates that the fair value of all financial instruments as of
December 31, 2004 and 2003, as defined in SFAS No. 107, does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying consolidated balance sheet. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable judgment is
required in interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.

STOCK-BASED COMPENSATION

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

                                       13
<PAGE>

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK ISSUED BY SUBSIDIARY

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

COMPREHENSIVE INCOME (LOSS)

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

CONCENTRATIONS OF CREDIT RISK

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

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

FOREIGN CURRENCY TRANSLATION

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

RECLASSIFICATION

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

NOTE 2 - DISCONTINUED OPERATIONS

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

The annual report for the year ended June 30, 2004 reported income from
discontinued operations that were based in part on estimates of certain expenses
related to Datadesk. During the three months ended December 31, 2004, those
estimates were revised because it was determined that previously estimated costs
of $93,912 were not incurred.

                                       14
<PAGE>

NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED)

Consequently, the financial statements for the three months ended December 31,
2004 include a reduction in selling, general and administrative expenses to
reflect this change in accounting estimate. Income from these discontinued
operations during the six months ended December 31, 2003 was as follows:

                                                          Six Months Ended
                                                          December 31, 2003
                                                          -----------------
     Revenues                                             $           6,431
     Direct expenses                                                      -
                                                          -----------------
     Gross profit                                                     6,431
     Selling, general and administrative                             28,571
                                                          -----------------
     Net operating loss                                             (22,140)
     Gain on disposition of subsidiary                              382,073
                                                          -----------------
     Income from discontinued operations for the period   $         359,933
                                                          =================

NOTE 3 - ACQUISITION OF VIAQUO AND SIVAULT ANALYTICS

As of November 30, 2004, the Company purchased substantially all of the of the
assets of Viaquo Corporation ("Viaquo") related to Viaquo's ViaSeal Access
Control Business, including physical equipment, technology, products and
intellectual property, in exchange for 3,050,000 shares of the Company's
restricted common stock valued at $2.35 per share (average market price for the
four trading days around November 30, 2004), of which 750,000 of the shares were
issued and delivered to Viaquo at closing; 2,050,000 of the shares were placed
in escrow to be held until the earlier to occur of (i) the issuance of a U.S.
Patent for certain U.S. Patent Applications acquired by SiVault, or (ii) the
abandonment by SiVault of the U.S. Patent Application following final rejection
thereof by the U.S. Patent and Trademark Office; and the remaining 250,000
shares were placed in escrow to be held until the earlier to occur of (i) the
issuance by the European Patent Office ("EPO") of a decision to grant a European
Patent with respect to an European Patent Application acquired by SiVault, or
(ii) the abandonment by SiVault of European Patent Application following a final
refusal by EPO to grant the European Patent.

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

The following table summarizes the estimated fair values of assets acquired and
liabilities assumed from Viaquo at the date of acquisition based upon the fair
value of 750,000 shares. SiVault is in the process of evaluating the valuations
of certain intangible assets included in the asset purchase.

                                       15
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   November 30, 2004
                                                                                   -----------------
     <S>                                                                           <C>
     Assets:
       Property and equipment                                                      $          36,270
       Excess cost over net assets and other intangibles acquired                          1,601,057
                                                                                   -----------------
         Total assets acquired                                                             1,637,327
                                                                                   -----------------
     Liabilities
       Vacation pay liability                                                                 52,553
                                                                                   -----------------
         Total liabilities assumed                                                           52,553
                                                                                   -----------------
                                                                                           1,584,774
                                                                                   -----------------
     License fee due Viaquo by Company at purchase date                                      250,000
                                                                                   -----------------
     Advances made to Viaquo by Company                                                      (37,046)
                                                                                   -----------------
     Net assets acquired                                                           $       1,797,728
                                                                                   =================
</TABLE>

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

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

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

<TABLE>
<CAPTION>
                                                                                      July 9, 2004
                                                                                   -----------------
     <S>                                                                           <C>
     Assets:
       Cash                                                                        $           5,622
       Property and equipment                                                                 51,815
       Deposits                                                                                  450
       Excess cost over net assets acquired                                                7,863,060
                                                                                   -----------------
                                                                                           7,920,947
                                                                                   -----------------
     Liabilities
       Accrued expenses                                                            $         381,947
       Shareholders' advance                                                                 115,000
                                                                                   -----------------
                                                                                   $         496,947
                                                                                   -----------------
     Net assets acquired                                                           $       7,424,000
                                                                                   =================
</TABLE>

                                       16
<PAGE>

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

The following table shows the unaudited pro forma results of the Company, giving
effect to the acquisition of SiVault Analytics, Inc. and the purchase of the
ViaSeal Access Control business, assuming they were consummated at the beginning
of the six month periods ended December 31, 2003 and December 31, 2004:

<TABLE>
<CAPTION>
                                                    Six Months Ended   Six Months Ended
                                                   December 31, 2004   December 31, 2003
                                                   -----------------   -----------------
     <S>                                              <C>                 <C>
     Revenues                                         $    1,221,081      $    1,731,691
                                                      --------------      --------------
     Loss from continuing operations                  $   (5,353,757)     $   (1,700,236)
                                                      ==============      ==============
     Income from discontinued operations                                         359,933
                                                      --------------      --------------
     Net Loss                                         $   (5,353,757)     $   (1,340,303)
                                                      ==============      ==============
     Basic and Diluted Loss Per Common Share:
       Loss from continuing operations                $        (0.36)     $        (0.15)
                                                      --------------      --------------
       Loss from discontinued operations              $            -      $         0.03
                                                      --------------      --------------
       Net loss                                       $        (0.36)     $        (0.12)
                                                      ==============      ==============
</TABLE>

NOTE 4 - PER SHARE INFORMATION

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

                                       17
<PAGE>

NOTE 4 - PER SHARE INFORMATION (CONTINUED)

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

<TABLE>
<CAPTION>
                                                       Six Months Ended          Three Months Ended
                                                          December 31,              December 31,
                                                         (in thousands)             (in thousands)
                                                   ------------------------    ------------------------
                                                      2004          2003          2004          2003
                                                   ----------   -----------    ----------    ----------
<S>                                                <C>           <C>           <C>           <C>
NUMERATOR:
  Loss from continuing operations                  $   (4,872)   $   (1,122)   $   (3,445)   $     (441)
  Income from discontinued operations                       -           360             -             -
                                                   ----------    ----------    ----------    ----------
     Net loss                                      $   (4,872)   $     (762)   $   (3,445)   $     (441)
                                                   ==========    ==========    ==========    ==========
DENOMINATOR:
  Weighted average common shares outstanding           14,280         6,418        15,934         6,827
  Dilutive effect of:
    Common stock equivalents                                -             -             -             -
                                                   ----------    ----------    ----------    ----------
  Weighted average common shares outstanding,
   assuming dilution                                   14,280         6,418        15,934         6,827
                                                   ==========    ==========    ==========    ==========
 BASIC AND DILUTED PER SHARE INFORMATION:
   Loss from continuing operations                 $    (0.34)   $    (0.17)   $    (0.22)   $    (0.06)
   Income from discontinued operations                      -          0.06             -             -
                                                   ----------    ----------    ----------    ----------
     Net loss                                      $    (0.34)   $    (0.11)   $    (0.22)   $    (0.06)
                                                   ==========    ==========    ==========    ==========
</TABLE>

                                       18
<PAGE>

NOTE 5 - NOTES PAYABLE - RELATED PARTIES

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,      JUNE 30,
                                                                                         2004            2004
                                                                                     -----------    --------------
<S>                                                                                  <C>            <C>
MARYANNE RICHARD

On June 13, 2002, the Company issued a note payable to MaryAnne Richard in the
amount of $1,000,000 as part of the consideration for the purchase of Lightec.
The Company later agreed to set a new note principal at $1,105,000.
Subsequently, on June 4, 2004, the Company entered into a settlement Agreement
with MaryAnne and Michael Richard (together, the "Richards") whereby the
Richards agreed to settle all obligations and disputes with the Company. The
Company agreed to a payment to the Richards of $1,189,983 (new principal and
accrued interest) and the May 7, 2004 issuance of a warrant for 400,000 shares
of the Company's common stock at $2.50 per share. The Richards agreed to (i) a
June 7, 2004 transfer of 850,000 shares (valued at $850,000) of the Company's
common stock to a third-party designee of the Company and (ii) settlement of the
promissory note. On July 2, 2004, the parties finalized the settlement and
executed a mutual waiver and release of all claims against each other. On July
2, 2004, the remaining balance of $339,983 was paid to the Richards.                 $         -    $      339,983

SYNERGEX GROUP LLC

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

                                       19
<PAGE>

NOTE 6 - NOTE AND CONVERTIBLE DEBENTURE PAYABLE

<TABLE>
<CAPTION>
                                                                                          December 31, 2004     June 30, 2004
                                                                                          -----------------     -------------
<S>                                                                                       <C>                   <C>
On June 30, 2002, the Company issued a convertible debenture to Edinburgh
Investments LLC ("Edinburgh") in the amount of $1,680,000. The debenture was
secured by a first priority interest in the revenues and assets of Lightec and
originally matured on June 30, 2003. Interest at 10% was payable quarterly.
Edinburgh had the option to convert the debenture into the Company's common
stock at a conversion price of $6.00 per share, subject to anti-dilution
adjustments.

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

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

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

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

         iv)  5% of all funds received from Lightec's Bridgeport School contract
              until the principal and interest is fully paid;

On September 30, 2003, the Company delivered to Edinburgh a five-year warrant to
purchase 672,000 shares of common stock at an exercise price of $3.00 per share.
This warrant was issued as consideration for extending the maturity date to
December 31, 2004.

The convertible debenture principal balance at December 31, 2004 was $1,275,194
and at June 30, 2004 was $1,358,569. On January 19, 2005, the entire principal
balance and accrued interest payable were paid off through the proceeds of the
Second Closing of the Convertible Notes.                                                  $    1,275,194     $   1,358,569

On December 28, 2004 the Company borrowed $500,000 to provide short term working
capital. The loan is for 3 months, unless repaid earlier, and carries no
explicit interest rate although the Company may be invoiced for interest
incurred by the lender, in the event he pays such interest. Consideration given
for the loan was 50,000 shares of common stock and 50,000 warrants shares. The
principal amount of the loan is reflected on the balance sheet net of the fair
market value of the loan consideration, which is accounted for as debt discount.                 295,600                 -
                                                                                          --------------     -------------

                                                                                          $    1,570,794     $   1,358,569
                                                                                          ==============     =============
</TABLE>

                                       20
<PAGE>

NOTE 7 - CONVERTIBLE NOTES

<TABLE>
<S>                                                                                       <C>                   <C>
On November 23, 2004 (the "First Closing") the Company issued $1,500,000
principal amount of Convertible Notes to three investment funds. The Convertible
Notes bear interest at the prime rate of interest plus 3% per annum, and the
Company is required to pay 1/30 of the original principal amount each month
commencing on June 1, 2005. The Convertible Notes are convertible into common
stock of the Company at $2.25 per share. The interest payable on the Notes are
also convertible into common stock. Interest accrues each month, and payment
commences on June 1, 2005. The Company also issued 200,000 warrant shares which
may be exercised within five years at $3.00 per share. The principal amount of
these notes is reflected on the balance sheet net of the fair market values of
the warrants and the beneficial conversion feature which are accounted for as
debt discount.
                                                                                          $       1,226,661     $           -
  Less current portion                                                                              286,221                 -
                                                                                          -----------------     -------------
  Long-term  portion                                                                      $         940,440     $           -
                                                                                          =================     =============
</TABLE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES

LEASES

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

          Year ending      Minimum Annual     Minimum Annual
           June 30,         Rent Expense      Rental Income
       ---------------   -----------------    -------------
        2005 remaining    $        230,000    $      33,000
             2006                  573,000           65,000
             2007                  590,000           65,000
             2008                  432,000           33,000
                          ----------------    -------------
                          $      1,825,000    $     196,000
                          ================    =============

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

WONDERNET, LTD. AGREEMENT

In 2002 and 2003, the Company entered into Distribution and Partnership
Agreements with WonderNet, Ltd. ("WonderNet") whereby the Company was granted
the right to develop products based on WonderNet's technology

                                       21
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

and to use, market and sell, distribute and exploit the technology in North
America, Central America, Bermuda and the Caribbean Islands. The Company made an
initial payment of $100,000 under these contracts and was required to pay a
minimum $120,000 per quarter and to pay a minimum 12% royalty on gross sales of
products. Two $120,000 payments were made and WonderNet was issued 125,000
shares of the Company's common stock.

In November 2004, the Company notified WonderNet that it was terminating the
agreements as a result of a breach by WonderNet. Subsequently, the Company filed
a demand for arbitration with the American Arbitration Association in New York,
New York asking that any agreements be rescinded, that WonderNet reimburse to it
$340,000 in monies paid and that the shares of stock issued to WonderNet be
cancelled. On January 26, 2005, the Company obtained a temporary restraining
order from the Federal Court in the S.D.N.Y. preventing the sale or transfer of
these shares.

EMPLOYMENT AND CONSULTING AGREEMENTS

Three key executives of the Company have employment agreements as of December
31, 2004. The future minimum base compensation of these three executives are as
follows:

       Year ending                 Minimum Annual
         June 30,                   Compensation
     ----------------            -----------------
     2005 (remaining)            $         334,167
                2006                       732,083
                2007                       782,917
                                 -----------------
                                 $       1,849,167
                                 =================

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

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

ACQUISITION  OF  DATAGILITY

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

                                       22
<PAGE>

NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIENCY)

REVERSE STOCK SPLIT

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

INCREASE IN AUTHORIZED SHARES

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

                                       23
<PAGE>

NOTE 10 - STOCK-BASED WARRANTS

     At December 31, 2004 the Company had the following warrants outstanding:

     Warrants          Exercise      Expiration
     Outstanding       Price         Date
     ---------------   -----------   ------------------
              90,500   $      3.00   February 17, 2005  (A)
               1,000   $      3.00   February 27, 2005  (A)
               3,375   $      3.00   March 20, 2005     (A)
             137,875   $      3.00   November 19, 2005
             184,525   $      3.60   December 22, 2005
           1,004,975   $      2.00   August 22, 2006
             903,150   $      2.00   September 13, 2006
             187,500   $      4.00   September 13, 2006 (B)
             600,998   $      3.00   October 18, 2006
     ---------------
           3,113,898   SUBTOTAL
     ---------------

     Other Warrants (in connection with loans, etc.)
             400,000   $      2.50   May 7, 2006
              50,000   $      3.00   May 9, 2006
             400,000   $      2.50   May 25, 2006
              50,000   $      2.50   December 23, 2006
             672,000   $      3.00   September 30, 2008
     ---------------
           1,572,000   SUBTOTAL
     ---------------
           4,685,898   TOTAL WARRANTS
     ===============

     Class A Warrants
             200,000   $      3.00   November 23, 2009
     ---------------
           4,885,898   TOTAL WARRANTS &  CLASS A WARRANTS
     ===============

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

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

                                       24
<PAGE>

NOTE 11 - STOCK OPTIONS

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

On September 1, 2004, a stock option to purchase 100,000 shares at an exercise
price of $1.50 with a five year expiration date was issued to an individual for
investment banking services. The fair value of the options issued in September
2004 is estimated on the date of grant at $77,000 using the Black-Scholes
binomial pricing model with the following assumptions:

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

On October 21, 2004, stock options to purchase 125,000 each shares at an
exercise price of $2.67 with a two year expiration date were issued to five
directors in connection with their services as board members for the current
fiscal year. Additionally, on October 14 and 26, 2004, stock options to purchase
75,000 shares each at an exercise price of $2.20 with a two year expiration date
were issued to two individuals for consulting services. The fair value of these
options issued in October 2004 is estimated on the date of the grants at
$183,000 and $100,000, using the Black-Scholes binomial pricing model with the
following assumptions:

              Expected life                     2  years
              Risk free interest rate           3%
              Volatility                       78%
              Dividend yield                    -

NOTE 12 - BUSINESS SEGMENTS

SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information", requires companies to provide certain information about their
operating segments. The Company had two reportable segments at December 31,
2004: SiVault Systems and Lightec. The Company had three reportable segments at
December 31, 2003: SiVault Systems, Lightec, and eMedRx.

                                       25
<PAGE>

NOTE 12 - BUSINESS SEGMENTS (CONTINUED)

The summarized financial information concerning the Company's reportable
segments for the six months ended December 31, 2004 and 2003, is as follows:

<TABLE>
<CAPTION>
                                    SiVault
2003                                Systems         Lightec        eMedRx          Total
-------------------------------   ------------   ------------   ------------   ------------
<S>                               <C>            <C>            <C>               <C>
Net sales to external companies   $     12,067   $  1,707,224   $          -      1,719,291
Operating earnings (loss)(1)        (1,132,473)       585,739        (48,465)      (595,199)
Total assets                           199,879      1,525,997          9,523      1,735,399
Depreciation and amortization            4,554            460              -          5,014
Capital expenditures                     3,405              -              -          3,405
Interest expense                       527,098              -              -        527,098
</TABLE>

<TABLE>
<CAPTION>
                                    SiVault
2004                                Systems         Lightec        Total
-------------------------------   ------------   ------------   ------------
<S>                               <C>            <C>            <C>
Net sales to external companies   $     19,100   $  1,201,981   $  1,221,081
Operating earnings (loss) (1)       (5,201,635)       500,763     (4,700,872)
Total assets                        11,655,365      1,122,565     12,777,930
Depreciation and amortization           67,828          1,379         69,207
Capital expenditures                   305,010            448        305,458
Interest expense                       170,884              -        170,884
</TABLE>

(1)  Excludes Interest expense

NOTE 13 - ACQUISITION OF REMAINING OTHER INTERESTS OF EMEDRX SUBSIDIARIES

On October 19, 2004, the Company entered into three Share Exchange Agreements
with shareholders of eMedRx Delaware and eMedRx Canada and a shareholder of
eMedRx Nevada (the "Agreements"). The Agreements called for the exchange of the
common shares of eMedRx Delaware, eMedRx Canada and of eMedRx Nevada not
currently owned by the Company for 568,070 restricted shares of the Company's
common stock valued at $3.45 per share, which was accounted for as an exchange
of stock since the eMedRx entities have been accounted for as variable interest
entities. The operations of all three eMedRx entities were recorded as part of
the SiVault Systems segment of the Company effective with the date of their
acquisitions.

NOTE 14 - SUBSEQUENT EVENTS

On January 4, 2005, the Company filed a preliminary Form SB-2 registration
statement with the Securities and Exchange Commission (SEC), to register up to
21,998,674 shares of the Company's Common Stock. On January 14, 2005,
the registration statement was declared effective by the SEC.

On January 19, 2005, the Company completed the Second Closing related to its
sale of $3,000,000 of Convertible Notes and 400,000 Class A Warrants, resulting
in $1,500,000 in gross proceeds to the Company, which were primarily utilized to
pay the full balance of the Edinburgh Convertible Debenture principal in the
amount of $1,275,194 and accrued interest owed, on the same date.

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

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

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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

REVENUE RECOGNITION

Our revenue recognition policies are significant because our revenue is a key
component of our results of operations. Revenue recognition in connection with
our Lightec business, which accounted for substantially all of our approximately
$1,220,000 and $365,000 in revenue for the six and three months ended December
31, 2004, respectively, is particularly subjective as it has historically been
generated from fixed-price or modified fixed-price contracts. Recognition of
revenue from these contracts requires the estimation of the cost, scope and
duration of each engagement. Revenue and the related costs for these projects
are recognized using the percentage-of-completion method as costs (primarily
labor and materials) are incurred, with revisions to estimates reflected in the
period in which changes become known. If we do not accurately estimate the
resources required or the scope of work to be

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

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

GOODWILL AND OTHER LONG-LIVED ASSETS

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

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

BUSINESS SUMMARY

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

By establishing a centralized repository of biometrically captured signatures
bound to structured documents and transactions, we are able to offer a wide
range of services across the retail and healthcare sectors. Our business model

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is to charge customers transaction-based fees, and provide leasing and financing
options for their hardware and software purchases to minimize barriers to entry.
We are differentiated by virtue of an innovative technology platform, a
transaction-based revenue model, a unique combination of strategic alliances and
intellectual property, the experience and strength of the management team, and
our shared vision of the importance of integrating paperless transactions with
financial settlement and certainty.

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

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

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

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

HEALTHCARE (PRIMARY) Our solutions will reduce prescription fraud and mistakes
while maintaining Health Insurance Portability and Accountability Act of 1996
(HIPAA) compliance for record access, and can reduce high malpractice premium
costs by biometrically validating both doctor and patient signatures when a
prescription is given. The system will work with most platforms and
infrastructures and should reduce the average management cost of a typical
paper-based prescription by a factor of seven times, while simultaneously
reducing mistakes and fraud. The use of digital pen and paper will also allow
capturing substantially more complex transactions data in the health

                                       29
<PAGE>

care system--a system buried in paper-based processing--and thus allow companies
to quickly jump the gap between paper-based and electronic-based transactions
processing, but without the cost and time involved in redesigning the entire
front end of the data capture process.

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

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

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

RESULTS OF OPERATIONS

Quarter Ended December 31, 2004 vs. Quarter Ended December 31, 2003

Our revenues for the quarter ended December 31, 2004 were $364,891, a decrease
of $1,183,633 or approximately 76% from the quarter ended December 31, 2003. Our
revenues were substantially all generated from the Lightec subsidiary, in
regards to the Bridgeport School District ("Bridgeport") contract.

The cost of revenues incurred for the quarter ended December 31, 2004 was
$100,781, a decrease of $790,762 from the quarter ended December 31, 2003 due to
a decrease in services revenues and revenues from the sales of hardware and
software delivered, pending approval of projects which should commence in the
January to March 2005 quarter. The cost of revenue for the quarter ended
December 31, 2004 included an adjustment of approximately $141,000 to reverse
costs which had been recorded in the previous quarter. Without this adjustment,
the cost of revenues in the quarter ended December 31, 2004 would have been
approximately $242,000.

The gross margins, as a percentage of sales, were 72% and 42% for the quarters
ended December 31, 2004, and 2003, respectively. In the absence of the expense
adjustment booked in the quarter ended December 31, 2004, the gross margin for
that quarter would have been 34%, reflecting relatively consistent gross margins
attributable to the continued efficiencies in delivering product and services to
Bridgeport.

Our selling, general and administrative expenses for the quarter ended December
31, 2004 were $2,248,161, an increase of $1,622,802 or approximately a 260%
increase over the quarter ended December 31, 2003. The selling, general and
administrative expenses includes product development and research and
development. Payroll and other related costs increased by approximately $780,000
in the quarter ended December 31, 2004 due to an increase in officers and
employees, mostly in the San Jose office as software engineers, IT and network
technicians, and product developers were hired, as we accelerated the work to
develop our biometric security products. Consulting fees

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<PAGE>

increased by approximately $819,000 primarily due to intensification of market
and corporate development activities. In addition, the issuance of common stock
and stock options for non-cash services in the amount of $1,353,500 were
recorded in the quarter ended December 31, 2004 as compared to $36,000 for the
quarter ended December 31, 2003, reflecting additional corporate development
consulting services and compensation for directors and advisory board members.

Interest expense for the quarter ended December 31, 2004 was $106,964, a
decrease of $329,945, or approximately 76% from the quarter ended December 31,
2003. This was primarily a result of a reduction in interest expense due to
lower average balances owed on notes payable and convertible debentures. In
addition, the interest expense in the quarter ended December 31, 2003 included a
$150,000 penalty payment on convertible debentures.

Our net loss for the quarter ended December 31, 2004 was $3,444,515 as compared
to a loss of $441,287 for the quarter ended December 31, 2003, or an increased
of $3,003,228 or approximately 681%. The increased loss was primarily
attributable to higher expenses from the acceleration of development of our
biometric security products, and the decrease in income from our Lightec
Professional Services segment.

Six Months Ended December 31, 2004 vs. Six Months Ended December 31, 2003

Our revenues for the six months ended December 31, 2004 were $1,221,081, a
decrease of $498,210 or approximately 29% from the six months ended December 31,
2003. Our revenues were substantially all generated from the Lightec subsidiary,
in regard to the Bridgeport School District ("Bridgeport") contract.

The cost of revenues incurred for the six months ended December 31, 2004 was
$491,785, a decrease of $476,869 from the six months ended December 31, 2003 due
to a decrease in services, hardware and software delivered, pending approval of
projects which should commence in the January to March 2005 quarter.

The gross margins, as a percentage of sales, were 60% and 44% for the six months
ended December 31, 2004, and 2003, respectively, reflecting improved efficiency
in delivering services to Bridgeport.

Our selling, general and administrative expenses for the six months ended
December 31, 2004 were $3,366,168, an increase of $2,131,332 or approximately a
173% increase over the six months ended December 31, 2003, reflecting
intensification of development of our biometric security products. The selling,
general and administrative expenses includes product development and research
and development. In addition, the issuance of common stock and stock options for
non-cash services expenses in the amount of $2,064,000 were recorded in the six
months ended December 31, 2004 as compared to $111,000 for the six months ended
December 31, 2003, reflecting additional corporate development consulting
services and compensation for directors and advisory board members.

Interest expense for the six months ended December 31, 2004 were $170,884, a
decrease of $356,214, or approximately 68% from the six months ended December
31, 2003. This reduction in interest expense was primarily due to lower average
balances owed on notes payable and convertible debentures. In addition, the
interest expense in the six months ended December 31, 2003 included a $150,000
penalty payment on the convertible debentures.

Our net loss from continuing operations for the six months ended December 31,
2004 was $4,871,756 as compared to a loss from continuing operations of
$1,122,297 for the six months ended December 31, 2003, or an increased loss of
$3,749,459 or approximately 334%. The increased loss was primarily attributable
to higher expenses from the acceleration of the development of our biometric
security products, which more than offset the continued profitability of our
Lightec Professional Services segment.

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Our net loss for the six months ended December 31, 2004 was $4,871,756 as
compared to a loss of $762,364 in the six months ended December 31, 2003, which
included a gain on $359,933 from disposing of the operations of the discontinued
Datadesk subsidiary.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended December 31, 2004, 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 $3.0 million at December
31, 2004 as compared with $4.3 million at June 30, 2004. Cash increased by
approximately $297,860 during the six months ended December 31, 2004.

Net cash used in operating activities was $3,633,225 during the six months ended
December 31, 2004, as compared to positive cash flow provided by operations of
$666,605 during the six months ended December 31, 2003. Net cash used in
operations for the quarter ended December 31, 2004 resulted primarily from our
net loss of approximately $4.9 million, offset by certain non-cash expenses of
approximately $2,064,000. In addition, approximately $700,000 of cash was used
by (i) increasing inventory of electronic point-of-sale terminals (which will be
utilized for biometric security services in future quarters) by approximately
$527,000; and (ii) security deposits and prepaid expenses paid for rent and
insurance in the amount of approximately $203,000.

Investing activities utilized $299,836 of cash during the six months ended
December 31, 2004, as compared to $202,374 for the six months ended December 31,
2003. Investments for the most recent six months were primarily for computers,
servers, routers, storage devices and capitalized software, while investments in
the six months ended December 31, 2003 consisted primarily of approximately
$199,000 in advances to a discontinued subsidiary.

Financing activities provided approximately $4,231,000 of cash during the six
months ended December 31, 2004 as compared to $1,128,177 for the six months
ended December 31, 2003. Net cash provided resulted primarily from the issuance
of common stock and the exercise of stock warrants totaling approximately
$2,821,000, the issuance of approximately $1,719,000 of new convertible notes
and other note payable, offset by repayments of $115,000 on advances from
shareholders and repayments netting to $189,983 paid on notes payable from
related parties.

During the six months ended December 31, 2004, we raised approximately
$2,487,000 in equity capital and settled amounts owing to related parties and
others amounting to approximately $668,000 in exchange for equity in the
Company. We also issued common stock and stock options in the amount of
$2,064,000 for certain services. In addition, we reduced by $450,000 our payable
balance to our largest supplier for Lightec. That supplier was owed
approximately $810,000 at December 31, 2004.

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

The Company's biometric security services business has yet to generate
significant revenues. Management anticipates revenues from this business will
increase significantly in the fourth quarter. The Company's Lightec subsidiary
has provided $1,201,981 in revenues to date and is expected to generate another
$5 to $7 million in the current calendar year. Since payments to Lightec are
tied, to a large extent, to payments from the Federal eRate Program, it is
difficult to predict, however, when such payments will be made, and in what
amounts.

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Deficits in cash flow have otherwise been funded through financing activities.
During the six months ending December 31, 2004, we raised approximately $2.8
million in equity and $1.7 million in notes and convertible debentures. We
expect, in the quarter ending March 31, 2005, to raise an additional $5,000,000
to $7,000,000 in equity and/or convertible debt. The sale of additional equity
or convertible debt securities will result in further dilution to our
stockholders. These securities may also have rights senior to those of holders
of our common stock. Any indebtedness could contain covenants, which restrict
our operations and limit our ability to incur additional debt. The proceeds from
this private placement will be utilized to pay-off amounts owed creditors and
suppliers, and to fund expanded operations of biometric security services.

During the six months ended December 31, 2004, the Company has also entered into
several strategic alliances and licensing agreements which it believes will
result in increased revenues commencing in the fourth quarter of fiscal 2005.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES AND FACTORS THAT MAY AFFECT FUTURE
RESULTS

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

RISKS RELATED TO OUR BUSINESS:

We are subject to interest rate risk. The Company is seeking financing from
various sources, either directly from financial institutions, or by way of lease
financing of property and equipment. Such borrowing could be impacted by changes
in interest rates. As of December 31, 2004, the Company had issued $1,500,000
principal amount of floating rate convertible notes, which carry an interest
rate of prime plus 3% per annum, equal to an interest rate on these notes of
8.25%. Increases in the prime rate of interest will increase the Company's cost
of borrowing.

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

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

Our business model is unproven and may not succeed.

We recently changed and continue to refine our business model and strategy.
Although we have some customers for the turnkey solutions that form the core of
our new business strategy, we have not yet validated our business model or

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strategy in the market. The success of our business model and strategy is
dependent on a number of factors including:

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

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

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

We incurred a net loss of $3,444,515 during the fiscal quarter ended December
31, 2004 and a loss of $1,427,240 during the fiscal quarter ended September 30,
2004. At December 31, 2004, we had an accumulated deficit of $23,083,814. We
expect to make significant expenditures in connection with the implementation of
our new business strategy, including expenditures relating to sales and
marketing activities, technology development and integration, potential
acquisitions and administrative resources. As a result, we expect our losses to
continue for the foreseeable future and we may never achieve profitability.

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

As of December 31, 2004, we had a working capital deficiency of approximately
$3,032,000. Despite raising approximately $2.8 million in equity and $1.7
million in convertible debt and other notes from July 1, 2004 through December
31, 2004, we need to raise additional capital in order to continue to fund our
plan of operations. We have no sources of financing from which we can draw
immediately. While we expect to raise an additional $5,000,000 to $7,000,000 in
equity and/or convertible debt in the quarter which ends March 31, 2005, we
cannot assure investors that we will have adequate capital resources to fund
planned operations or that any additional funds will be available to our company
when needed, or if available, will be available on favorable terms or in amounts
required. If we are unable to obtain adequate capital resources to fund
operations, we may be required to delay, scale back or eliminate some or all of
our existing and planned operations.

We are dependent on a limited number of customers.

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

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

We have granted a first priority lien in all of the assets of our business to
secure repayment of convertible notes in the

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principal amount of $3,000,000 as of January 9, 2005, after the Second Closing
of the LongView convertible notes financing. This financing was utilized to pay
off Edinburgh Investments, LLC, and put LongView in the first priority position.
The existence of this security interest, if we default, could adversely impact
our liquidity and may make it more difficult for us to obtain additional debt or
equity financing from other sources.

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

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

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

Our products and technologies may not achieve market acceptance.

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

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

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

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

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

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

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

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:

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

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

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

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<PAGE>

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

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

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

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

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

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

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

At June 30, 2004, our net operating loss carry forwards was $3.3 million. Our
net operating loss carry forwards may be

                                       37
<PAGE>

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

RISKS RELATED TO ID-CHECK(TM) TECHNOLOGY:

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

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

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

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

RISKS RELATED TO OUR SECURITIES:

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

Our common stock is traded on the NASD OTC Bulletin Board. Trading in our stock
has been limited and there can be no assurance that an active trading market for
our stock will develop. As a result, this could adversely affect our
shareholders' ability to sell our common stock in short time periods, or
possibly at all. Thinly traded shares can be more volatile than shares traded in
an active public market. The average daily trading volume of our common stock in
October through December 2004 was 6,098 shares. The low and high trading prices
of our common stock for the same period has ranged from $2.00 to $3.60 per
share. Our common stock has experienced, and is likely to experience in the
future, significant price and volume fluctuations, which could adversely affect
the market price of our common stock without regard to our operating
performance.

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

As of December 31, 2004, approximately 8,669,231 shares of our common stock were
reserved for issuance upon

                                       38
<PAGE>

exercise or conversion of the following securities:

     o    1,333,333 shares upon conversion of outstanding convertible term
          notes;

     o    7,335,898 shares upon exercise of outstanding stock options and
          warrants.

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

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

Our outstanding convertible notes are convertible into 666,667 shares of common
stock at a per share conversion price of $2.25 which may be less than the
current trading price of our shares. Although many of the shares issuable upon
conversion of our convertible warrants are eligible for public resale under
Securities and Exchange Commission Rule 144, we have agreed to file a
registration statement to cover the public resale of all of these shares. This
significant increase in number of shares available for public sale may have a
negative impact on the trading price of our shares and substantially dilute the
ownership interest of our existing shareholders. In the event that our stock
trades below $2.25 per share, in order to raise additional financing we would
likely be required to issue additional shares of common stock or securities
convertible into common stock at a purchase or conversion price as applicable,
of less that $2.25 per share. To the extent these factors are viewed negatively
by the market, it may provide an incentive for persons to execute short sales of
our common stock that could adversely affect the trading price of our common
stock.

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

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

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

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

                                       39
<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS:

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

ITEM 3  CONTROLS AND PROCEDURES

An evaluation was performed, as of December 31, 2004, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on such evaluation, our management
has concluded that our disclosure controls and procedures were effective as of
December 31, 2004.

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

                                       40
<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

The Company has filed a demand for arbitration with the American Arbitration
Association in New York, New York asking that any agreements between it and
WonderNet, Ltd. ('WonderNet") be rescinded, that WonderNet pay it $340,000 and
that shares of stock previously issued to WonderNet be cancelled. On January 26,
2005, the Company obtained a temporary restraining order from the Federal Court
in the S.D.N.Y. preventing the sale or transfer of these shares.

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

Information regarding sales of our securities during the quarter ended December
31, 2004, which sales were not registered under the Securities Act of 1933 (the
"Act") are hereby incorporated by reference from the Company's Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission on
January 4, 2005; Commission File No. 333 - 121831.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

NONE.

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

NONE.

ITEM 5.  OTHER INFORMATION

NONE.

ITEM 6.  EXHIBITS

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

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

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

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

                                       41
<PAGE>

SIGNATURES

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

                                         SiVault Systems, Inc.

Date: February 14, 2005                  By:    /s/ Emilian Elefteratos
                                                -------------------------------
                                         Name:  Emilian Elefteratos
                                         Title: Chief Executive Officer
                                                (Principal Executive Officer)

Date: February 14, 2005                  By:    /s/ Wayne Taylor
                                                -------------------------------
                                         Name:  Wayne Taylor
                                         Title: Interim Chief Financial Officer
                                                (Principal Financial and
                                                Accounting Officer)

                                       42
<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.

                                       43