U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB


               [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                      FOR FISCAL YEAR ENDED: JUNE 30, 2005

                                       OR

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  for the transition period from _____ to _____

                         Commission file number: 0-3071


                              SiVault Systems, Inc.
                              ---------------------
                     (Exact name of small business issuer as
                            specified in its charter)


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


                500 Fifth Avenue, Suite 1650, New York, NY 10110
              ----------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                     Issuer's telephone number: 212-931-5760
                            ------------------------

              Securities registered under Section 12(b) of the Act:

                                      None
                                      ----
                              (Title of each class)

              Securities registered under Section 12(g) of the Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                              (Title of each class)
<PAGE>

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]

         Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10KSB
or any amendment to this Form 10KSB. [ ]

         State issuer's revenues for its most recent fiscal year: $1,602,013.

         As of February 15, 2006, there were 38,262,426 shares of the
registrant's common stock issued and outstanding. Of these, approximately
8,000,000 shares are held by non- affiliates of the registrant. As of February
15, 2006, the market value of common stock held by non-affiliates was
approximately $2,400,000 based on the closing price of the common stock on that
date.

Transitional Small Business Disclosure Format (check one):   Yes [ ]; No [X]


DOCUMENTS INCORPORATED BY REFERENCE

         NONE


                                       2
<PAGE>

                             TABLE OF CONTENTS


Item Number and Caption                                                    Page
-------------------------------------------------------------              ----

PART I

1.   Description of Business                                                  5

2.   Description of Property                                                 20

3.   Legal Proceedings                                                       20

4.   Submission of Matters to a Vote of Security Holders                     20

PART II

5.   Market for Common Equity and Related Stockholder Matters                21

6.   Management's Discussion and Analysis or Plan of Operation               23

7.   Financial Statements                                                    35

8.   Changes in and Disagreements with Accountants on Accounting
     and Financial Disclosure                                                35

8A.  Controls and Procedures                                                 35

8B.  Other Information                                                       36


PART III

9.   Directors, Executive Officers, Promoters and Control Persons;
     Compliance with Section 16(a) of the Exchange Act                       37

10.  Executive Compensation                                                  43

11.  Security Ownership of Certain Beneficial Owners and Management
     and Related Stockholder Matters                                         46

12.  Certain Relationships and Related Transactions                          48

13.  Exhibits                                                                49

14.  Principal Accountant Fees and Services                                  50

     Index to Consolidated Financial Statements


                                       3
<PAGE>


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. These statements can be identified
by the use of forward-looking terminology such as "expects", "anticipates",
"intends", "believes" and similar language, or the negatives thereof, and
discussions of our strategy, future revenues and future costs. You are cautioned
that our business and operations are subject to a variety of risks and
uncertainties and, consequently, our actual results may differ materially from
those anticipated or projected by any forward-looking statements. Some of the
factors that might cause or contribute to such differences include those
discussed in Item 6. Management's Discussion and Analysis or Plan of Operation."

Unless the context otherwise requires, all references in this report to (i)
"we", "us" or the "Company", or words of similar import, refer to SiVault
Systems, Inc., a Nevada corporation, together with its subsidiaries and
(ii)share information reflect a 4:1 forward stock split effected in August 2000
and a 1:20 reverse stock split effected in June 2004.




                                       4
<PAGE>

                                     PART I



ITEM 1.  DESCRIPTION OF BUSINESS.

RECENT DEVELOPMENTS


         The following significant events occurred during the fiscal year ending
June 30, 2005 and subsequent to the year then ending:

SIVAULT ANALYTICS AND VIAQUO ACQUISITION; NAME CHANGE

         In July 2004, we completed the acquisition of SiVault Analytics Inc.
("SiVault Analytics"), a private Delaware corporation that provides secure
storage and retrieval of signed documents and biometric signature-based
authentication for processing of online transactions. Its services are designed
to be compliant with regulations and standards in the retail and healthcare
industries for authentication, authorization, transmission and storage of data.

         The acquisition was completed by means of a share exchange in which we
issued 4,000,000 of our shares of common stock to the stockholders of SiVault
Analytics in exchange for all of the outstanding stock of SiVault Analytics. Our
shares were valued in the transaction at $1.80 per share (market price as of
July 9, 2004), or $7,200,000 in the aggregate. We issued 140,000 of our common
shares valued at $1.60 as finders fees in conjunction with this acquisition.
Following the acquisition, we merged SiVault Analytics into our company and
changed the name of our company to SiVault Systems, Inc. and our stock trading
symbol to SVTL.OB.

         On November 30, 2004, the Company completed the acquisition of all the
principal assets of Viaquo Corporation ("Viaquo"). Viaquo was a leading
developer of computer security technology.

         Pursuant to the deal, the Company purchased substantially all of assets
of 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 (1) 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 ELP to grant
the European Patent.

         The core technology and intellectual property purchased represents
Viaquo's patent pending ViaSeal(TM) security technology. ViaSeal provides
cryptographic protection of electronic data for distribution or access by
multiple parties.

                                       5
<PAGE>

NEW MANAGEMENT AND APPOINTMENT OF BOARD OF ADVISORS

         Following the SiVault Analytics acquisition, certain principals and
management of SiVault Analytics were elected as members of our management and
Board of Directors. Emilian Elefteratos was elected President and Chief
Executive Officer, Igor J. Schmidt was elected Chief Strategy Officer, Steven
Pollini was elected Vice President-Engineering and Operations and Alexander Gelf
was elected Vice President-Analytics. Effective August 6, 2004, Messrs.
Elefteratos and Schmidt were elected directors of our company.

         Effective August 24, 2005, Mssrs. David Dalton and Gerard Munera
resigned from the Company's Board of Directors and Mr. John Mahoney was
appointed to the Board of Directors. Effective September 1, 2005, Mssrs Gil
Amelio and Emilian Elefteratos resigned as a member of the Board and on
September 16, 2005, Mr. Anthony Low Beer was appointed to the Board. Effective
November 21, 2005, Mr. Orhan Sadik-Khan and Mr. Michel Kadosh were appointed to
the Board of Directors. Effective November 21, 2005, John Mahoney was named
acting Chief Executive Officer, Anthony Low-Beer was named Chairman of the
Board; Mr. Wayne Taylor will continue as Chief Financial Officer of the Company.

RESTRUCTURING OF DEBT

         The Company recently commenced a program to restructure its debt. The
restructuring of Company debt, and debt of its wholly-owned subsidiary, Lightec
Communications, Inc., is expected to be completed by the end of the fiscal year
ending June 30, 2006.

Restructuring of Longview Debt. The Company and three Longview Funds
("Longview") have agreed to restructure $2,588,237 of Longview Convertible Notes
as follows.

All outstanding debt of the Comany to Longview to be restructured as follows:

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

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


                                       6
<PAGE>

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

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

                 (ii)   Fixed Conversion Price to be reduced to $.20 per share;

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

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

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

<TABLE>
<CAPTION>

                                        Approximate amount
                                            owed as of
         Description                       June 30, 2005               Approximate Settlement Summary
         -----------                       -------------               -----------------------------------

<S>                                         <C>                        <C>
Notes and loans - non-related parties       $1,450,000                 Installment payables of $570,000
                                                                       6.5 million shares of common stock
                                                                       valued at $l million, and 580,000
                                                                       warrants valued at $300,000,and an
                                                                       additional 760,000 repriced
                                                                       warrants

Notes and loans - related parties              550,000                 3.4 million shares of common stock
                                                                       Valued at $450,000

Accounts payable and accrued liabilities     1,800,000                 $120,000 paid in cash installment
                                                                       payables of $560,000, and 2.3
                                                                       Million shares of common stock
                                                                       valued at $460,000

WonderNet Arbitration                          350,000                 Installment Payables of $350,000
(included in accounts payable
and accrued liabilities                  -------------
                                            $4,150,000
                                         -------------
</TABLE>

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

PRIVATE PLACEMENT

Since the end of the fiscal year ending June 30, 2005, the Company has completed
two private placements in which the Company raised gross proceeds of
approximately $2.2 Million. The Company sold an aggregate of approximately
13,900,000 of its common shares in private placements at per share prices
averaging $.10 and .45 per share.

NEW BUSINESS

As part of the Company's restructuring plan, the Company has been actively
pursuing agreements to market the Company's software products. In January 2006,
the Company entered into a licensing agreement with Hypercom Corporation
("Hypercom"). Hypercom is to pay the Company a licensing fee of 30% of the
transaction fee that pertains to the Company's products. The current chief
technology officer of Hypercom was a former officer and member of the Board of
Directors of the Company during the fiscal year ended June 30, 2005.

BUSINESS

We are engaged in the commercialization of technologies designed to implement
secure electronic solutions and retrieval of signed documents and biometric
signature-based authentication for electronic transactions. Our technology
solutions have evolved beyond the development stage and we are positioned for
deployment in production environments. We intend to provide turnkey solutions
combining the advantages of these technologies to facilitate safe, efficient and
secure electronic transactions and data access.

Through our wholly-owned subsidiary, Lightec Communications, Inc. ("Lightec"),
we also provide design, installation and technical support services for
information technology systems.

                                       7
<PAGE>

For the year ended June 30, 2005, we earned revenue of $1,602,013 and incurred a
net loss of $23,900,354. In the prior fiscal year, we earned revenue of
$7,131,437 and incurred a net loss of $3,406,660. Substantially all of our
historical revenue has been generated from Lightec.

By enabling the transition to electronic transactions from traditional
paper-based transactions, we believe that our products and services will promote
reduced costs, quicker response times, lower levels of mistakes and fraud and
the facilitation of other benefits not feasible for paper-based transactions
such as instant transaction query capability, data mining for numerous business
and research purposes and more efficient data storage.

STRATEGY

     Our objective is to become a leading provider of technology solutions to
assist in the migration of paper transactions to electronic transactions. With
our recent management changes and expanded technology capabilities following the
acquisition of SiVault Analytics, we have revised our business strategy to take
advantage of our core competencies. Key elements of our strategy include:

     Focus on Retail and Healthcare Markets. While our technology solutions are
appropriate for numerous markets, including retail, healthcare, banking and
government, we believe the United States retail and healthcare markets represent
the most immediate opportunities for our company due to their size, market
inefficiencies and regulatory changes requiring increased data availability and
higher levels of security. As such, our initial target markets will be retail
and healthcare. For retail, we will offer our branded product ReceiptCity
purchased in March 2004 from a subsidiary of Symbol Technologies. ReceiptCity is
a software solution designed to store electronic copies of signed customer
receipts to facilitate billing inquiries, lower the cost of dispute resolution
and decrease the number of charge-backs that otherwise would occur due to
merchants' inability to timely locate and present proof of transactions. For
healthcare, we offer an electronic prescription service utilizing
biometrically-authenticated signatures, thereby reducing prescription fraud and
filling errors and facilitating compliance with new standards relating to
medical record access.

         Transaction-Based Revenue Model. To minimize up-front costs to
customers, we price our services on a per transaction basis, depending on volume
and type of transaction. Subject to financing availability, we may also offer
our customers leasing and financing options for necessary hardware and software,
to further offset implementation costs.

     Acquire New Technologies and Integrate with Existing Technologies. Our
ability to offer turnkey solutions depends on our ability to offer a number of
technologies and applications in a comprehensive service package. We devote
considerable resources to ensuring that our existing technologies are compatible
and well integrated and we will continue to seek out and integrate new
technologies as appropriate to support our existing and planned product and
service offerings.

                                       8
<PAGE>

     Leverage Our Lightec Business. Lightec has historically provided a
significant source of our cash funding needs. During the year ended June 30,
2005, substantially all of our revenue was generated by Lightec. In addition, we
believe that Lightec's system design and installation business and our other
technology offerings can be synergistic in terms of mutually beneficial
marketing opportunities.

     Protect Our Intellectual Property. Protection of our intellectual property
is important to generating maximum revenue from our products and services and
maximizing the value of our business in general. To that end, we seek, whenever
practicable, to obtain patent and other intellectual property protection for our
technologies and we seek to ensure that others from whom we license important
technologies do the same. We currently have pending three United States
provisional patent applications relating to technologies owned by us. We also
own and are considering applying for additional trademarks and/or copyrights.


OUR CORE TECHNOLOGIES

     Our core technologies are comprised of the following:

- Biometric Signature Authentication Technology - software designed to record
and analyze biometric parameters relating to a person's handwritten signature.
Parameters include image, speed, stroke sequence, pen tilt and acceleration.
Recorded information is stored for each registered signer in a dynamic database
that changes over time to reflect subtle changes in each registered signer's
signature. Commercial applications of this technology include document approval,
verification of the identity of users participating in electronic transactions
and securing log-in access to computer systems or protected networks. Key
components of this technology are licensed from Communications Intelligence
Corporation.

- Access Control Technology - a distributed access management software solution
that permits only authorized users to access (put in or take out) protected
information being shared among groups of all sizes. The system uses access
credentials (permissions) that apply to each individual file (or field on an XML
form) and distributed to each organizational member, and which are automatically
refreshed over the Internet. This access control technology enables members to
securely encrypt files or XML fields for use by groups that are defined by
access credentials issued to each member by security administrators. Only
individuals with the correct access credentials may consume (decrypt) or create
(encrypt) the data. Individual members are assigned multiple credentials with
read and/or write permissions according to their role in the organization. Once
encrypted by the creator- e.g., the central database sending a report to an
insurance company-the data remains protected by strong encryption (typically AES
encryption) and routed and/or stored to and from a number of locations before
the properly authorized person with the read credential opens it to access the
data. We license this technology on an exclusive basis in the healthcare field
from Viaquo Corporation.

                                       9
<PAGE>

- Service Oriented Architecture - Our technology solutions employ a number of
electronic functionalities, including biometric authentication, database
management, transaction processing, financial settlement, data communication,
secure data access and storage, data mining and Internet-based service
provision. We enable these functionalities and related system components to
communicate with one another through a service oriented architecture designed
for fast and easy integration of functionalities, as well as scalability to
accommodate growth and adaptation to changing market needs. Our system
components include Sun database servers, Solaris database operating system, EMC
storage area network, Hewlett Packard blade application and web servers, Oracle
database management software, InterNap primary production communication link
(network provider) and Fiorano enterprise service bus. Our enterprise service
bus is a key component of our system architecture as it provides the basic
connectivity backbone. It is designed to interoperate with a variety of
disparate application servers simultaneously, potentially smoothing over
technical differences and also providing services for communication and
integration.

     Our turnkey solutions may incorporate some or all of these technologies, as
well as other proprietary technologies that we may either license or otherwise
obtain for the benefit of our customers, depending on the needs of the
particular application.

OUR PRODUCTS AND SERVICES

     While our core technologies have numerous applications, and can be
customized to suit the needs of particular customers, we intend to focus on the
following product and service offerings:

ReceiptCity - is a branded software solution targeted to retail enterprises that
stores electronic copies of signed receipts of customers to facilitate billing
inquiries, lower the cost of dispute resolution and decrease the number of
charge-backs that otherwise would occur due to merchants' inability to timely
locate and present proof of transactions. This product can be combined with our
proprietary data analysis technology to enable merchants to:

-  Create targeted advertisements delivered directly to credit card terminals
   while the customer is waiting for credit card authorization.

-  Recognize and  track  customers'  shopping  patterns

-  Track  efficiency  of marketing  campaigns  and  promotions.


     To support ReceiptCity, merchants must have credit and debit card
processing capability, point-of-sale terminals capable of biometric signature
capture and Internet connectivity. We may enter into arrangements with third
party providers of these facilities to offer them to our potential customers.

Expanded
Offerings - Other products and services we are offering to our target markets
include:

                                       10
<PAGE>

-  Biometric  signature  registration

-  Biometric  signature  authentication per transaction

-  Database security protection(access control)

-  Digital pen and paper for forms input - The product consists of a digital pen
that contains ink and a small camera that captures pen strokes and puts them
into digital form. After docking the pen in its cradle, the data is
automatically integrated into the enterprise data infrastructure. It is targeted
to businesses with processes that rely heavily on filling out paper forms,
including retail and healthcare businesses.

e-Prescriptions - We plan to offer an electronic prescription solution utilizing
biometrically-authenticated signatures, thereby reducing prescription fraud and
filling errors and facilitating compliance with new standards relating to
medical record access. The service will provide a systematic way to capture
signatures of medical doctors who prescribe medication, utilizing devices such
as signature pads, pen computers and person digital assistants (PDAs). Once
authenticated, a secure prescription with a unique number will be created and
centrally stored. A hard copy of the prescription can be given to the patient,
and/or the prescription can be routed in electronic form directly to the
dispensing pharmacy. To the extent permitted by law, the system would store
prescription-related data, and allow access by pharmacies, physicians and other
groups involved in healthcare delivery, only to the extent authorized.

    Through our Lightec subsidiary, we offer design, installation and technical
support for information technology systems. See "- Lightec Communications."

TECHNOLOGY LICENSES

     Our technology platform is comprised of a number of technologies, several
of which we license from others. Set forth below is a summary of the material
technology license agreements to which we are a party. Our rights to these
technologies are dependent on our continued fulfillment of our responsibilities
under these agreements, including our satisfaction of royalty and license fee
payment obligations.

                                       11
<PAGE>

Communications Intelligence  Corporation

     Effective May 13, 2004, we entered into an agreement with Communications
Intelligence Corporation ("CIC") pursuant to which we were granted a worldwide,
non-exclusive license to use and incorporate CIC's iSign software and to
distribute the licensed software embedded in our software or as part of our
solution. In consideration for the license, we agreed to pay CIC a fee equal to
33.33% of all CIC-based transaction fee proceeds. For each unit shipped by us in
a reseller capacity, we agreed to pay CIC 75% of its then published list price.
For CIC support as contemplated by the agreement, we agreed to pay an additional
10% of the license fees otherwise payable. The term of the agreement is three
years, subject to automatic one-year renewals if not terminated at least one
month prior to the scheduled renewal date. In addition to standard termination
provisions, the agreement is terminable by CIC if we have not generated revenue
to CIC within 180 days of the effective date or if, in CIC's reasonable
judgment, we do not make continual reasonable commercial use of the licensed
technology.

@POS.com

     Pursuant to an agreement dated March 2, 2004, we acquired assets of
@POS.com, Inc., a subsidiary of Symbol Technologies, Inc., exclusively related
to the business of capturing sales receipt transaction data for the purpose of
providing access to such data on an ASP basis. Included in the acquired assets
are the ReceiptCity.com software, hardware, a variety of hosted services related
thereto and trademarks for the names "Crossvue" and "MyReceipts". The business
was formerly conducted by the seller's wholly-owned subsidiary, Crossvue, Inc.
We also acquired a non-exclusive worldwide, non-trasferable, non-sublicensable
license under the seller's patent claims necessary to operate the acquired
software and to make, use, sell and have sold the hosted software. Under the
agreement, we granted @POS a non-exclusive, worldwide, perpetual, sublicensable
license under copyright in all acquired software developed by @POS, provided
that for two years from closing @POS agreed not to sublicense the licensed
software as a substantially complete system for providing ASP functionality
similar to the hosted services. In consideration for the acquired assts, we
agreed to pay the following consideration to @POS: For the year ending December
31, 2005, 10% of net receipts accrued by us for that year, for the year ending
December 31, 2006, 8% of net receipts accrued by us for that year, and for each
year thereafter, 6% of net receipts accrued by us for that year, provided that
the rate shall drop to 5% if and when patents under which the license is granted
are no longer valid or enforceable. The agreement has no set term and no
provision for termination following closing.

                                       12
<PAGE>

Intelli-Check

     On August 24, 2004 we entered into a software license agreement with
Intelli-Check Inc., a Delaware corporation, pursuant to which we were granted a
nonexclusive, nontransferable right to use the licensed software in connection
with the sale, by us or distributors, of our signature verification technology.
In consideration for the license, we agreed to pay Intelli-Check a fee of $475
for each system that uses the licensed software, as well as additional amounts
pursuant to agreed upon pricing for hardware and other products and services
offered by Intelli-Check as well as software updates. The agreement has no fixed
term and is cancelable by us for any reason upon 60 days' notice and by
Intelli-Check only upon breach by us that remains uncured following two months'
notice.

                                       13
<PAGE>

Hypercom

         Effective February 13, 2006, we entered into a Product Technology and
License Agreement (the "Agreement") with Hypercom Corporation, a corporation
engaged in the design, manufacture and sale of electronic payment solutions
worldwide (NYSE: HYC).

         Pursuant to the Agreement, SiVault granted Hypercom a perpetual,
worldwide, non-exclusive license to demonstrate, market and distribute to its
customers, distributors, resellers and other end-users SiVault's products and
services, including SiPay, Sipay, Mobile SiSign, SiSeal, ReceiptCity and all
related software.

         In addition, SiVault granted to Hypercom a perpetual, worldwide,
non-exclusive license to use, copy, modify and create derivative works based on
certain SiVault technology, including technology pertinent to distributed
security systems, payment methods, identify establishing services and processing
payments via short message service, as disclosed in U.S. Patent Applications
09/930,029, 60/650,856, 60/618,443 and 60,681,902 respectively.

         The initial term of the Agreement is one year, and is automatically
renewable thereafter for one-year terms, unless terminated in writing three
months prior to expiration of the original term, or any renewed terms. The
Agreement provides for the payment of licensing fee of 30% of the portion of the
transaction fee that pertains to SiVault's products and derivative works for
each transaction and 30% of licensing fees generated by sublicensing SiVault's
products.

MARKETING

     We employ a channel-based sales strategy, with some direct selling efforts
to targeted large prospects. Our managed network infrastructure services are
priced on a transaction basis, determined by the volume and type of transaction.
Related value-added services incur additional fees. Alternatively, large
enterprises can license our service package(s) and manage their own system
internally.

     We have entered into agreements with a number of third parties to assist us
in our marketing efforts. These arrangements are designed to leverage our
presently limited sales force and to target defined geographic and business
markets. We envision that certain of our technology license arrangements will
also result in marketing opportunities with those companies. Set forth below is
a summary of some of our existing marketing arrangements.

Hypercom

     Effective May 13, 2004, we entered into an agreement with Hypercom U.S.A.,
Inc. under which we were appointed a non-exclusive Hypercom reseller in the
United States. Under the agreement, we are authorized to purchase Hypercom point
of sale terminal products and peripherals and to resell them to end user
customers. We agreed to use our best efforts to promote and market the products
throughout the United States and to maintain an active and suitably trained
sales force. The term of the agreement is three years from the effective date,
subject to earlier termination upon three months' notice by either party for any
reason. The agreement may also be terminated under a variety of circumstancesfor
cause and without notice.

                                       14
<PAGE>

Rycom CCI

     Effective September 22, 2004, we entered into a strategic alliance and
exclusive management agreement with Rycom CCI Inc., a company located in
Ontario, Canada ("Rycom"). Under the agreement, Rycom was authorized as our
exclusive Canadian Strategic Manager to develop and operate a fully managed
signature verification authentication system and other solutions using our
proprietary technology for the Canadian market. In consideration for the
agreement, we and Rycom agreed to share all software license and software
maintenance revenue generated under the agreement on a 50-50 basis. Rycom's
rights under the agreement are exclusive in Canada. The agreement has an initial
term of three years, subject to automatic two-year renewal at the end of each
term. The agreement can be terminated upon 90 days' prior notice upon either
party's breach.

COMPETITION

     In the retail market, we are aware of companies that offer technologies
that store pictures of electronic signatures entered through point of sale
terminals. Some of these companies enable the signature to be printed on the
transaction receipt.


         In the prescription management market, we are aware of a number of
companies that provide electronic prescription services, including A4 Health
Systems, Allscripts, SureScripts, Alteer, ChartLogic, eInformatics, E-Physician,
Health Probe, I-Scribe, Medical Manager/WebMD, OnCall Data, Pocket Scripts, and
RxMadeSimple.

     There are several companies that offer electronic biometric signature
authentication technology there are numerous electronic authentication and
verification technologies such as pin, password, and other biometrics
technologies.

     A number of companies offer digital pen technology. For example, PenPower
Group, and Palm Inc. have developed or are developing complete pen-based
hardware and software systems. Others, such as Microsoft Corporation, Silanis
Technology, Inc., and Advanced Recognition Technology, Inc., have focused on
different elements of those systems, such as character recognition technology,
pen-based operating systems and environments, and pen-based applications.

LIGHTEC COMMUNICATIONS

     Lightec was established in 1994. It provides telecommunications design,
installation and information technology services. Lightec's customer base, which
is primarily located in Northeastern United States, includes governmental units,
particularly school districts.

     Lightec's projects involve design and installation of cable and fiber optic
networks. Lightec's clients include educational institutions, including
universities and local school systems, governmental entities, hospitals and
corporations.

                                       15
<PAGE>

     Lightec's target market includes government, manufacturers, processors,
utilities, banks, schools, universities, research complexes, media
conglomerates, securities and commodities exchanges, law firms, consulting and
research organizations and transportation service companies.

     Lightec competes on the basis of quality versus price. Lightec's services
are largely delivered through long-term subcontractors and temporary staff. In
the information technology sector, Lightec competes with large-scale project
firms such as Verizon and SNET rather than maintenance shops or equipment
resellers. In the general installation business Lightec competes with 20 to 30
small regional/local premise-wiring providers. In the fiber optic splicing
market, Lightec competes with national and regional firms. Lightec views its
real competition as the turnkey solution providers who can retain the
value-added service contracts ensuring the longevity of the solution provided.

     Lightec has historically relied on one customer for the majority of its
revenues. Lightec is under contract to provide supplies and services to this
customer. This customer has notified Lightec that it does not intend to order
from it in the future under this contract. Lightec has advised this customer
that, in addition to owing Lightec a substantial account payable balance, it is
obligated to continue to utilize Lightec as contracting party for services
approved by the primary funding sources, the Universal Services Administration.
If this dispute is not resolved or if the customer became unable to finance the
continued acquisition of these supplies and services, the impact on Lightec's
earnings would be significant.

HISTORY

     We were incorporated in the State of Nevada on March 12, 1999 as Great Bear
Resources, Inc. On May 25, 1999, we changed our name to Great Bear Investments
Inc. On August 11, 2000, we changed our name to Security Biometrics, Inc. On
July 23, 2004, we changed our name to SiVault Systems, Inc.

     On August 25, 2000, we acquired all of the outstanding capital stock of
Biometrics Security, Inc., a Nevada company, in a share exchange with its
shareholders. In connection with the acquisition, we issued 1,875,000 shares of
our common stock to Gesture Recognition Technologies International Limited in
exchange for the preferred shares of Biometrics Security, Inc. it owned, and we
issued approximately 25,000 shares of our common stock in exchange for the
outstanding shares of common stock of Biometrics Security, Inc. On August 22,
2000, Biometrics Security, Inc. entered into an option agreement with DSI
Datotech to acquire an exclusive license to that company's gesture recognition
technology for banking and financial transactions. The exercise price of the
option was $8,000,000, of which we paid $320,000. On December 2, 2002, the name
of Biometrics Security, Inc. was changed to eMedRX, Inc.

                                       16
<PAGE>

     On June 29, 2001, we acquired all of the outstanding membership interests
of Netface LLC, a Connecticut limited liability company, in exchange for an
aggregate of 1,000,000 shares of our common stock. NetFace held an option to
acquire an exclusive royalty-free license to exploit DSI Datotech's gesture
recognition technology for video games and Internet/television. The exercise
price of the option was $5,000,000, of which we have paid $200,000, plus a 20%
equity interest in NetFace LLC. Netface LLC is presently inactive.

     We have elected not to exercise our options to acquire licenses to DSI
Datotech's gesture recognition technology and the options have expired.
Consequently, the Company expensed $320,000 in 2001 and the balance of the
investment of $200,000 in 2002.

     On June 14, 2002, we acquired Lightec Communications, Inc. through a merger
with a wholly-owned subsidiary formed by us. The merger consideration consisted
of 950,000 shares of our common stock and $4,000,000 in cash. 900,000 shares
were issued to Maryanne Richard and 50,000 shares were issued to Dr. Nabil
El-Hag. We financed the cash portion of the merger consideration through the
issuance and sale of 9% promissory notes in the aggregate principal amount of
$2,000,000 and the sale of common stock and warrants at $2.40 per share for
gross proceeds of $850,000. The notes were issued in equal principal amounts to
Synergex Group Partnership, whose managing partner is Gerard Munera, a director
of our company, and Maryanne Richard, the owner of Lightec. We also entered into
an employment agreement with the manager of Lightec, Michael Richard, under
which we agreed to pay Mr. Richard an annual salary of $150,000 and performance
related bonuses for 2002, 2003 and 2004. The employment agreement was
subsequently terminated pursuant to the settlement described below. In
connection with the acquisition, we issued 200,000 shares of common stock and
accrued $200,000 as a finder's fees under a finder's fee agreement with Chris
Farnworth. In August 2004, the $200,000 liability plus an additional $31,813 in
amounts due to Chris Farnworth was converted to 144,718 shares of common stock.

     On June 4, 2004, we entered into a Settlement Agreement with MaryAnne
Richard and Michael Richard, pursuant to which we and Lightec, on the one hand,
and MaryAnne Richard and Michael Richard, on the other hand, agreed to settle
all obligations and disputes between them. As part of the agreement, we arranged
for the payment to the Richards of $1,189,983 in cash (including an $850,000
payment for the shares referred to below) and we issued to MaryAnne Richard a
warrant to purchase 400,000 shares of our common stock at $2.50 per share, and
the Richards (i) transferred 850,000 shares of our common stock to third parties
designated by our company for $850,000 in cash and (ii) surrendered a promissory
note issued by us in the principal sum of $1,000,000. On July 2, 2004, the
parties finalized the settlement and executed a mutual waiver and release of all
claims of any kind whatsoever that each may have had against the other, and on
that date the remaining balance of the settlement payment $339,983 was paid to
the Richards.

     On June 28, 2002 we acquired all of the outstanding stock of Datadesk
Technologies, Inc., a Washington corporation ("Datadesk"), pursuant to a merger
with a newly formed subsidiary of our company. In the merger, we issued
approximately 550,000 shares of our common stock to the shareholders of
Datadesk, and borrowed $1,680,000, pursuant to a one-year convertible debenture,
$1,375,000 of the proceeds of which was used to pay Datadesk bank loans, certain
liabilities and closing costs. In connection with and as a condition to the
acquisition, we entered into a three-year employment agreement with Robert
Solomon, pursuant to which we agreed to employ Mr. Solomon as chief technology
officer at an annual base salary of $150,000 plus annual bonuses based on
Datadesk sales.

                                       17
<PAGE>

     Datadesk was in the business of designing, manufacturing, and selling
desktop solutions, educational computing systems, and handheld and wireless
devices. On August 20, 2003, we transferred ownership of Datadesk to Pan
Pacifica Ltd. in consideration for assumption of the net liabilities of
Datadesk. In connection with the transfer, Mr. Solomon's employment with our
company was terminated. We recorded net income (loss) from discontinued
operations o $266,021 and $3,918,281 (including a writedown of goodwill of
$3,405,645 ) for the years ending June 30, 2004 and 2003 to reflect the
disposition of Datadesk.

     On January 21, 2003, we established a new wholly-owned subsidiary, eMedRx,
Inc., a British Columbia corporation ("eMedRx Canada"). EMedRx Canada entered
into an exclusive worldwide license agreement with our Company to develop and
market our electronic prescription system. eMedRx Canada has issued certain
common stock to outside interests for approximately $50,000 thereby reducing our
ownership of eMedRx Canada to below 100%. We currently have two United
States-based subsidiaries under the name eMedRx, Inc. To streamline our
corporate structure, these business were merged into the Company effective
October 2005.

     On February 18, 2004, we entered into a stock purchase agreement to
purchase all of the outstanding shares of Datagility, Inc. ("Datagility"). The
transaction was consummated in May 2004. Datagility has developed a software
application, CyberTrooper, that is designed to fulfill the scanning requirements
of the United States Patriot Act and Office of Foreign Assets Control. The
purchase price for the Datagility shares was (i) $200,000 in cash, $100,000 of
which was paid at closing and the balance of which is payable on December 31,
2004, and (ii) 116,278 shares of our common stock, which was issued at closing.
Of the $100,000 payment scheduled to become due on December 31, 2004, $50,000 is
payable to Mr. Herve Bertacchi, President of Lightec. Under the agreement, we
agreed to pay additional cash consideration of up to $200,000 if revenues earned
by us from CyberTrooper exceed certain targets by December 31, 2004 and June 30,
2005. Subsequent to year end, Mr. Bertacchi resigned as President of Lightec and
the Company agreed to settle amounts owed to him by the payment of $270,000
installments (including $50,000 in respect of Datagility). In addition, Mr.
Bertacchi was engaged by Lightec as a consultant to be paid on an hourly basis.

     On July 9, 2004, we issued an aggregate of 4,000,0000 shares of our common
stock, valued at $1.80 per share, to the shareholders of SiVault Analytics,
Inc., a Delaware corporation, in exchange for all of the outstanding stock of
SiVault Analytics, Inc. Thereafter, on July 28, 2004, we merged that company
into ours and simultaneously changed our name to SiVault Systems, Inc.

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

     As of March 31, 2005, an amendment was entered into regarding the Viaquo
assets purchase agreement, pursuant to new information obtained about the
ultimate issuance of patents (valued at $1.52 per share - market price as of
March 31, 2005) that had been hold in escrow by Viaquo. As of June 30, 2005,
there were no shares remaining in the escrow account.


HUMAN RESOURCES

                                       18
<PAGE>

         As of December 31, 2005, we had two full-time employees. Subsequently,
we have hired five full-time employees, including a COO and a Vice President of
Engineering and Sales.

EXECUTIVE OFFICERS

         Our executive officers are as follows:

NAME                   AGE                POSITION
---------------------  ---  -------------------------------------------

John Mahoney           56   Chief Executive Officer, President and Director

Wayne Taylor           53   Interim Chief Financial Officer and Director

Richard Moore          53   Chief Operating Officer

Alan Alpert            50   Vice President-Engineering

Richard Arturo         47   Vice President-Sales


         For a description of Mssrs Mahoney, Taylor and Moore. See Item 9.
"Directors, Executive, Officers, Promotors and Control Persons, Compliance with
Section 16(a) of the Exchange Act" at Page 37.

Richard Arturo

Richard Arturo has 25 years of experience in the computer, networking and
software industry. Rick was part of Sun Microsystem's Open Systems growth in the
late 80's and Cisco's Systems internet build out in the mid 90's. At Cisco, his
sales teams contributed over half a billion dollars of revenue during his
tenure. Since then, he has held VP of Sales positions at start-ups HydraWeb
Technologies, CentrePath and SiVault Systems (SVLT.PK). He established sales
teams that sold new products and services into Service Provider and Enterprise
markets. As an investor, he provided seed funding to create two new technology
companies that provided e-Learning products (TrainingScape) and financial
services software (PFN, sold to Guggenheim Partners). Mr. Arturo holds a
Bachelor of Science degree from Carnegie Mellon University.

Alan Alpert

For the past five years Mr. Alpert was a senior executive at Financial Fusion
where he was responsible for SWIFT (Society for Worldwide Interbank Financial
Telecommunication). His responsibilities included business analysis, detailed
requirements, architecture, documentation, design, on and offshore development
and test, leading to successful business deployment. The SWIFTNet FIX (Financial
Information Exchange) Hub architecture developed by Financial Fusion enables
SWIFT customers secure access to the entire SWIFT community through a single FIX
connection. Mr. Alpert worked with the Financial Fusion President and COO to
generate $4 plus million dollars of incremental revenue in 2005 from SWIFT
partnership.

                                       19
<PAGE>


In addition, Mr. Alpert managed business/software development in the Telecom and
Healthcare vertical markets leveraging Sybase's existing IP and customer
accounts. Mr. Alpert holds a Bachelor of Science degree in Computer Science from
Queens College.


ITEM  2.  DESCRIPTION  OF  PROPERTY

         We occupy approximately 1,500 square feet of space at 500 Fifth Avenue,
Suite 1650, New York, New York, under a sublease expiring December 31, 2007, at
a base rent of $4,500 per month. In San Jose, California, we sublease an office
at 560 South Winchester Blvd., San Jose, CA 95128, under a sublease expiring May
31, 2008.

ITEM  3.  LEGAL PROCEEDINGS

         Neither we, nor any of our subsidiaries, are a party to any material
legal proceeding, nor, to our knowledge, is any material litigation threatened
against us or our subsidiaries. Subsequent to year end we settled claims by a
third-party lender and licensor.

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


NONE

                                       20
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET
INFORMATION.

         Our common stock is currently traded in the over-the-counter market and
has been quoted on the pink sheets since November, 2005, and on the OTC Bulletin
Board from June 12, 2001 to November, 2005. The trading symbol for our common
stock is currently SVTL.PK. The following table presents the range of the high
and low bid quotations for our common stock as reported for each quarter
beginning July 1, 2003. Such quotations reflect inter-dealer prices without
adjustments for retail mark-up, markdown or commissions, and do not necessarily
represent actual transactions.



Period                               High    Low
-----------------------------------  -----  -----

January 1, 2006 - March 31, 2006     $0.50  $0.11

October 1, 2005 - December 2005      $0.14  $0.02

July 1, 2005 - September 30, 2005    $0.75  $0.09

April 1, 2005 - June 3, 2005         $1.5   $0.44

January 1, 2005 - March 31, 2005     $2.85  $1.30

October 1, 2004 - December 31, 2004  $3.50  $2.00

July 1, 2004 - September 30, 2004    $4.50  $0.75

April 1, 2004 - June 30, 2004        $2.70  $0.80

January 1, 2004 - March 30, 2004     $3.00  $1.90

October 1, 2003 - December 31, 2003  $3.00  $2.10

July 1, 2003 - September 30, 2003    $3.40  $1.50


HOLDERS

         As of March 31, 2006 our common stock was owned by approximately 300
holders of record.

DIVIDENDS

         We have never declared or paid any cash dividends. It is our present
policy to retain earnings to finance the growth and development of the business
and, therefore, we do not anticipate paying dividends on common stock in the
foreseeable future.

                                       21
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

         The following sets forth certain information regarding sales of our
securities during the year ended June 30, 2005, which sales were not registered
under the Securities Act of 1933. Unless otherwise indicated, no underwriters
were involved in these transactions.

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

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

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

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

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

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

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

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

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

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

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

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

                                       22
<PAGE>

         In addition, the Company issued shares of its stock in connection with
the settlement of debt. Those issuances are summarized under "Description of
Business - Recent Developments" at Page 5.

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

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

            MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

When used in this report, the words "anticipated", "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 Prospectus. 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 theses 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, bad debts, 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.

                                       23
<PAGE>

The following discussion of critical accounting policies represents our attempt
to report on those accounting policies which we believe are critical to our
consolidated financial statements and other financial disclosure. It is not
intended to be a comprehensive list of all of our significant accounting
policies, which are more fully described in Note 1 of the Notes to the
Consolidated Financial Statements for the years ended June 30, 2005 and 2004
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
$1,602,013 million in revenue for the most recent fiscal year, is particularly
subjective as it has historically been generated from fixed-price or modified
fixed-price contracts. Recognition of revenue from these contracts requires the
estimation of the cost, scope and duration of each engagement. Revenue and the
related costs for these projects are recognized using the
percentage-of-completion method as costs (primarily labor and materials) are
incurred, with revisions to estimates reflected in the period in which changes
become known. If we do not accurately estimate the resources required or the
scope of work to be performed, or do not manage our projects properly within the
planned periods of time or satisfy our obligations under the contracts, then
future revenue and margins from this business may be significantly and
negatively affected or losses on existing contracts may need to be recognized.
Any such resulting changes in revenues and reductions in margins or contract
losses could be material to our results of operations.

Income Taxes

We have a history of losses. These losses generated sizeable federal net
operating loss ("NOL") carry forwards which as of June 30, 2005 totaled
approximately $19,800,000.

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 of 1986, 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.

                                       24
<PAGE>

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 quarter as the period of the annual test.

For the year ended June 30, 2005, we incurred an impairment of cost in excess of
fair value from the acquisition of SiVault Analytics, Inc. of $5,706,060 and an
impairment of long-lived assets of $761,436.

RESULTS OF OPERATIONS

                                       25
<PAGE>

Year Ended June 30, 2005 vs. Year Ended June 30, 2004

Our revenues for the year ended June 30, 2005 were $1,602,013 a decrease of
$5,529,424 or approximately 80% from the prior year. Our revenues continued to
be substantially all generated from the Lightec subsidiary, in regards to the
Bridgeport contract. Revenues under this contract decreased significantly
because of delayed funding by USAC and a curtailment of activities by the Board
of Education.

The costs of revenue incurred for the year ended June 30, 2005 decreased to
$833,299, a 77% decrease from the year earlier period. This reduction parallels
the 80% reduction in revenue from the the gross margins, as a percentage of
sales, were 48% and 49% for the years ended June 30, 2005 and 2004 respectively.
Hence our efficiency in delivering product and services to Bridgeport has stayed
the same

Our selling, general and administrative expenses for the year ended June 30,
2005 were $16,532,269 an increase of $10,298,314 or 165% over the prior year.

                                       26
<PAGE>

The increase in expenses during the most recent fiscal year was largely
attributable to increased head count in the Company's San Jose office and
payroll increase of approximately $3.5 million, increased consulting fees of
approximately $2,400,000, issuance of stock warrants to certain officers of the
company in connection with short-term selling financing of approximately $3.1
million, Board of Directors fees of $1.3 million increase in rent expense of
approximately $375,000 and increased travel and entertainment expense of
approximately $224,000.

Our other expenses for the year ended June 30, 2005 were $8,136,799, an increase
of $7,340,579, or approximately 920% increase from the year earlier period.
Interest expense for the year ended June 30, 2005 was $1,669,303, an increase of
approximately 110% from the prior year. The increase in interest expense was
primarily due to the amortization of debt discount (a non-cash charge) upon the
issuance of convertible debt in 2005. For the year ended June 30, 2005, we
incurred an impairment charge of $5,706,060 of cost in excess of fair value from
the July 2004 acquisition of SiVault Analytics, Inc., and an impairment of
long-lived assets of $761,436.

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

Subsequent to the purchase of the ViaSeal Access Control Business in November
2004, we reviewed the initially recorded excess cost over net tangible assets
acquired amount and determined that all of it should be assigned as the fair
value of the technology acquired. The $5,097,058 assigned as the fair value of
the technology will be amortized over its useful life, which has not yet been
determined. Because uncertainties remain about the marketability and functioning
of this technology, there is substantial doubt about whether this technology
will ultimately provide any value.

The impairment of long-lived assets of $761,436 in 2005 consisted of a
write-down of property and equipment of $312,576 held in San Jose, California,
New York, and Connecticut and $448,576 for software not being utilized.

Our net loss for the year ended June 30, 2005 was $23,900,354 as compared to a
loss of $3,406,660 for the prior fiscal year, or an increase of $20,493,694, or
602%. The increase is primarily attributable to a decrease of $5,529,424, or
approximately 78%, an increase in selling, general, and administrative expenses
of $10,298,314, or approximately 165%, and an increase in other expenses of
$7,340,759, or approximately 920%.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended June 30, 2005, our consolidated operating activities did not
generate positive cash flow. We continue to finance our operations primarily
through the placement of our common stock and convertible debt and cash flows
from our Lightec subsidiary. We had a working capital deficit of approximately
$9.1 million at June 30, 2005 as compared with $4.3 million at June 30, 2004.
Cash decreased by approximately $103,000 during the year ended June 30, 2004.

Net cash used in operating activities was $7,146,713 during the year ended June
30, 2005, as compared to $150,338 used for the year ended June 30, 2004. Net
cash used in operations for the year ended June 30, 2005 resulted primarily from
our net loss of $23.9 million offset by an increase in accounts payable and
accrued liabilities of approximately $2.1 million and certain non-cash expenses
of approximately $15.1 million.

Investing activities utilized $290,129 of cash during the year ended June 30,
2005, as compared to $495,798 for the year ended June 30, 2004.

Financing activities provided $7,333,859 of cash during the year ended June 30,
2005 as compared to $756,899 for the year ended June 30, 2004. Net cash provided
resulted primarily from the issuance of common stock, convertible debt, and
notes and loan payable, the exercise of stock warrants of approximately $9
million, offset by repayments of $115,000 on advances from shareholders and of
$1,548,552 on notes payable.

During the year ending June 30, 2005, we raised approximately $3.4 million
dollars in equity and we reduced outstanding indebtedness to related parties and
others amounted to approximately $693,000, through the issuance of equity. We
also sold $3,000,000 principal amount of Convertible Notes due 2007 on November
23, 2004, of which an initial funding of $1,500,000 was received on that date
and an additional $1,500,000 was received on January 11, 2006. Subsequent to
year end, the Company continued to finance its operations through the issuance
of equity. The sale of additional equity or debt securities will result in
further dilution to our stockholders. These securities may also have rights
senior to those of holders of our common stock. Any indebtedness could contain
covenants, which restrict our operations and limit our ability to incur
additional debt. The proceeds from any such private placement will continue to
be utilized to reduce or pay-off our outstanding obligations and to fund
expanded operations.

                                       27
<PAGE>

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

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

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


QUANTITATIVE AND QUALITATIVE  DISCLOSURES  AND  FACTORS THAT MAY AFFECT FUTURE
RESULTS

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

FACTORS THAT  MAY  AFFECT  FUTURE  RESULTS

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

                                       28
<PAGE>

Risks  related  to  our  business.

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

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

Our business model is unproven and may not succeed.

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

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

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

-   acceptance in the market of our technology solutions

-   our ability to price our technology solutions at competitive rates

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

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

We incurred a net loss of $23,900,354 during the fiscal year ended June 30, 2005
and $3,406,660 during the prior fiscal year. At June 30, 2005, we had an
accumulated deficit of $42,112,412. Our auditors have issued a qualification in
their report on our financial statements for the year ended June 30, 2005,
reflecting their concern about our ability to continue as a going concern for
the current fiscal year. We expect to make significant expenditures in
connection with the implementation of our new business strategy, including
expenditures relating to sales and marketing activities, technology development
and integration, potential acquisitions and administrative resources. As a
result, we expect our losses to continue for the foreseeable future and we may
never achieve profitability.

                                       29
<PAGE>

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

As of June 30, 2005, we had a working capital deficiency of approximately $9.1
million. Despite raising approximately $2.2 million in equity from June 30,2005
through the date of this report, we need to raise additional capital in order to
continue to fund our plan of operations and service our debts. We have no
sources of financing from which we can draw immediately. We cannot assure
investors that we will have adequate capital resources to fund planned
operations or that any additional funds will be available to our company when
needed, or if available, will be available on favorable terms or in amounts
required. If we are unable to obtain adequate capital resources to fund
operations, we may be required to delay, scale back or eliminate some or all of
our existing and planned operations.

We are dependent on a limited number of customers.

Substantially all of our historical revenue has been attributable to our Lightec
business. During the year ended June 30, 2005, substantially all of our revenue
was attributable to a contract with the Bridgeport School District funded by the
Federal eRate program. While additional amounts have been budgeted for this
project for the 2004-2005 school year and we have received Federal approval
under the eRate program. The School District has advised Lightec that it does
not intend to authorize additional work under this contract. Our plan of
operation is dependent on successfully fulfilling the Bridgeport and New Haven
contracts. Should we fail for any reason to perform the balance of the
contracts, or if Federal approval is not granted or Bridgeport or New Haven
defaults on payments under the contract, we may not have sufficient funding to
continue the Lightec business as planned and our other activities will be
substantially harmed.

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

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

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.

                                       30
<PAGE>

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

Our products and technologies may not achieve market acceptance.

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

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

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

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

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

                                       31
<PAGE>

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

We seek to rely on a combination of patents, copyrights, trademarks, trade
secrets and contractual provisions to protect our proprietary rights in our
products and technologies. These protections may not adequately protect us for a
number of reasons. First, our competitors may independently develop technologies
that are substantially equivalent or superior to ours. Second, the laws of some
of the countries in which our products may be licensed do not protect those
products and our intellectual property rights to the same extent as do the laws
of the United States. Third, because of the rapid evolution of technology and
uncertainties in intellectual property law in the United States and
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:

                                       32
<PAGE>


   -   build  and  train  our  sales  force;

   -   establish  and  maintain  relationships  with  channel  partners;

   -   develop  customer  support  systems;

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

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

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

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

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

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

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

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

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

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

                                       33
<PAGE>

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

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

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

Our Net Operating Loss Carry-Forwards May Be Limited.

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

Risks  Related  to  Our  Securities

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

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

                                       34
<PAGE>

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

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

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

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

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

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

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

ITEM 7.  FINANCIAL STATEMENTS

         The financial statements and supplementary data are included beginning
immediately following the signature page to this report. See Item 13 for a list
of the financial statements and financial statement schedules included.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL  DISCLOSURE

     NONE.

ITEM 8A. CONTROLS AND PROCEDURES.

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

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

                                       35
<PAGE>

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

ITEM 8B.  OTHER INFORMATION.

     All information required to be disclosed in a report on Form 8-K during the
fourth quarter of the fiscal year ended June 30, 2005 has been so reported.


                                       36
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF  THE EXCHANGE  ACT.

The following table sets forth information with respect to the persons who, as
of March 31, 2006, were serving or are expected to serve in the near future as
directors and executive officers of the Company. Each director holds office
until the next annual meeting of shareholders or until his successor has been
elected and qualified.

Directors
                                                                        Director
     Name               Age                Position                      Since
---------------         ---                --------                      -----
John Mahoney(4)         56       Chief Executive Officer,
                                 President and Director                   2004
Wayne Taylor (3)        53       Interim Chief Financial Officer
                                 and Director                             2003
Allan Gibbins (1)(2)    57       Director                                 2000
Gerard Munera (2)(4)    70       Director                                 2001
Stuart Platt (1)(2)(4)  69       Director                                 2004
Orhan Sadik-Khan        76       Director                                 2005
Anthony Low-Beer        63       Director                                 2005
Michel Kadosh           65       Director                                 2005


(1)  Member of the Audit Committee
(2)  Member of the Compensation Committee
(3)  Member of the Corporate Governance Committee
(4)  Member of the Executive Committee

         John Mahoney became President and CEO of the Company in September 2005.
Prior to that date he was President of CRC a warranty and health claims service
company based in Vancouver, B.C.

         Wayne Taylor is a founder of our company. He served as Chief Financial
Officer from June 1999 to March 2002 and from March 2003 to August 2003, and has
served as interim Chief Financial Officer since June 2004 to present. Mr. Taylor
joined our Board of Directors in September of 2003. He is President of FGH
Insurance Agencies Ltd. and has developed both creditor insurance and specialty
products for some of the largest international banks. Mr. Taylor was employed by
HSBC Canada from 1977 to 1986 and served in a senior management capacity for
that institution. As the international database representative for OKRA
Marketing Corporation, Mr. Taylor was responsible for selling software systems
to major financial institutions.

         Allan Gibbins has been a Director since November 6, 2000. Mr. Gibbins
was interim Vice President, General Manager beginning in June 1992 and was
appointed President and Chief Executive Officer of Hubbell Canada Inc., a
subsidiary of Hubbell Incorporated, in September 1993. He is the Chairman of the
Electrical, an Electrical Manufacturer, and Electronic Manufacturers Association
of Canada (EEMAC). From September 1988 to May 1992, Mr. Gibbins was Vice
President and General Manager of Nutone Electrical Inc. Prior to that he held
senior management positions with duPont Canada Inc. for 16 years. He also was a
Director of DSI Datotech Systems Inc. from December 2000 until July 2003.

                                       37
<PAGE>

         Gerard Munera has been a Director since June 26, 2001. Since 1995, Mr.
Munera has been Managing Director of Synergex Group Partnership, a Connecticut
general partnership, with majority participations since 1996 in Arcadia, a
manufacturer of low-rise curtain walls, storefronts and office partitions, and
in Estancia El Olmo, a large cattle ranch. From 1994 to 1996, Mr. Munera was
chairman and chief executive officer of Latin American Gold Inc., a junior gold
exploration and mining company with activities in Ecuador and Venezuela.. From
1991 to 1994, Mr. Munera was president and chief executive officer of Minorco
(USA), a diversified natural resources group with interests in base and precious
metals, industrial minerals, oil and gas, chemicals and fertilizers, in both the
U.S. and Canada.

         Rear Admiral Stuart Platt, SC, USN, RET, who joined the Company's Board
of Directors effective May 14, 2004. Rear Admiral Platt has enjoyed a
distinguished 31-year military career in the United States Navy, where he led an
historic reform program to improve the way the Navy buys ships, aircrafts and
weapons systems. He was Deputy Commander of the Naval Sea Systems, where he was
responsible for the acquisition of Navy surface ships and submarines during the
buildup of the 600 ship Navy. He was recently honored by being named to the Cold
War Leadership Hall of Fame by the Submarine Force Library and Museum
Association. He serves as the Chairman of the Historic Ships Foundation in San
Francisco and as a Presidential appointee to the Board of Governors of the
United States Merchant Marine Academy. Admiral Platt is the Chairman of The
Wornick Company, the largest seller of combat rations to the Department of
Defense and the Chairman of IDM Services, a Washington based, international data
storage firm. He also serves on the Board of DRS Technologies, a New York Stock
Exchange listed Defense Electronics Company.

         Orhan Sadik-Khan is an investment banker and international businessman.
For the past five years he has been President of ADI Investments, Old Greenwich,
CT.

         Anthony Low-Beer has been a private money manager based in Stamford,
CT for the past five years.

         Michel Kadosh has been a hotelier and international real estate
investor and developer for the past five years, based in Miami, FL.

EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES OF THE COMPANY

         Please refer to "Item 1, Description of Business", at Page 5.

                                       38
<PAGE>

BOARD MEETINGS AND COMMITTEES

Board Meeting Attendance

         During the year ended June 30, 2005, each incumbent Director attended
at least 75% of the total number of Board of Directors meetings and meetings of
committees on which he served.

Director Fees

         Each director is elected to hold office until the next annual meeting
of stockholders and until his successor is elected and qualified. Our Board held
five meetings during the fiscal year ended June 30, 2005. Our directors receive
US$1,500 for their attendance at each board meeting and US$500 for each
telephonic board meeting, which each director waived. All officers serve at the
discretion of the Board of Directors subject to the terms and conditions of
their agreements with the Company as approved by the Compensation Committee. On
February 1, 2006, each Board member was issued 350,000 restricted shares of
stock. 250,000 of such shares were a one time grant and 100,000 were for
compensation for the current fiscal year ending June 30, 2006

Compensation Committee

         The Compensation Committee is composed of Gerard Munera, (Chairman),
Allan Gibbins and Stuart Platt. The responsibilities of our committee include
reviewing our incentive plans, reviewing and approving the compensation of our
executive officers, and determining the option awards given to our officers.
Members of the Committee have never served as our officers or employees or
officers or employees of any of our subsidiaries. The Compensation Committee
held 3 meetings in 2005.

Audit Committee

         The Audit Committee, which currently consists of Allan Gibbins
[(Chairman)] and Stuart Platt, assists the Board of Directors by recommending
the engagement of independent public accountants, reviewing and considering
actions of our management in matters relating to audit functions, reviewing with
independent public accountants the scope and results of their audit engagement,
reviewing reports from various regulatory authorities, reviewing the system of
internal controls and procedures and reviewing the effectiveness of procedures
intended to prevent violations of law and regulations.

Nominating Committee and Corporate Governance

         The Nominating Committee and Corporate Governance is composed of
Richard Moore (Chairman)and Wayne Taylor. David Dalton served on this Committee
until his resignation in August 2005. The responsibilities of our committee
include reviewing our nomination of directors and advisors and overseeing the
corporate governance procedures. Members of the Committee have never served as
our officers or employees or officers or employees of any of our subsidiaries,
except for Wayne Taylor who serves as the Interim Chief Financial Officer.

                                       39
<PAGE>

         The Board of Directors adopted a charter for the Audit Committee. A
copy of the Audit Committee's Charter was previously filed with the Company's
Definitions Proxy Statement for its 2003 Annual Meeting of Shareholders.

         All members of the Audit Committee are "independent" within the meaning
of NASDAQ Marketplace Rule 4200(a)(15).

         The information contained in this Annual Report with respect to the
Audit Committee charter and the independence of the members of the Audit
Committee shall not be deemed to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that we specifically
incorporate it by reference to such filing.

AUDIT COMMITTEE REPORT

         The following is the report of our Audit Committee with respect to our
audited financial statements for the year ended June 30, 2005.

         Review with Management:

         We have reviewed and discussed our audited financial statements with
management.

         Review and Discussions with Independent Public Accountants:

         The Committee has discussed with Miller Ellin & Company LLP ("Miller
Ellin") our independent auditors, the matters required to be discussed by
statement on Auditing Standards No. 61, "Communication with Audit Committees."
Regarding the auditors judgments about the quality of our accounting principles
as applied to its financial reporting.

         The Audit Committee of the Board of Directors has considered whether
the provision of the non-audit services is compatible with maintaining the
independence of our principal accountants.

         The Committee also has received written disclosures and the letter that
is required by Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees," and has discussed with Miller Ellin its
independence.

         Conclusion:

         Based on the review and discussions referred to above, the Committee
recommended to the Board of Directors that its audited financial statements be
included in our Annual Report on Form 10-KSB for the year ended June 30, 2005
for filing with the Securities and Exchange Commission.

Submitted by the Audit Committee of the Board of Directors

Allan Gibbins, Chairman
Stuart Platt

                                       40
<PAGE>

BOARD OF ADVISORS

         Effective February 1, 2006, The Company established a Board of
Advisors. The Board of Advisors was formed to help in recruiting staff to run
the Company or for other functions. The Board of Advisors will also help with
product introductions, customer introductions, credibility, product validation,
marketing/sales advice, critiques, and advice to members of the Board and the
management team. Initial members of the Board of Advisors are: John Mahoney, CEO
of SiVault, Mr. Roger Mahabir, who will act as Chairman, Mr. David Gibbins, Mr.
Bhanu Singh, Mr. Colin Ground and Mr. Richard Moore, COO of SiVault.

Roger R. Mahabir, Chairman

Roger Mahabir is the President and Chief Executive Officer of Technology
Innovations Inc., an Information Technology services and consulting firm
established in 1991. He is also Chairman of Assurent Secure Technologies, a
world leader in vulnerability research and security software and services,
headquartered in Toronto, Canada.

Mr. Mahabir was previously the Chief Information Officer at RBC Capital Markets
(Royal Bank Canada) where he served for over 5 years. He is recognized as one of
the industry's top-CIOS, having served in senior executive positions, including
four CIO roles with Fortune 500 companies in Financial Services, Government,
Manufacturing, and Retail. His systems work for innovation and delivery at
Fortune 500 companies has won international acclaim and been recognized by many,
including the Smithsonian. He was inducted into the Canadian Information
Productivity Hall of Fame (1995) for his innovation and delivery at
Suncor/Sunoco, General Electric and Toronto Police.

Mr. Mahabir was named by CIO Magazine as one of Canada's top CIOs in 1994. Under
his leadership his organization was recognized by Computerworld Magazine as one
of the "Global 100" Outstanding Information Technology users Worldwide in 1995
and also received an "Award of Distinction" from the Canadian Information
Productivity Association. The "Metropolis" project which significantly
re-engineered policing across the entire Metropolitan Toronto area led to this
distinction and received international acclaim and recognition.

Bhanu Singh

Bhanu Singh is a Partner and leader in the technology and IT practice at Bain
and Company. He also co-leads Bain's global capability sourcing practice.

Mr. Singh rejoined Bain in 2004 after spending 4 years running TCG Software (a
global IT software services firm). While at TCG he transitioned R&D, IT, support
and engineering functions from an onsite to an onsite-offsite-offshore model for
a number of companies in the financial services and high-tech markets. Most of
these projects involved significant process redesign and changes to management.

At Bain, Mr. Singh has worked on growth strategy and operational improvement
projects in the financial services, telecom and technology verticals. His recent
experience has included designing go-to- market and outsourcing strategies for
technology and services firms. He has also worked in the private equity group,
assisting clients with due diligence and portfolio company strategies in a
variety of industries.

                                       41
<PAGE>

Prior to joining Bain, Mr. Singh worked at Hewlett Packard (HP), HR Strategies
(a successful start-up) and DCM Toyota. He earned an M.B.A. from the University
of Michigan with highest distinction. He also has a Masters in Operations
Research & Statistics from Rensselaer Polytechnic Institute, NY. He has a B.Tech
in Mechanical engineering from the Indian Institute of Technology (IIT).

David Gibbins

David Gibbins is the former Managing Director, Global Head Foreign Exchange and,
Commodity Derivatives, for RBC Capital Markets' Global Treasury Services. Mr.
Gibbins sat on the Operating Committee of the Global Treasury Services Division,
as well as on the Executive Committee of the RBC Capital Markets, the Investment
Banking arm of the RBC Financial Group. Mr. Gibbins spent 27 years with Royal
Bank of Canada, the past 21 within the trading business.

From 1994 to 1996, Mr. Gibbins was Co-Global Head of Forex Sales and Commodity
Trading; from 1991 to 1994 he was Vice President and Head of Treasury USA, Latin
America and Caribbean, based in New York. From 1989 to 1991, Mr. Gibbins was
Chief Dealer, Canadian Money Markets; from 1987 to 1989, he was Senior Dealer,
Interest Rate Derivatives in Toronto and from 1986 to 1988 he was Senior
Derivatives Dealer in London, England.

Mr. Gibbins is a member of the Board of Directors of Greenfield Commercial Group
since January 2004.

Colin W. Ground

Colin Ground is an attorney with Fraser, Milner Casgrain LLP, Toronto, Canada.
Mr. Ground practices in the areas of Corporate/Commercial and Information
Technology Law with a focus on emerging growth technology companies. He is a
member of the firm's Private Equity/Venture Group providing legal advice on a
wide range of private equity and venture capital financings where he has had the
opportunity to work with investment funds, private investors and emerging
companies. Mr. Ground's practice also involves assisting companies in
commercializing their intellectual property and developing their e-commerce
initiatives.

Richard J. Moore

Richard J. Moore was, until joining SiVault as COO in February 2006, most
recently President and COO from July 1, 2001, of Financial Fusion, Inc., a
subsidiary of a Sybase, Inc. a software company located in Dublin, Canada. From
January 1999 to December 2001 he was Senior Vice President Worldwide
Sales/Co-CEO Cygent, Inc. an internet software company located in San Francisco,
California. Prior to that he held various positions with Unisys Corporation,
most recently, Vice President, North America Large Accounts from April 1998 to
January 1999.

                                       42
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION.

         The following table sets forth the aggregate compensation earned by,
paid to, or accrued for our chief executive officer and each other executive
officer whose aggregate compensation, was in excess of $100,000, based on their
salary and bonus for the fiscal year ended June 30, 2005, who we refer to as our
named executive officers.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                       Annual Compensation                 Long-Term Compensation
                                       -------------------      ----------------------------------------------------
                                             Awards                       Awards            Payouts
                                             ------             -------------------------   -------


                                                      Other
Name and                                              annual    Restricted   Securities
Principal              Fiscal                         compen      stock      underlying      LTIP         All other
Position                Year     Salary     Bonus     sation      awards    options/ SARs   Payouts     compensation
---------------------  ------   --------   -------   --------   ----------  -------------   -------     ------------
<C>                    <C>      <C>        <C>       <C>        <C>         <C>             <C>         <C>
Emilian                 2005     $172,125
Elefteratos (1)
President and           2004     $0
Chief Executive
Officer                 2003     $0

--------------------


Wayne                   2005     $62,662
Taylor, (2)
Chief Financial         2004     $35,750
Officer
                        2003     $18,000

---------------------  ------   --------   -------   --------   ----------  -------------   -------     ------------

Igor J. Schmidt         2005     $166,582
Chief Strategy
Officer(3)              2004     $0

                        2003     $0
---------------------  ------   --------
</TABLE>

(1)  Mr. Elefteratos joined the Company in July 2004 and resigned from the
     Company effective September 1, 2005.
(2)  Mr. Taylor joined the Company in July 1999, as a founder.
(3)  Mr. Schmidt joined the Company in July 2004 and resigned effective October
     2005.

                      Option/SAR Grants In Last Fiscal Year
                                Individual Grants

There were no stock options/SARs granted to our named executive officers during
the fiscal year ended June 30, 2005:

   AGGREGATED OPTION/SAR EXERCISES DURING THE FISCAL YEAR-ENDED JUNE 30, 2004
                     AND FISCAL YEAR-END OPTION/SAR VALUES

There were no stock options/SARs owned by the Company's named executive officers
as of the fiscal year ended June 2005.

                                       43
<PAGE>

Stock Option Plan

         In April 2004 the Company adopted its 2004 Incentive Stock Plan (the
"2004 Plan").

         The 2004 Plan permits the grant of stock options, stock awards (awards
in the form of shares of our stock or stock units, in either case for which no
payment by the participant is required0 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 ten percent of our or any of our subsidiary's voting power shall have
exercise prices of at least 110% of fair market value of our stock on the date
of grant. Stock options granted to others will have exercise prices of not less
than 100% of the fair market value of our stock on the date of grant if they are
ISOs and not less than 85% of the fair market value of our stock on the date of
grant if the are NSOs. Stock options granted under the 2004 Plan may only be
transferred by will or the laws of descent and distribution. Stock options
granted under the 2004 Plan will have terms of not more than 10 years. The 2004
Plan contains limitations on vesting of stock options. The affect of a
termination of employment or service on a participant's stock options depends on
the reason for the termination, and is described in the 2004 Plan and award
agreements.

         Stock awards give participants shares of our common stock or the right
to receive shares of our common stock. A participant's rights with respect to
stock awards may be subject to conditions established by our Board of Directors
or Executive Compensation Committee, including continued service, achievement of
specified business objectives, indices, attaining growth rates and other
measurements of our performance, conditioned upon satisfaction of company or
individual performance goals. Stock awards may also be awarded free of
restrictions. Restricted stock purchase awards give participants the opportunity
to purchase shares of our common stock, subject to restrictions prescribed by
our Board of Directors or Executive Compensation Committee. With certain limited
exceptions described in the 2004 Plan, stock awards and restricted stock
purchase awards granted under the 2004 Plan are not transferable. The effect of
a termination of employment or service on a participant's stock options depends
on the reason for the termination, and is described in the 2004 Plan and award
agreements.

         The 2004 Plan provide for the issuance of up to 2,250,000 shares
pursuant to awards. Stock issued under the 2004 Plan may be authorized but
unissued stock or stock that we have reacquired. Shares covered by awards that
terminate or expire and shares that we repurchase in accordance with the terms
of an award shall again be available for issuance under the 2004 Plan. In the
event of a change in our outstanding stock in connection with a stock split,
stock dividend, recapitalization, merger, spin off or similar event, the number
of shares that may be issued under the 2004 Plan and the number and price of
shares subject to outstanding awards may be adjusted by the Board of Directors
or the Executive Compensation Committee.

                                       44
<PAGE>

         The 2004 Plan is administered by of the Executive Compensation
Committee of the Board of Directors. The committee has authority to grant
awards, determine from the eligible group of participants those to whom awards
will be granted, determine the terms of awards, construe and interpret the plan,
amend outstanding awards, and perform such other duties relating to the plan's
administration. The Board may, at any time and from time to time, alter, amend,
suspend or terminate the 2004 Plan in whole or in part, subject to certain
restrictions as stated in the 2004 Plan.

         Awards under the 2004 Plan may be made to employees, directors and
consultants of SiVault Systems, Inc. or its subsidiaries, as selected by the
2004 Plan's administrator. The approximate number of persons who are currently
eligible to participate under the 2004 Plan is 19, which includes 5 employees, 9
directors and 5 consultants. As of June 30, 2005 no options have been exercised
by the employees under the 2004 Plan. Subsequent to year end all of the
Company's employees based in San Jose were terminated. Under the terms of this
2004 Plan, options issued to these employees terminated three months after the
date of separation.

         Equity Compensation Plans

         The following table sets forth certain information as of the fiscal
year ended June 30, 2005 with respect to our compensation plans (including
individual compensations arrangements).


                                       45
<PAGE>

                 Equity Compensation Plan Information Table (1)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                           (a)                           (b)                          (c)
----------------------------------------------------------------------------------------------------------------------
                                                                                            Number of securities
                                                                                           remaining available for
                               Number of securities to be    Weighted-average exercise      future issuance under
                                 issued upon exercise of       price of outstanding       equity compensation plans
                                  outstanding options,         options, warrants and        (excluding securities
Plan Category                    warrants and rights (2)              rights              reflected in column (a))
---------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                           <C>                        <C>
Equity compensation plans
approved by security holders             ______                        _____                        ______
---------------------------------------------------------------------------------------------------------------------

Equity compensation plans
not approved by security                 ______                        _____                        ______
holders
---------------------------------------------------------------------------------------------------------------------
Total                                    ______                        _____                        ______
---------------------------------------------------------------------------------------------------------------------
</TABLE>


      (1) The Company adopted a stock option plan on April 30, 2004. No options
were exercised under the plan during the 2005 fiscal year. The Company has
reserved 2,250,000 shares for issuance under the plan.

         (2) At June 30, 2005, options to purchase 2,357,600 shares had been
issued under the Plan; subsequent to year end 2,102,500 of these options were
canceled.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

Principal Shareholders

         The following table indicates how many shares of common stock were
beneficially owned, as of February 15, 2005 by (1) each person known by us to be
the owner of more than 5% of the outstanding shares of common stock, (2) each
director, (3) each executive officer named in the Summary Compensation Table and
(4) all directors and executive officers as a group. In general, "beneficial
ownership" includes those shares a person has the power to vote or the power to
transfer, and stock options and other rights to acquire common stock that are
exercisable currently or become exercisable within 60 days. For purposes of
computing the percentage of outstanding shares held by each person or group of
persons named above on February 15, 2005, any security which such person or
group of persons has the right to acquire within 60 days after such date is
deemed to be outstanding for the purpose of computing the percentage ownership
of such person or persons, but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person. Except as indicated,
the persons named in the table below have sole voting and investment power with
respect to all shares shown as beneficially owned by them. We based our
calculation of the percentage owned on February 15, 2005 by our officers and
directors as a group as being 30,368,266 shares of the 38,262,426 shares of
common stock outstanding.

                                       46
<PAGE>

<TABLE>
<CAPTION>
                                                                      Amount and Nature of          Percent of
     Name and Address of Beneficial Owner (1)                         Beneficial Ownership(2)          Class
--------------------------------------------------------              -----------------------       ----------
<S>                                                                         <C>                        <C>
Gesture Recognition Technologies International Limited                       2,692,624                     7%
c/o CIBC Trust and Merchant Bank
(Barbados) Limited
Bank Warrens Street,
Michael's Bar, Barbados (3)

Wayne Taylor (4)                                                             3,224,624                  8.43%

Allan Gibbins (10)                                                              60,000                    0%*
212 Westridge Drive
Kleinberg, ON Canada

Synergex Group LLC (5)                                                       1,238,936                   3.2%
16 Old Mill Road
Greenwich, CT

Gerard E. Munera (6)                                                         3,162,000                  8.26%
16 Old Mill Road
Greenwich CT

Igor Schmidt (7)                                                             2,050,000                  5.36%

Elaine Bloom (8)                                                               206,875                    0%*

Stuart Platt (9)                                                                85,000                    0%*

John Mahoney                                                                 3,754,758                  9.81%

Orhan Sadik-Khan                                                             3,954,759                 10.34%

Anthony Low-Beer                                                            12,920,250                 33.77%

Michel Kadosh                                                                3,000,000                  7.84%

Viaquo Corporation                                                           2,913,100                  7.61%

All officers and directors as a group                                       30,368,265                    79%
(10 individuals)
</TABLE>

* Indicates less than 1% of the outstanding shares of the Company's common stock

---------------

1.  Except as otherwise noted, the address of each beneficial owner is c/o
    SiVault Systems, Inc., 500 Fifth Avenue, Suite 1650, New York, New York,
    10110.

2.  Except as otherwise noted in the footnotes to this table, the named
    person owns directly and exercises sole voting and investment power over
    the shares listed as beneficially owned by such persons. Includes any
    securities that such person has the right to acquire within 60 days
    pursuant to options, warrants, conversion privileges or other rights.
    Does not include shares issued to directors effective February 1, 2006.

3.  Shares are owned by the GRT Family Trust established by Mr. Taylor and as
    to which he maintains beneficial ownership.

                                       47
<PAGE>

4.  Includes 2,692,624 shares owned by Gesture Recognition. Includes options
    to purchase 25,000 shares of common stock which are exercisable within 60
    days.

5.  Synergex Group LLC ("Synergex")is a family holding company as to which
    Mr. Gerard Munera serves as Managing Partner and owns an approximately
    17% beneficial interest.

6.  Includes 1,238,936 shares owned by Synergex. Also includes 400,000 shares
    that he may acquire upon exercise of a warrant and more options to
    purchase 25,000 shares of common stock granted to Mr. Munera in October
    2004.

7.  Mr. Schmidt resigned form the Board in October 2005.

8.  Includes options to purchase 25,000 shares of common stock which were
    issued to Ms. Bloom in October 2004.

9.  Includes options to purchase 25,000 shares of common stock issued to Mr.
    Platt in October 2004.

10. Includes options to purchase 25,000 shares of common stock issued to Mr.
    Gibbins in October 2004.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In December 2005 certain officers and directors of the Company
converted amounts owed to them into shares.

         These include;

         John Mahoney:                  Amount Converted to shares $205,000

         Wayne Taylor:                  Amount Converted to shares $220,000

         Gerard Munera:                 Amount Converted to shares $260,000

         Orhan Sadik-Khan:              Amount Converted to shares $385,000

         Anthony Low-Beer               Amount Converted to shares $280,000


                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

            Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and officers, and persons who beneficially own more than
ten percent of a registered class of our equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons that no other reports
were required for those persons, we are not aware of any failure to file reports
or report transactions in a timely manner during the fiscal year ended June 30,
2005.

                                       48
<PAGE>

ITEM 13.  EXHIBITS.

      The following Exhibits and Financial Statements are included as part of
      this report:

                         INDEX TO FINANCIAL STATEMENTS
                                                                         Page
                                                                         ----
Independent Auditors' Report                                              F-2

Consolidated Balance Sheets                                             F-3-4

Consolidated Statement of Operations                                      F-5

Consolidated Statements of Stockholder's Equity (Deficiency)              F-6

Consolidated Statements of Cash Flow                                    F-7-8

Notes to Consolidated Financial Statements                             F-9-32

Exhibit
Number     Title of Document
------     -------------------

2.1        Stock Purchase Agreement dated July 9, 2004 among the registrant and
           all shareholders of SiVault Analytics, Inc. (Incorporated by
           reference to the registrant's report on Form 8-K filed on July 20,
           2004)

3.1        Amended and Restated By-Laws of the registrant. (Incorporated by
           reference to Exhibit 3.1 to the registrant's report on Form 10-Q
           filed on June 4, 2004)

10.1       2004 Incentive Stock Plan of the registrant. (Incorporated by
           reference to the Registrant's Proxy Statement on Schedule 14A filed
           on April 19, 2004)

10.2       Settlement Agreement dated June 4, 2004 among the registrant,
           MaryAnne Richard, Michael Richard and Lightec Communications Corp.
           (Incorporated by reference to the registrant's report on Form 8-K
           filed on June 8, 2004)

10.3       Warrant in favor of MaryAnn Richard to purchase400,000shares expiring
           May 6, 2006 (Incorporated by reference to the registrant's report on
           Form 8-K filed on June 8, 2004)

10.4       Settlement Agreement dated June 23, 2004 between the registrant and
           Synergex Group, LLC (Incorporated by reference to the Statement on
           Schedule 13D filed by Synergex Group LLC and Gerard Munera on July 1,
           2004)

10.5       Sublease dated September 24, 2004 between the registrant and Euclid
           Network Solutions for San Jose facility.

10.6       Exclusive Distribution and Partnership Rights Agreement dated August
           15, 2003 between the registrant and WonderNet, Ltd.

10.7       Strategic Partnering and ASP License Agreement effective as of May
           13, 2004 between SiVault Analytics, Inc. and Viaquo Corporation.

                                       49
<PAGE>

10.8       ISV and Reseller License Agreement effective May 13,2004 between
           SiVault Analytics, Inc. and Communications Intelligence Corporation.

10.9       Reseller Agreement effective May 13, 2004 between Hypercom U.S.A.,
           Inc. and SiVault Analytics, Inc.

10.10      Agreement dated March 2, 2004 for Purchase and Sale of Assets between
           SiVault Analytics, Inc. and @POS.com, Inc.

10.11      Master Agreement effective September 15, 2004 between Opus Software
           Solutions Pvt. Ltd and the registrant.

10.12      Software License and Strategic Alliance Agreement effective September
           2004 between Intelli-Check, Inc. and the registrant.

10.13      Strategic Alliance and Exclusive Management Agreement effective
           September 22, 2004 between Rycom CCI Inc. and the registrant.

10.14      Product Technology and License Agreement between the Company and
           Hypercom, Inc. dated February 13, 2006.

21.1       List of Subsidiaries of the registrant.

23.1       Consent of Miller Ellin & Company, LLP., Certified Public
           Accountants.*

32.1       Section 1350 Certification of Chief Executive Officer.*

32.2       Section 1350 Certification of Chief Financial Officer.*


ITEM  14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Fees paid to Independent Accountants for 2005 and 2004

The total fees and related expenses for professional services provided by the
Company's independent registered public accounting firms Amisano Hanson, and
Miller Ellin and Company, LLP for the fiscal years ended June 30, 2005 and 2004
are presented in the table below.

                                            Year ended June 30,
                                            -------------------
                                   2005 Fees                   2004 Fees
                                   ---------                   ---------
        Audit Fees                $  136,130                  $   95,937
Audit Related Fees                $  147,519                  $      -0-
          Tax Fees                $   98,289                  $      -0-
    All Other Fees                $   10,783                  $      -0-

The Audit Fees listed above were billed in connection with the audit of
statements included in our quarterly reports on Forms 10-QSB for the fiscal
year.

--------------------------
*Filed herewith.

                                       50
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.

                               SiVault Systems, Inc.


                               By:  /s/  John Mahoney
                                    ------------------------------
                                    John Mahoney, Chief Executive Officer

                                    Dated:  April 24, 2006


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.



Name                                Capacity                       Date
-----------------------  ------------------------------------     ------
                          Chief Executive Officer, President
                          and Director (principal executive
/s/ John Mahoney          officer)                              April 24, 2006
-----------------------  ------------------------------------   -------------
John Mahoney


                          Interim Chief Financial Officer
                          (principal financial and
/s/ Wayne Taylor          accounting officer) and Director      April 24, 2006
-----------------------  ------------------------------------   -------------
Wayne Taylor


/s/ Michel Kadosh         Director                              April 24, 2006
-----------------------  ------------------------------------   -------------
Michel Kadosh


                          Chairman of the Board of
/s/ Gerard Munera         Directors                             April 24, 2006
-----------------------  ------------------------------------   -------------
Gerard Munera


/s/ Allan Gibbins         Director                              April 24, 2006
-----------------------  ------------------------------------   -------------
Alan Gibbins

                                       51
<PAGE>

/s/ Stuart Platt          Director                              April 24, 2006
-----------------------  ------------------------------------   -------------
Stuart Platt


/s/ Orhan Sadik-Khan      Director                              April 24, 2006
-----------------------  ------------------------------         -------------
Orhan Sadik-Khan


/s/ Michel Kadosh         Director                              April 24, 2006
-----------------------  -------------------------------        -------------
Michel Kadosh


/s/ Anthony Low-Beer      Director                              April 24, 2006
-----------------------  -------------------------------        -------------
Anthony Low-Bee


                                       52
<PAGE>

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

                        CONSOLIDATED FINANCIAL STATEMENTS

                       YEARS ENDED JUNE 30, 2005 AND 2004





<PAGE>

                     SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
                      (FORMERLY SECURITY BIOMETRICS, INC.)
                        CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED JUNE 30, 2005 AND 2004


                                    CONTENTS


                                                                         PAGE
                                                                         ----

INDEPENDENT AUDITORS' REPORT                                               2

CONSOLIDATED BALANCE SHEETS                                              3 - 4

CONSOLIDATED STATEMENT OF OPERATIONS                                       5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)               6

CONSOLIDATED STATEMENT OF CASH FLOWS                                     7 - 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                               9 - 33


                                       1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders,
SiVault Systems, Inc. (formerly
Security Biometrics, Inc.) and Subsidiaries

We have audited the accompanying consolidated balance sheets of SiVault Systems,
Inc. (formerly Security Biometrics, Inc.) and Subsidiaries (the "Company") as of
June 30, 2005 and 2004 and the related consolidated statements of operations,
stockholders' deficiency and cash flows for the years ended June 30, 2005 and
2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance whether the
consolidated financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In  our  opinion,  these  consolidated  financial  statements  referred to above
present fairly, in all material respects, the financial position of SiVault
Systems, Inc. (formerly Security Biometrics, Inc.) and Subsidiaries as of June
30, 2005 and 2004 and the results of their operations and their cash flows for
the years ended June 30, 2005 and 2004, in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, conditions exist which raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plan in this regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As discussed in Note 4 to the consolidated financial statements, the Company has
reviewed its purchases of SiVault Analytics, Inc. and the ViaSeal Access Control
Business. As a result of these reviews, substantial doubt remains whether the
technologies acquired with these business purchases will ultimately provide any
value. The financial statements do not include any adjustments that might result
from any determination about the realization of benefits from the technologies
acquired.


                                               MILLER, ELLIN & COMPANY, LLP


New York, New York                             CERTIFIED PUBLIC ACCOUNTANTS
March 31, 2006

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       JUNE 30,
                                                                    ----------------------------------------------
                                                                             2005                         2004
                                                                    ----------------------   ---------------------
<S>                                                                      <C>                           <C>
                                     ASSETS
CURRENT ASSETS

   Cash                                                                       $9,808                     $112,880
   Accounts receivable, net of allowance of $663,966 and $0,
     respectively                                                            204,042                      848,617
   Inventory                                                                 136,606                        3,884
   Prepaid expenses and other current assets                                 354,639                       58,788
                                                                    ----------------------   ---------------------
             Total current assets                                            705,095                    1,024,169
                                                                    ----------------------   ---------------------

PROPERTY AND EQUIPMENT, net of accumulated depreciation                       70,000                      636,994

OTHER ASSETS                                                                 113,457                       56,916

INTANGIBLE ASSETS                                                          7,254,058                           --
                                                                    ----------------------   ---------------------

                                                                         $ 8,142,610                   $1,718,079
                                                                    ======================   =====================

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES

   Accounts payable and accrued liabilities - non-related parties         $3,886,599                   $2,558,883
   Accounts payable and accrued liabilities - related parties                812,170                      789,410
   Billings in excess of costs and estimated earnings on
      uncompleted contracts                                                       --                       90,018
   Notes and loans payable. non-related parties                            1,370,377                      339,983
   Notes and loans payable - related parties                               1,491,856                           --
   Convertible notes and debenture payable                                 2,039,509                    1,358,569
   Capital lease obligations                                                      --                        3,329
   Corporate income taxes payable                                            179,920                      129,920
   Current liabilities of discontinued operations                                 --                       93,913
                                                                    ----------------------   ---------------------
             Total current liabilities                                     9,780,431                    5,364,025
                                                                    ----------------------   ---------------------

OTHER LIABILITIES                                                             15,915                       16,954
                                                                    ----------------------   ---------------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
   Common stock
   Authorized - 50,000,000 shares $0.001 par value
   Issued and outstanding - 20,510,636 and 7,924,664
    as of June 30, 2005 and 2004 respectively                                 20,511                        7,924
  Additional paid-in capital                                              40,445,476                   14,548,456
  Accumulated other comprehensive loss                                       (7,311)                      (7,222)
  Accumulated deficit                                                   (42,112,412)                 (18,212,058)
                                                                    ----------------------   ---------------------
        TOTAL STOCKHOLDERS' DEFICIENCY                                   (1,653,736)                  (3,662,900)
                                                                    ----------------------   ---------------------

                                                                         $ 8,142,610                   $1,718,079
                                                                    ======================   =====================
</TABLE>

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

                                       3
<PAGE>

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

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                YEARS ENDED JUNE 30,
                                                                     -------------------------------------------
                                                                             2005                    2004
                                                                     -------------------------------------------
<S>                                                                   <C>                     <C>
REVENUES:
   Contract revenues earned                                           $       1,526,211       $       7,110,034
   Other revenues                                                                75,802                  21,403
                                                                     ------------------      -------------------
      Total revenues                                                          1,602,013               7,131,437
                                                                     ------------------      -------------------
OPERATING EXPENSES:
   Costs of revenue earned                                                      833,299               3,649,302
   Selling, general and administrative                                       16,532,269               6,233,955
                                                                     ------------------      -------------------
                                                                             17,365,568               9,883,257

LOSS FROM OPERATIONS                                                        (15,763,555)             (2,751,820)
                                                                     ------------------      -------------------
OTHER EXPENSES:
   Interest expense                                                           1,669,303                 796,220
   Impairment of cost in
     excess of fair value
     from a business combination                                              5,706,060                      --
   Impairment of long-lived assets                                              761,436                      --
                                                                     ------------------      -------------------
                                                                              8,136,799                 796,220


LOSS BEFORE PROVISION FOR
    INCOME TAXES                                                            (23,900,354)             (3,548,040)

PROVISION FOR INCOME TAXES                                                           --                  34,934
                                                                     ------------------      -------------------
LOSS FROM CONTINUING OPERATIONS
   BEFORE MINORITY INTEREST
   OF SUBSIDIARY                                                            (23,900,354)             (3,582,974)

Minority interest in loss of subsidiary                                              --                     121
                                                                     ------------------      -------------------
LOSS FROM CONTINUING OPERATIONS                                             (23,900,354)             (3,582,853)

INCOME  FROM DISCONTINUED
   OPERATIONS                                                                        --                 176,193
                                                                     ------------------      -------------------
NET LOSS                                                              $     (23,900,354)      $      (3,406,660)
                                                                     ==================      ===================
BASIC AND DILUTED LOSS PER COMMON SHARE

   Continuing operations                                              $           (1.44)      $           (0.51)
                                                                     ==================      ===================
   Discontinued operations                                            $            0.00       $            0.02
                                                                     ==================      ===================
   Net loss                                                           $           (1.44)      $           (0.49)
                                                                     ==================      ===================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                         16,566,258               6,971,497
                                                                     ==================      ===================
</TABLE>

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

                                       4
<PAGE>

                     SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
                      (FORMERLY SECURITY BIOMETRICS, INC.)
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                       YEARS ENDED JUNE 30, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                      Common Stock       Additional                       Other           Total
                                                   ------------------     Paid In       Accumulated   Comprehensive    Stockholders'
                                                   Shares      Amount     Capital         Deficit          Loss         Deficiency
                                               -----------   --------   -----------   ------------     ----------    ---------------
<S>                                             <C>           <C>       <C>           <C>               <C>           <C>
Balance, June 30, 2003                           6,214,813    $ 6,215   $ 8,319,589   $(14,805,398)     $  (5,247)    $ (6,484,841)
Issuance of common stock for:
  Cash                                             935,588        935     1,426,080             --             --        1,427,015
  Services                                          92,500         93       193,907             --             --          194,000
  Software                                         141,279        141       374,859             --             --          375,000

Issuance of shares to settle debt                  540,484        540     1,070,428             --             --        1,070,968

Issuance of common stock by subsidiary                  --         --        27,593             --             --           27,593

Issuance of stock warrants to:                          --
  Extend convertible debenture                          --         --     2,016,000             --             --        2,016,000
  Extend note                                           --         --       480,000             --             --          480,000
  Settle debt                                           --         --       640,000             --             --          640,000

Other comprehensive loss                                --         --            --             --         (1,975)          (1,975)

Net loss                                                --         --            --     (3,406,660)            --       (3,406,660)
                                               -----------   --------   -----------   ------------     ----------     ------------


Balance, June 30, 2004                           7,924,664      7,924    14,548,456    (18,212,058)        (7,222)      (3,662,900)
Issuance of common stock for:
   Cash (net of finders fees)                    2,628,124      2,628     3,367,940             --             --        3,370,568
   Services                                      1,173,007      1,173     2,286,726             --             --        2,287,899
Issuance of common stock to
   Settle accounts payable and                     420,005        420       692,109             --             --          692,529
   accrued liabilities
Issuance of common stock for the
   acquisition of Sivault Analytics, Inc.
   and related costs                             4,140,000      4,140     7,419,860             --             --        7,424,000
Exercise of warrants                               166,667        167       333,167             --             --          333,334
Issuance of stock options and warrants
   for services                                         --         --     4,324,396             --             --        4,324,396
Issuance of common stock due to the
   conversion of convertible notes                 192,500        193       432,932             --             --          433,125
Issuance of common stock and
   warrants as consideration of loans              235,933        236     1,785,020             --             --        1,785,256
Issuance of common stock for the
   acquisition of eMedRx stock and
   Viaquo assets and related costs               3,629,736      3,630     5,254,870             --             --        5,258,500
Other comprehensive loss                                --         --            --             --            (89)             (89)

Net loss                                                --         --            --    (23,900,354)            --      (23,900,354)
                                               -----------   --------   -----------   ------------     ----------    ---------------
Balance, June 30, 2005                          20,510,636    $20,511   $40,445,476   $(42,112,412)     $  (7,311)    $ (1,653,736)
                                               ===========   ========   ===========   ============     ==========    ===============
</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 STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED JUNE 30,
                                                                                ----------------------------
                                                                                    2005             2004
                                                                                ------------     -----------
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss from continuing operations                                         ($23,900,354)    ($3,582,853)
    Adjustments to reconcile net income to net
    cash used in operating activities:
       Depreciation and amortization of property and equipment                       189,395          10,026
       Provision for doubtful accounts                                               718,471          16,954
       Gain on settlement of debt                                                         --         (55,156)
       Impairment of cost in excess
         of fair value from a business combination                                 5,706,060              --
       Impairment of long-lived assets                                               761,434              --
       Issuance of common stock for services                                       2,287,899         194,000
       Issuance of common stock to extend note and
         convertible debenture                                                            --       2,496,000
       Issuance of stock options and warrants for services                         4,324,396              --
       Amortization of debt discount as non-cash interest expense                  1,171,209              --
       Deferred rent expense                                                          (6,459)             --
       Other                                                                              --            (193)
    Changes in current assets and liabilities:
       Accounts receivable                                                           (73,896)       (753,983)
       Inventory                                                                    (132,722)         (3,884)
       Prepaid expenses and other current assets                                    (101,139)        (39,724)
       Other assets                                                                 (138,118)        (56,916)
       Accounts payable and accrued liabilities                                    2,081,709       1,500,439

       Billings in excess of costs and estimated earnings on
         uncompleted contracts                                                       (90,018)         90,018
       Corporate income taxes payable                                                 50,000          34,934
       Security deposit payable                                                        5,420              --
                                                                                ------------     -----------
 NET CASH USED IN OPERATING ACTIVITIES                                            (7,146,713)       (150,338)
                                                                                ------------     -----------

 CASH FLOWS FROM INVESTING ACTIVITIES:
    Cash acquired in acquisition                                                       5,622              --
    Purchases of property and equipment                                             (295,751)       (207,002)
    Advances to discontinued subsidiaries                                                 --        (288,796)
                                                                                ------------     -----------
NET CASH USED IN INVESTING ACTIVITIES                                               (290,129)       (495,798)
                                                                                ------------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from the issuance of common stock                                 3,370,568       1,454,608
    Proceeds from the exercise of stock warrants                                     333,334              --
    Repayments of shareholders' advances                                            (115,000)             --
    Proceeds from convertible notes                                                2,681,005              --
    Repayment of a convertible debenture                                          (1,358,569)       (321,431)
    Repayment of a note payable - non-related party                                 (189,983)             --
    Proceeds from notes and loans payable - non-related parties                    1,407,000              --
    Proceeds from notes and loans payable - related parties                        1,208,833        (373,505)
    Repayment of capital lease obligations                                            (3,329)         (2,773)
                                                                                ------------     -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                          7,333,859         756,899
                                                                                ------------     -----------

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

NET CHANGE IN CASH                                                                  (103,072)        108,788

CASH, BEGINNING OF YEAR                                                              112,880           4,092
                                                                                ------------     -----------

CASH, END OF YEAR                                                               $      9,808     $   112,880
                                                                                ============     ===========
</TABLE>

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

                                       6
<PAGE>

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

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                    Years Ended June 30,
                                                                                ---------------------------
                                                                                     2005         2004
                                                                                ------------    -----------
<S>                                                                             <C>              <C>
SUPPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

CASH PAID DURING THE YEAR FOR:
     Interest                                                                   $    188,451    $   795,258
                                                                                ------------    -----------
     Income taxes                                                               $         --    $        --
                                                                                ------------    -----------
NON-CASH INVESTING AND FINANCING ACTIVITIES
   Issuance of common stock for:
    Services                                                                    $  2,287,899    $   194,000
                                                                                ------------    -----------
    Settlement of account payables and accrued liabilities                      $    692,529    $        --
                                                                                ------------    -----------
    Software                                                                    $         --    $   375,000
                                                                                ------------    -----------
    Settlement of convertible debenture                                         $         --    $   100,000
                                                                                ------------    -----------
    Settlement of note payable - related party                                  $         --    $   970,968
                                                                                ------------    -----------
    Conversion of convertible notes                                             $    433,125    $        --
                                                                                ------------    -----------
    Cost in excess of fair value acquired in the business combination of:
       SiVault Analytics, Inc.                                                  $  7,863,060    $        --
                                                                                ------------    -----------
       Viaquo Access Control Business                                           $  5,097,058    $        --
                                                                                ------------    -----------
 Issuance of common stock and warrants as consideration for loans               $  1,785,256    $        --
                                                                                ------------    -----------
 Issuance of stock options and warrants for services                            $  4,324,396    $        --
                                                                                ------------    -----------
 Issuance of stock warrants to extend convertible debentures                    $         --    $ 2,016,000
                                                                                ------------    -----------
 Issuance of stock warrants to extend note payable - related party              $         --    $   480,000
                                                                                ------------    -----------
 Issuance of stock warrants to settle notes payable - related party             $         --    $   640,000
                                                                                ------------    -----------
 Borrowings under note payable - related party to payoff a note
    payable - non-related party                                                 $    150,000    $        --
                                                                                ------------    -----------
 Borrowings under notes payables - related parties to pay accounts
    payable and accrued liabilities - related parties                           $     41,667    $   325,000
                                                                                ------------    -----------
 Borrowing under note payable - non-related party to pay accounts
    payable and accrued liabilities - non-related party                         $     49,653    $        --
                                                                                ------------    -----------
 Borrowings from a related party to pay a court order deposit for litigation    $    100,000    $        --
                                                                                ------------    -----------
</TABLE>

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


                                       7
<PAGE>

                     SIVAULT SYSTEMS, INC. AND SUBSIDIARIES
                      (FORMERLY SECURITY BIOMETRICS, INC.)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004
                             ----------------------



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND NATURE OF BUSINESS

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

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 authentification 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.

The Company had three subsidiaries (collectively known as "eMedRx") to develop
and market its electronic medical prescriptions around the world. The three
eMedRx companies were incorporated in Nevada, Canada, and Delaware and are
referred to as "eMedRx Nevada", "eMedRx Canada", and as "eMedRx Delaware",
respectively. On October 20, 2004, the Company entered into three share exchange
agreements with the stockholders of eMedRx Delaware, eMedRx Canada, and a
shareholder of eMedRx Delaware (the "eMedRx Agreements"). The eMedRx Agreements
provided for the exchange of common stock shares of eMedRx Nevada, eMedRx
Canada, and eMedRx Delaware, not owned by the Company as of October 20, 2004,
for 568,070 restricted shares of the Company's common stock valued at $3.45 per
share. The operations of all three eMedRx entities were recorded as part of the
SiVault System's segment of the Company effective as of the beginning of the
fiscal year 2005.

GOING CONCERN

The consolidated financial statements have been prepared assuming the Company
will continue to operate as a going concern which contemplates the realization
of assets and the settlement of liabilities in the normal course of business.
The Company has experienced significant operating losses since inception. In
addition, as of June 30, 2005, the Company has a working capital deficit
amounting to approximately $9.1 million. Management has adopted a
reorganization plan which the Company believes will address its current
financial condition (see Note 2).

The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of assets and
liabilities that might be necessary should the Company be unable to continue as
a going concern.

                                       8
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  -  (cont'd)

PRINCIPLES  OF  CONSOLIDATION

The consolidated financial statements include the accounts of SiVault Systems,
Inc. and its subsidiaries.

All significant inter-company accounts and transactions have been eliminated.

VARIABLE  INTEREST  ENTITY

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

CONCENTRATIONS OF CREDIT RISK

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

The Company derives substantially all of its revenues for the years ended June
30, 2005 and 2004 from one customer.

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 property and equipment, and options and warrants
issued, allowances on receivables, the valuation allowance on deferred tax
assets and valuation of intangibles assets acquired.

REVENUE  RECOGNITION

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

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

                                       9
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  -  (cont'd)

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

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

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

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.

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------

Selling, general and administrative expenses primarily include payroll and
related benefits, consulting fees, professional fees, board of directors fees,
bad debt expenses, impairment of property and equipment, rent, and depreciation
and amortization expenses. See Note 18 for the components of selling, general
and administrative expenses for the years ended June 30, 2005 and 2004.


ACCOUNTS RECEIVABLE
--------------------

Management performs ongoing credit evaluations of its customers. Management
determined that an allowance was necessary as of June 30, 2005, as compared to
no allowance needed as of June 30, 2004. Accounts receivable primarily represent
amounts due from billings under a contract entered into by Lightec.

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

INVENTORY
---------

The Company's inventory is stated at the lower of cost using the first-in,
first-out (FIFO) method or market. As of June 30, 2005 the Company's
inventory consists primarily of electronic point-of-sale terminals which were
returned to the vendor subsequent to the year end.

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 cost
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.

                                       10
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  -  (cont'd)

PROPERTY AND EQUIPMENT
----------------------

Property and equipment are recorded at cost. Major renewals and improvements are
capitalized and replacements, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are charged to expenses when
incurred. When items of property and equipment are retired and otherwise
disposed of, the original cost and related accumulated depreciation to date are
removed from the accounts and any gains or losses upon retirement or sale are
recognized. 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           7-10 Years
     Machinery and equipment          5 Years
     Computer equipment               5 Years
     Software                         3 Years

All depreciation and amortizations costs are reflected in selling, general and
administrative expenses in the accompanying consolidated statement of
operations.

PATENTS AND TRADEMARKS

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 a patent or trademark. The costs incurred prior to
approval and costs for unsuccessful applications are charged to expense. As of
the date of this report, no patents have yet been approved.

INCOME  TAXES

The Company accounts for income taxes using 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. A
valuation allowance is recorded when it is more likely than not the benefits
from deferred tax assets will not be realized.


                                       11
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  -  (cont'd)

LOSS PER COMMON SHARE
---------------------

Net loss per common share is calculated by dividing net loss by the weighted
average number of shares outstanding during each period presented. Common stock
equivalents, consisting of options, warrants and convertible notes and
debentures, have not been included, as their effect would be antidilutive for
the two years ended June 30, 2005 and 2004.

IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------

The Company follows the provisions of SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable, but amends the prior
accounting and reporting standards for segments of a business to be disposed of.
The Company periodically evaluates its long-lived assets based on, among other
factors, appraisal values, and the estimated undiscounted future cash flows
expected to be generated from such assets in order to determine if an impairment
exists. For the years ended June 30, 2005 and 2004, the Company recorded an
impairment charge of $312,576 and $ 0 respectively, of property and equipment
and $448,858 and $0, respectively, for software costs. All of the aforementioned
amounts are reflected in selling, general and administrative expenses in the
accompanying Consolidated Statements of Operations for the year ended June 30,
2005 and a new basis, if any, for the impaired assets was established.

FAIR VALUE OF FINANCIAL INSTRUMENTS

In determining the fair value of its financial instruments, the Company uses a
variety of methods and assumptions that are based on market conditions and risks
existing as of each balance sheet date. For the majority of financial
instruments, including receivables, notes and loans payable, and stock options
and warrants, standard market conventions and techniques, such as discounted
cash flow analysis option, pricing models, replacement cost and termination
cost, are used to determine fair value. All methods of assessing fair value
result in a general approximation of value, and such value may never actually be
realized.

GOODWILL AND OTHER INTANGIBLE ASSETS
------------------------------------

The Company has adopted the provisions of SFAS No 142, "Goodwill and Other
Intangible Assets". This statement provides that goodwill and other intangible
assets with indefinite lives should no longer be amortized, but should be
reviewed at least annually for impairment. Management performed a review of its
existing cost in excess of fair value of assts acquired in business combination
and determined that it was impaired as of June 30, 2005. For the years ended
June 30, 2005 and 2004, the Company recorded an impairment of cost in excess of
fair value from a business combination of $5,706,060 and $0, respectively.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the
provisions of SFAS No. 123, " Accounting for Stock- Based Compensation", as
amended by SFAS No. 148, " Accounting for Stock- Based Compensation - Transition
and Disclosure- an Amendment of SFAS No. 123". SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock based employee compensation and the effect of the method
used on reported results. Warrants and options issued to consultants and others
are expensed in accordance with SFAS No. 123, as amended by SFAS No. 148. For
employee stock options, the company has not adopted SFAS No. 123 (revised), "
Share-Based Payment" which requires that the fair market value of share -based
compensation, such as stock options, be charged to expense over the period
earned. The Company will adopt SFAS No. 123 (revised) for the fiscal year
beginning July 2005.

                                       12
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  -  (cont'd)

COMPREHENSIVE  INCOME (LOSS)
----------------------------

The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive
Income," which establishes rules for the reporting of comprehensive income and
its components. Comprehensive income (loss) is comprised of foreign currency
translation adjustments for the years ended, June 30, 2005, and 2004, the
Company had foreign currency translation adjustments of $(89) and $(1,995),
respectively. The comprehensive income (loss) for the years ended June 30, 2005
and 2004 was included in selling, general and administrative expenses due to its
immateriality.


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 (deficiency).

SEGMENT INFORMATION
-------------------

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

RECLASSIFICATION:
-----------------

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

NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------

In December 2004, the FASB issued Statement of Financial Standards No. 123
(revised 2004), Share-Based Payment ("SFAS No. 123 (R)"), which is a revision of
SFAS No. 123. SFAS No. 123 (R) supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends FASB Statement No. 95, Statement of
Cashflows. Generally, the approach to accounting for share-based payments in
SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial statements based on
their fair values. Pro forma disclosure of the fair value of share-based
payments is no longer an alternative to financial statement recognition.

The Company expects the adoption of SFAS No. 123(R) to have a material effect on
its financial statements, in the form of additional compensation expense, on a
quarterly and annual basis. It is not possible to precisely determine the
expense impact of adoption since a portion of the ultimate expense that is
recorded will likely relate to awards that have not yet been granted. The
expense associated with these future awards can only be determined based on
factors such as the price for the Company's common stock, volatility of the
Company's stock price and risk free interest rates as measured at the grant
date. However, the pro forma disclosures related to SFAS No. 123 included in the
Company's historic financial statements are relevant data points for gauging the
potential level of expense that might be recorded in future periods.

Statement of Financial Accounting Standards No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4 (SFAS 151) was issued in November 2004 and
becomes effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company does not expect that SFAS 151 will have any
effect on future financial statements.

                                       13
<PAGE>

Statement of Financial Accounting Standards No. 152, Accounting for Real Estate
Time-Sharing Transactions, an amendment of FASB Statements No. 66 and 67 (SFAS
152) was issued in December 2004 and becomes effective for financial statements
for fiscal years beginning after June 15, 2005. The Company does not expect that
SFAS 152 will have any effect on future financial statements.

Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29 (SFAS 153) was issued in December
2004 and becomes effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company does not expect that SFAS 153
will have any effect on future financial statements.

Statement of Financial Accounting Standards No. 154, Accounting Changes and
Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3
(SFAS 154) was issued in May 2005 and becomes effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company does not expect that SFAS 154 will have any significant effect
on future financial statements.

Statement of Financial Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments--an amendment of FASB Statements No. 133 and 140,
was issued in February 2006 and is effective for all financial instruments
acquired or issued after the beginning of an entity's first fiscal year that
begins after September 15, 2006. Certain parts of this Statement may be applied
prior to the adoption of this Statement. Earlier adoption is permitted as of the
beginning of an entity's fiscal year, provided the entity has not yet issued
financial statements, including financial statements for any interim period for
that fiscal year. Provisions of this Statement may be applied to instruments
that an entity holds at the date of adoption on an instrument-by-instrument
basis. The Company does not expect that SFAS 155 will have any significant
effect on future financial statements.

Statement of Financial Accounting Standards No. 156, Accounting for Financial
Assets--an amendment of FASB Statement No. 140, was issued in March 2006 and is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006. Certain
parts of this Statement may be applied prior to the adoption of this Statement.
Earlier adoption is permitted as of the beginning of an entity's fiscal year,
provided the entity has not yet issued financial statements, including interim
financial statements, for any period for that fiscal year. The effective date of
this Statement is the date an entity adopts the requirements of this Statement.
This Statement amends FASB Statement No. 140 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. The Company does not expect that SFAS 156 will have any significant
effect on future financial statements.

In March 2005, FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations--an interpretation of FASB Statement No. 143 (FIN 47).
FIN 47 is effective no later than the end of fiscal years ending after December
15, 2005 (December 31, 2005, for calendar-year enterprises). Retrospective
application for interim financial information is permitted but is not required.
Early adoption of this Interpretation is encouraged. The Company does not expect
that FIN 47 will have any significant effect on future financial statements.

In December 2004, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC) issued Statement of Position
04-2, Accounting for Real Estate Time-Sharing Transactions (SOP 04-2). SOP 04-2
is effective for financial statements issued for fiscal years beginning after
June 15, 2005, with earlier application encouraged. The Company does not expect
that SOP 04-2 will have any effect on future financial statements.

In September 2005, AcSEC issued Statement of Position 05-1: Accounting by
Insurance Enterprises for Deferred Acquisition Costs in Connection with
Modifications or Exchanges of Insurance Contracts (SOP 05-1). SOP 05-1 is
effective for fiscal years beginning after December 15, 2006, with earlier
adoption encouraged. The Company does not expect that SOP 05-1 will have any
effect on future financial statements.

FASB Staff Position (FSP) FAS 13-1--Accounting for Rental Costs Incurred during
a Construction Period, was issued on October 6, 2005 and becomes effective for
the for new transactions or arrangements entered into after the beginning of the
first fiscal quarter following the date that the final FSP is posted by the
FASB. The Company does not expect that FSP 13-1 will have any significant effect
on future financial statements.

On June 29, 2005, the FASB ratified the consensus reached for Emerging Issues
Task Force (EITF) Issue No. 05-5, Accounting for Early Retirement or
Postemployment Programs with Specific Features (Such As Terms Specified in
Altersteilzeit Early Retirement Arrangements). The consensus in this Issue
should be applied to fiscal years beginning after December 15, 2005, and
reported as a change in accounting estimate effected by a change in accounting
principle as described in paragraph 19 of FASB Statement 154. The Company does
not expect that EITF 05-5 will have any significant effect on future financial
statements.


                                       14
<PAGE>

On September 28, 2005, the FASB ratified the consensus reached for EITF Issue
No. 05-8, Income Tax Consequences of Issuing Convertible Debt with a Beneficial
Conversion Feature. The provisions of this Issue should be applied beginning in
the first interim or annual reporting period beginning after December 15, 2005.
The Company expects that the application of EITF 05-8 could have an effect on
the income tax expense reported in future financial statements. It is not
possible to determine the impact, if any, from this application on future
financial statements. The Company had convertible debt as of June 30, 2005.


NOTE 2 - MANAGEMENT'S LIQUIDITY PLANS

As shown on the accompanying financial statements, the Company has shown
cumulative from inception recurring losses from operations, negative cash flows
from operations, and as of June 30, 2005 had a working capital deficit of
approximately $9.1 million. These factors raise significant doubt as to the
Company's ability to continue as a going concern.

Management's plan includes the following:

   1.    Significantly reducing and/or minimizing the Company's monthly overhead
         costs while the Company addresses items below concurrent with
         securing of a third party long-term revenue generating contract(s)
         or licensing agreement(s).
   2.    Raising equity through private placements. The Company has raised
         approximately $2.2 million in private placement of the Company's
         common shares from July l, 2005 through to the date of this report;
   3.    Concluding debt settlement agreements with related and/or non-related
         parties (See Subsequent Event Note No. 23)
   4.    Additional private placements of debt or equity subsequent to the date
         of this report.

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


NOTE 3 - PER SHARE INFORMATION.

In accordance with SFAS No. 128 "Earnings Per Share", basic earnings per common
share ("Basic EPS") is computed by dividing the net income (loss) by the
weighted-average number of common shares outstanding. Diluted earnings per
common share ("Diluted EPS") is computed by dividing the net income (loss) by
the sum of the weighted-average number of common shares and dilutive common
stock equivalents and convertible securities then outstanding. SFAS No. 128
requires the presentation of both Basic EPS and Diluted EPS on the face of the
Company's Consolidated Statements of Operations. Consolidated common stock
equivalents totaling 13,971,108 and 3,170,268 were excluded from the computation
of Diluted EPS for the years ended June 30, 2005 and 2004 as their effect on the
computation of Diluted EPS would have been anti-dilutive.

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

<TABLE>
<CAPTION>
                                                            2005                  2004
<S>                                                      <C>                    <C>
Numerator
---------
Net loss from continuing operations                       $ (23,900,354)          $(3,582,853)
Net income from discontinued operations                         --                    176,193
                                                         --------------          ------------
Net loss                                                  $ (23,900,354)         $ (3,406,660)
                                                         --------------          ------------

Denominator
-----------
Weighted average common shares outstanding
                                                             16,566,258             6,971,497
                                                         --------------          ------------

Basic and Diluted Per Share Information
---------------------------------------
Net loss from continuing operations                       $       (1.44)         $      (0.51)
Net income from discontinued operations                   $        0.00          $        .02
                                                         --------------          ------------
Net loss                                                  $       (1.44)         $      (0.49)
                                                         --------------          ------------
</TABLE>


                                       15
<PAGE>

NOTE 4  --  BUSINESS ACQUISITIONS

SiVault Analytics, Inc.

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

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



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

Viaquo

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

                                       16
<PAGE>


As of March 31, 2005, an amendment to the purchase agreement was made due to new
information about the ultimate issuance of the European Patents. Under the
amendment, SiVault agreed to release the 2,300,000 shares (valued at the market
price on the date of issuance of $1.52 per share) held in escrow.

The acquisition was accounted for as a business purchase and initially recorded
at the estimated fair value of the assets acquired and the liabilities assumed,
as follows:

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


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

                                       17
<PAGE>

NOTE 4 - ACQUISITION  OF  VIAQUO AND SIVAULT ANALYTICS - (cont'd)

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 years.



                                                      2005              2004
                                                ----------------   -------------

Revenues                                        $      1,612,013   $   7,172,437
                                                ----------------   -------------

Loss from continuing operations                     (25,080,662)     (4,140,431)
                                                ----------------   -------------

Income from discontinued operations                           --         176,193
                                                ----------------   -------------
Net loss                                        $   (25,080,662)   $ (3,964,238)
                                                ================   =============

Basic and Diluted Loss Per Common Share:
       Loss from continuing operations          $         (1.35)   $      (0.29)
                                                ----------------   -------------

       Income from discontinued operations      $           0.00   $        0.01
                                                ----------------   -------------
       Net loss                                 $         (1.35)   $      (0.28)
                                                ================   =============

NOTE 5 - VALUATION ACCOUNT

The Company's accounts receivables are shown on the Company's consolidated
balance sheets net of allowance for doubtful accounts. Changes in the valuation
account as of June 30, are as follows:

                                                          2005          2004
                                                          ----          ----
Balance, beginning of the year                          $     --      $    --
Bad debt expense                                         718,471           --
Write-offs                                               (54,505)          --
                                                        --------      -------
Balance, end of year                                    $663,966      $    --
                                                        ========      =======


NOTE 6  -  PROPERTY AND EQUIPMENT


Property and equipment as of June 30, consists of the following:

                                                      2005              2004

       Furniture and fixtures                   $         50,000  $      64,198
       Computer equipment                                 20,000         24,601
       Computer software                                      --        573,477
                                                ----------------  --------------
                                                          70,000        662,276

       Less: accumulated depreciation                         --        (25,282)
                                                ----------------  --------------
                                                $         70,000  $     636,994
                                                ================  ==============


Depreciation charged to operations for the years ended June 30, 2005 and 2004
amounted to $189,395 and $10,026, respectively.

The Company determined that as of June 30, 2005 that certain of its property and
equipment have been impaired due to certain software deemed worthless, and
write-down of property and equipment held in the Company's offices in San Jose,
New York and Connecticut. Accordingly, the Company has reduced its property and
equipment asset values to reflect their current estimated fair market values as
of June 30, 2005. The Company incurred impairment losses for the years ended
June 30, 2005 and 2004 in the amounts of $761,434 and $0, respectively.

                                       18
<PAGE>

NOTE  7 -  Estimated  Earnings On  Uncompleted Contracts

                                                       2005             2004
                                                   ------------    -------------

         Costs incurred on uncompleted contracts   $        --     $   3,637,670
         Estimated earnings to date                         --         3,471,459
                                                   ------------    -------------
                                                            --
                                                                       7,109,129
         Less:  Billings to date                            --         7,199,147
                                                   ------------    -------------

         Billings in excess of costs and
           estimated earnings on uncompleted
           contracts                               $        --     $      90,018
                                                   ============    =============



NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES- NON-RELATED PARTIES

Accounts payable and accrued liabilities non-related parties consist of the
following:

                                 2005          2004
                                 ----          ----

Accounts payable              $2,186,411   $1,792,065
Accrued payroll and fringe
  benefits                       679,711           --
Accrued professional fees        828,216      633,259
Accrued interest                 157,350       52,258
Other accrued expenses            34,911       81,301
                              ----------   ----------
                              $3,886,599   $2,558,883
                              ==========   ==========

NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTIES

Accounts payable and accrued liabilities - related parties represents amounts
due to officers, directors, and private companies with common directors to the
company.

Accounts payable and accrued liabilities - related parties consists of the
following

                                 2005          2004
                                 ----          ----

Accounts payable              $  576,252   $  789,410
Accrued payroll and fringe
  benefits                       168,905           --
Accrued interest                  61,127           --
Other accrued expenses             5,886           --
                              ----------   ----------
                              $  812,170   $  789,410
                              ==========   ==========

On July 28, 2004, the Company issued 375,335 shares of the Company's common
stock to two officers of the Company and two other related parties in exchange
for reduction of their payable balances by $600,658 (the total balance due to
the four individuals was $715,006 as of June 30, 2004).

NOTE 10  -  NOTES AND LOANS PAYABLE - NON-RELATED PARTIES

<TABLE>
<CAPTION>

                                                                               2005           2004
                                                                            ---------      ---------
<S>                                                                         <C>            <C>

On June 13, 2002, the Company issued a note payable to
MaryAnne Richard in the amount of $1,000,000 as part of the
consideration for the purchase of Lightec. On June 2004, the
Company entered into a settlement agreement with MaryAnne and
Michael Richard (together "the Richards") whereby the
Richard's agreed to settle all obligations and disputes with
the Company. The Company agreed to a payment to the Richards
of $1,189,983 (principal and accrued interest) and the May 7,
2004 issuance of a warrant for 400,000 shares of the Company
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


<CAPTION>


<S>                                                                    <C>                      <C>
As of June 30, 2005, the Company had eight short-term
promissory notes from non-related parties in the amount
of $967,736 (net of debt discount of $165,274). These
notes bear interest ranging at annual rate between
10% - 12%, payable at the end of their terms. The
principal amount of these notes is reflected on the
balance sheet, net of the fair market value of the
warrants and the stock issued, which are accounted for
as debt discount. As of June 30, 2005, the Company was
in default of three notes totaling $400,000. The Company
subsequently defaulted on the remaining five notes (the
latest maturity date was September 10, 2005). In
December 2005 and in 2006, the Company settled and/or
restructured all of these promissory notes. See Note 23
- Subsequent Events.                                                    1,141,653                      --

As of June 30, 2005, the Company had three loans to
non-related parties totaling $393,918. These loans had no
terms and bore no annual interest rate. In December 2005,
two of these loans for $315,000 were settled. See Note
23 - Subsequent Events.
                                                                          393,998                      --
                                                                       ----------                --------
                                                                        1,535,651                 339,983

Less: Debt Discount                                                       165,274                      --
                                                                       ----------                --------
                                                                       $1,370,377                $339,983
                                                                       ==========                ========


NOTE 11 - NOTES AND LOANS PAYABLE - RELATED PARTIES

                                                                          2005                    2004
                                                                       ----------              ----------
As of June 30, 2005, the Company had six short-term
promissory notes from related parties in the amount of
$1,371,023 (net of debt discount of $8,644). These
notes, except for one, bear interest ranging at
annual rates between 9% - 12%, payable at the end of
their terms. One promissory note bore interest at the
LIBOR rate. The principal amount of these notes is
reflected on the balance sheet, net of the fair market
value of the warrants and the stock issued, which are
accounted for as debt discount. As of June 30, 2005, the
Company was in default of four notes totaling
$1,188,000. The Company subsequently defaulted on the
remaining two notes (the latest maturity date was July
31, 2005). In December 2005 and in 2006, the Company
settled and/or restructured two of these promissory
notes totaling $450,000 (an additional $200,000 had been
paid in July and August 2005). See Note 23 - Subsequent
Events.                                                                $1,379,667                $     --


As of June 30, 2005, the Company had two loans to non-related
parties totaling $120,833. These loans had no terms
and bore no annual interest rate. In December 2005, one
of these loans for $100,000 was settled. See Note 23 -
Subsequent Events.                                                        120,833                      --
                                                                       ----------                --------
                                                                        1,500,500                      --
Less: Debt Discount                                                         8,644                      --
                                                                       ----------                --------
                                                                       $1,491,856                $     --
                                                                       ==========                ========

NOTE 12  - CONVERTIBLE NOTES

On June 30, 2002, the Company issued a convertible
debenture to Edinburgh Investments LLC ("Edinburgh")
in the amount of $1,680.000. On January 19, 2005,
the principal and accrued interest balance were
paid off using the proceeds of the second closing
of the convertible notes to Longview ("Longview").

On November 23, 2004 (the "First Closing") the
Company issued $1,500.00 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 was required to
pay down 1/30 of the original principal amount
each month commencing on June 1, 2005. The
convertible notes were convertible into common
stock of the Company at $2,25 per share conversion
price. The interest payable on the notes was
convertible into common stock. Interest accrued
each month and payment commenced on June 1, 2005.
The Company also issued  200.000 warrant shares
which may be exercised within five years at $3.00
per share.

</TABLE>

                                       19
<PAGE>
<TABLE>
                                                                  2005             2004
                                                               ----------      ----------
<S>                                                            <C>              <C>

On January 19, 2005, after the Company's SB-2
registration statement became effective, the
second closing occurred in which the Company
issued an additional $1,500,000 of three year
convertible notes to Longview with the same
terms and conditions as in the First Closing,
including issuance of another 200,000 warrant
shares. The proceeds to the Company from the
second closing were primarily used to pay off the
Edinburgh convertible debenture. The notes were
secured by a first priority lien on all of the
assets of the Company and are reflected on the
balance sheet, net of the fair market values of the
warrants and the beneficial conversion feature,
which are accounted for as debt discount.                       2,588,237              --
                                                              -----------     -----------
                                                                2,588,237       1,358,569

Less: Debt Discount                                               548,728              --
                                                              -----------     -----------
                                                              $ 2,039,509     $ 1,358,569
                                                              ===========     ===========
</TABLE>

Future payment of the convertible notes as of June 30, 2005 are as follows:

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

                                         2006                  $  788,237
                                         2007                   1,200,000
                                         2008                     600,000
                                                               ----------
                                                                2,588,237
                                    Less: Debt discount           548,728
                                                               ----------
                                                               $2,039,509
                                                               ==========

As of June 30, 2005, the Company was in material default in regards to Longview
convertible notes.

On November 21, 2005, the Company entered into a settlement and restructuring
agreement with Longview. See Note 23 - Subsequent Events.

NOTE  13 -  401(K)  PLAN
------------------------

On February 1, 2002, Lightec (prior to the Company's acquisition of Lightec)
adopted a 401(K) retirement savings plan for its employees. Contributions are
determined by the Board of Directors, and the Company did not make any
contributions to the plan for the years ended June 30, 2005 and 2004.


                                       20
<PAGE>

Note 14 - INCOME TAXES

As of June 30, 2005 and 2004, the total net deferred tax assets were
approximately $11,590,000 and $4,340,000, respectively, resulting primarily from
the potential future tax benefits of net operating loss carry-forwards. In
accordance with SFAS No. 109, the Company has provided a full valuation
allowance against its net deferred tax assets as of June 30, 2005 and 2004, due
to the uncertainty as to their future realization. Due to the operating losses,
the valuation allowance against net deferred tax assets increased by
approximately $9,380,000 and $3,100,000 during the years ended June 30, 2005 and
2004, respectively.

The tax effect of temporary differences that give rise to the deferred tax
assets as of June 30, 2005 and 2004 are presented below:

                                                      2005              2004
                                                 -------------      ------------
  Deferred tax assets:
  Allowance for doubtful accounts                $    260,000       $      --
  Accrued expenses and accrued liabilities            330,000              --
  Impairment of cost in excess
    of fair value from
    a business combination                          2,130,000              --
  Impairment of long-lived assets                     300,000              --
  Stock-based compensation                          2,900,000         1,250,000
  Net operating loss carry-forwards                 7,800,000         3,090,000
                                                 -------------      ------------
  Total deferred tax assets                        13,720,000         4,340,000
  less:  valuation allowance                      (13,720,000)       (4,340,000)
                                                 -------------      ------------
  Net deferred tax assets                        $        --        $     --
                                                 =============      ============

As of June 30, 2005, the Company had net operating loss carry forwards for
regular tax and alternative minimum taxable income purposes available to reduce
future taxable income and may be limited in accordance with Section 382 of the
Internal Revenue Code of 1986, as amended, based on certain changes in ownership
that have occurred or could occur in the future. These carry-forwards expire as
follows (in thousands):


  Year     Net Operating Loss      AMT Operating Loss
  ----     ------------------      ------------------
  2020        $            51         $            51
  2021                    869                     869
  2022                    993                     993
  2023                  1,191                   1,194
  2024                  4,615                   4,618
  2025                 12,100                  12,100
           ------------------      ------------------
              $        19,819         $        19,825
           ==================      ==================

The Company's effective tax rate differs from the statutory Federal income tax
rate of 34%, primarily due to the effect of state and local income taxes and the
impact of recording a valuation allowance to offset the potential future tax
benefit resulting from net operating loss carry-forwards for all years
presented. The following is a reconciliation of the U.S. Federal statutory
income tax rate to the Company's effective income tax rate for the years ended
June 30, 2005 and 2004:

                                                    2005          2004
                                                    ----          ----
  Federal statutory rate                             34%           34%
  State and local income taxes, net of
  federal tax benefit of deductions                   6%            6%
  Net operating loss carry-forwards                 (40%)         (40%)
                                                ---------      --------
Effective tax rate                                    0%            0%
                                                =========      ========

The provision for income taxes for the years ended June 30, 2005 and 2004 was $0
and $34,934 (state income taxes), respectively. As of June 30, 2005, accrued
interest of $50,000 was recorded for unpaid state corporate taxes of $129,920.
The Company's June 30, 2005 consolidated tax return has not been filed as of
the report date.


                                       21
<PAGE>

NOTE 15 - COMMITMENTS AND CONTINGENCIES

LEASES

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

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

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

Lightec rented its Connecticut facility on a month-to-month basis.

Rent expense for the years ended June 30, 2005 and 2004 was $510,076 and
$136,466, respectively.


                                       22
<PAGE>

NOTE 16 - STOCKHOLDERS' EQUITY (DEFICIENCY)

REVERSE STOCK SPLIT AND INCREASE IN COMMON STOCK

On April 30, 2004, the Company's stockholders approved a one-for-twenty reverse
stock split which was effected 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. Simultaneously, 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.

NOTE 17 - STOCK-BASED  WARRANTS AND STOCK OPTIONS

WARRANTS

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

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

         Other Warrants (in connection with loans, etc.)

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


                                       23
<PAGE>

NOTE 17 - STOCK-BASED WARRANTS AND STOCK OPTIONS

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

STOCK OPTIONS

On April 30, 2004, the Company's stockholders approved the SiVault Systems, Inc.
2004 Incentive Stock Plan (the "2004 Plan") which provides for the issuance of
up to 2,250,000 shares. The 2004 Plan permits the grant of stock options, stock
awards and restricted stock purchase awards. Stock options granted under the
2004 Plan may be options intended to qualify as incentive stock options ("ISOs")
under Section 422 of the Internal Revenue Code or nonqualified stock options
("NSOs"), which are options that are not intended to qualify as ISOs. Stock
options granted to a person who owns more than 10% of the Company's voting power
shall have exercise prices of at least 110% of fair market value of the
Company's stock on the date of the grant. Stock options granted to others will
have exercise prices of not less than 100% of the fair market value of the
Company's stock on the date of grant if they are ISOs, and not less than 85% of
the fair market value of the Company's stock on the date of grant if they are
NSOs. Stock options granted under the 2004 Plan will have terms of not more than
10 years. Stock options under the 2004 Plan become exercisable a year after an
employee's hire date. As of June 30, 2005, no employee was yet eligible to
exercise their stock options under the 2004 Plan.

A summary of all options issued is presented in the table below:

<TABLE>
<CAPTION>
                                                                         2005                             2004
                                                                  ----------------------------------------------------------------
                                                                                   Weighted-                        Weighted-
                                                                                    Average                          Average
                                                                                   Exercise                         Exercise
                                                                       Shares        Price              Shares        Price
                                                                       ------        -----              ------        -----
<S>                                                                 <C>            <C>                       <C>       <C>
Options outstanding, beginning of year                                     --           --                  --         --
                     Granted                                        2,922,500      $  1.80                  --         --
                     Exercised                                             --           --                  --         --
                     Canceled, forfeited or expired                        --           --                  --         --

                                                                  ----------------------------------------------------------------
Options outstanding, end of year                                    2,922,500      $  1.80                  --         --
                                                                  ================================================================

Options exercisable, end of year                                      565,000      $  1.98                  --         --
                                                                  ================================================================
</TABLE>


As of June 30, 2005, the total stock options outstanding were held by:

                 2,147,500             employees
                   375,000             directors
                   375,000             outside consultants
                    25,000             outside professional
                 ---------
                 2,922,500
                 =========

Subsequent to year end, all of the Company's employees based in San Jose were
terminated and, under the terms of the 2004 Plan, options issued to these
employees terminated three months after the date of separation.

The following table summarizes information about stock options outstanding and
exercisable as of June 30, 2005:


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                        Options Outstanding                             Options Exercisable
                     ------------------------------------------------------     -------------------------------------
                                             Weighted-          Weighted-                              Weighted-
                                              Average            Average                                Average
     Range of                                Remaining          Exercise                               Exercise
  Exercise Prices    Outstanding         Contractual Life         Price            Exercisable           Price
  ---------------    -----------         ----------------         -----            -----------           -----
<S>                    <C>                      <C>               <C>                <C>                 <C>
   0.001 - 0.84           40,000                4.71              0.001                 40,000           0.001

    0.85 - 1.49           25,000                4.95               0.85                 25,000           0.85

    1.50 - 1.75          100,000                4.18               1.50                100,000            1.5

    1.76 - 2.19        2,357,500               10.00               1.76                     --             --

    2.20 - 2.24           75,000                1.29               2.20                 75,000            2.2

    2.25 - 2.66          200,000                1.71               2.25                200,000           2.25

    2.67 - 3.00          125,000                1.31               2.67                125,000           2.67
</TABLE>

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes binomial pricing model with the following assumptions:

                                                2005         2004
                                                ----         ----
Expected life (years)                     2-10 years          n/a
Risk Free Interest rate                        3%-4%          n/a
Volatility                                  98%-164%          n/a
Dividend Yield                                    0%          n/a

The table below show the pro forma results of operations and loss per share as
if the Company had adopted Statement of Financial Accounting Standards (SFAS)
No. 123 and the Black-Scholes valuation model. In December 2005, the Financial
Accounting Standards Board issued SFAS No. 123 (Revised), "Share-Based payment",
requiring companies to expense employee stock options, reflect the fair value of
share-based compensation, as an expense. The Company will adopt the revised
rules for the fiscal year beginning on July 1, 2005.

                                                 2005            2004
                                             ------------    ------------
Net loss, from continuing operations,
  as reported                                $(23,900,354)   $ (3,582,853)
     Compensation cost under fair
     value based accounting                       184,309              --
                                             ------------    ------------
Net loss, from continuing operations,
  pro forma                                  $(24,084,663)   $ (3,582,853)
                                             ------------    ------------

Net income from discontinued operations,
  as reported                                $         --    $    176,193
     Compensation cost under fair
     value based accounting                            --              --
                                             ------------    ------------
Net income from discontinued operations,
  pro forma                                  $         --    $    176,193
                                             ------------    ------------

Net loss, as reported                        $(23,900,354)   $ (3,406,660)
     Compensation cost under fair
     value based accounting                       184,309               0
                                             ------------    ------------
Net loss, as reported                        $(24,084,663)   $ (3,406,660)

Basic and diluted (loss) per common share:
     Continuing operations, as reported      $      (1.44)   $      (0.51)
                                             ------------    ------------
     Continuing operations, pro forma        $      (1.45)   $      (0.51)
                                             ------------    ------------
     Discontinued operations, as reported    $         --    $       0.02
                                             ------------    ------------
     Discontinued operations, pro forma      $         --    $       0.02
                                             ------------    ------------

     Net loss, as reported                   $      (1.44)   $      (0.49)
                                             ------------    ------------
     Net loss, pro forma                     $      (1.45)   $      (0.49)
                                             ------------    ------------


                                       25
<PAGE>

Note 18 - Selling, General and Administrative Expenses

The following table sets forth a summary of the selling, general, and
administrative expenses for the years ended June 30 (in thousands):

                                                               2005        2004
                                                               ----        ----
Payroll and related expenses                                 $ 4,280     $   769
Consulting fees                                                3,100         697
Issuance of stock warrants to certain officers of
   the Company for their assistance in providing
   short-term financing to the Company - (see Note 21)         3,076          --
Issuance of stock warrants to extend convertible
   debenture, extend note, and to settle debt                     --       2,496
Board of Directors fees (including
   issuance of the Company's commons stock
   and warrants - see Note 21)                                 1,287          --
Professional fees                                              1,071         994
Bad debt expense                                                 718          --
Computer and licensing expenses                                  605         495
Rent                                                             510         136
Travel and entertainment                                         469         225
Marketing                                                        284         282
Depreciation and amortization                                    190          10
Other                                                            942         130
                                                             -------     -------

                                                             $16,532     $ 6,234
                                                             =======     =======



NOTE 19 - BUSINESS SEGMENTS

The summarized financial information, concerning the Company's reportable
segments for the year ended June 30, 2005, as follows:


                                       26
<PAGE>

NOTE 19 -  BUSINESS SEGMENTS - (cont'd)

<TABLE>
<CAPTION>
                                                     SIVAULT
                                                     SYSTEMS                LIGHTEC                 TOTAL
                                               --------------------   --------------------   --------------------
<S>                                                  <C>                    <C>                    <C>
Net sales to external companies                      $      75,802          $   1,526,211          $   1,602,013
Loss from operations                                  (14,845,525)              (918,030)           (15,763,555)
Total assets                                             7,939,337                203,273              8,142,610
Depreciation and amortization                              186,598                  2,797                189,395
Capital expenditures                                       295,721                      -                295,721
Interest expense                                         1,619,303                 50,000              1,669,303
Impairment of cost in excess of fair value
  from a business combination                            5,706,060                      -              5,706,060
Impairment of long-lived assets                            760,663                    761                761,424
Intangible assets                                        7,254,058                      -              7,254,058

</TABLE>


The summarized financial information, concerning the Company's reportable
segments for the year ended June 30, 2004, as follows:

<TABLE>
<CAPTION>
                                                            SiVault
                                                            Systems          Lightec           eMedRx              Total
                                                          --------------   ---------------   ------------    -------------
<S>                                                       <C>              <C>               <C>             <C>
Net sales to external companies                           $       19,573   $     7,110,034   $      1,830    $   7,131,437
Operating earnings (loss)                                     (3,535,356)        1,197,717       (414,181)      (2,751,820)
Total assets                                                     685,324           950,515         82,240       1,718,,079
Depreciation and amortization                                      9,566               460             --           10,026
Capital expenditures                                             505,683                --         75,000          580,683
Interest expense                                                 789,305             6,915             --          796,220
Provision for income taxes                                            --            34,934             --           34,934
Charges related to issuance
of stock options and warrants                                  2,496,000                --             --        2,496,000
</TABLE>


NOTE 20 - ECONOMIC DEPENDENCY

The sales and purchases listed below are for the years ended June 30, 2005 and
2004 are:

                                                   2005               2004
                                                ----------        -----------
Sales:

Sales to major customers were as follows:
     Customer A                                     95%               100%

Purchases:

Purchases from major suppliers and
  subcontractors were as follows:
     Supplier or subcontractor A                    --%                69%
     Supplier or subcontractor B                    22%                --%
     Supplier or subcontractor C                    20%                --%
     Supplier or subcontractor D                    20%                --%
     Supplier or subcontractor E                    18%                --%
                                                  ------            -------
                                                    80%                69%
                                                  ======            =======

Customer A is a local municipality in Connecticut.

                                       27
<PAGE>

NOTE 21 - RELATED PARTY TRANSACTIONS

During the years ended June 30, 2005 and 2004, the Company incurred the
following expenses, which were paid in cash and/or stock, to directors, officers
and private companies with common directors with the Company.

                                                         2005        2004
                                                      ----------  ----------
Consulting fees                                       $3,845,522  $  158,400
Directors fees                                         1,287,650          --
Interest                                                 309,375     244,789

The Company issued common stock, stock options and warrants of $3,455,041 and
$0, respectively, for consulting fees, and $1,099,400 and $0, respectively for
director's fees for the years ended June 30, 2005 and 2004.

On August 8, 2004, the Board of Directors were granted 350,000 shares of the
Company's common stock valued at $560,000 at $1.60 per common share pursuant to
the Company's 2004 incentive stock plan. On October 18, 2004, the Board of
Directors were granted 80,000 S8 shares valued at $262,400 at $3.28 per common
share for remuneration for 2004 services. On October 18,2004, the Board of
Directors were also granted 200,000 options at a strike price of 20% below
market. These options were valued at $277,000 using the Black-Scholes option
pricing model with the following parameters: two year expected life, two year
expiration period, risk free interest rate of 3%, stock price volatility of 78%,
with no dividends over the expected life.

The former Chairman of the Board of Directors ("former Chairman") was issued
13,889 shares of the Company's common stock valued at $25,000 at $1.80 per share
upon becoming the Chairman. The former Chairman was granted 250,000 in warrants,
in lieu of cash, to be earned ratably for a nine-month period beginning January
1, 2005. These warrants were exercisable after September 30, 2005. These
warrants were valued at $451,176 ($300,783 was included in consulting fees for
the year ended June 30, 2005)using the Black-Scholes option pricing model with
the following assumptions: three year expected life, three year expiration
period, risk free interest rate of 3%, stock price volatility of 149%, with no
dividends over the expected life. In addition, the former Chairman was paid half
of his compensation in common stock, in lieu of cash.

Certain officers of the Company were issued 2,825,000 warrants shares
exercisable for a period of five years at a price of $1.76 per share for their
assistance in providing short-term financing to the Company, effective from the
Board of Directors resolution date of May 3, 2005. These warrants were valued at
$3,076,142 (included in consulting fees) using the Black-Scholes option pricing
model with the following parameters: five year expected life, five year
expiration period, risk free interest rate of 4%, stock price volatility of
140%, with no dividends over the expected life.


                                       28
<PAGE>

NOTE 22 - 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 a former officer. In
connection with the settlement, the Company transferred available funds in the
amount of $151,020 to Pan Pacifica. For the year ended June 30, 2004, the
Company realized a net gain on the disposal of Datadesk of $382,023, 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 year ended June 30, 2005, those estimates were
revised because it was determined that previously estimated costs of $93,912
were not incurred. Consequently, the financial statements for the year ended
June 30, 2005 include a reduction in selling, general and administrative
expenses to reflect this change in accounting estimate.

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

The Company's consolidated balance sheet includes the following amounts related
to the discontinued operations of Datadesk and SBL as of June 30:

                                                      2005             2004
                                                      ----           -------

Assets of discontinued operations                     $ --           $    --
                                                      ----           -------
Accounts payable                                        --            93,913
                                                      ----           -------
Current liabilities of discontinued operations          --            93,913
                                                      ----           -------
Liabilities of discontinued operations                $ --           $93,913
                                                      ====           =======

Income from discontinued operations is as follows:


                                                        2005            2004
                                                      ---------       ---------

Revenue                                               $      --       $   6,431

Direct expenses                                              --              --
                                                      ---------       ---------
Gross profit                                                 --           6,431
                                                      ---------       ---------

Expenses:
Selling general and administrative                           --         118,398
                                                      ---------       ---------
                                                             --         118,398
                                                      ---------       ---------

Income before other income                                   --        (111,967)
Gain on disposition                                                     288,160
                                                      ---------       ---------

Income from discontinued operations                   $      --       $ 176,193
                                                      =========       =========


                                       29
<PAGE>

NOTE 22 - DISCONTINUED OPERATIONS - (cont'd)

Cash flows from discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                              2005          2004
                                                           ---------     ---------
<S>                                                        <C>           <C>
Cash Flows from Operating Activities:
Net income for the year                                    $      --     $ 176,193

Adjustment to reconcile net income to net
cash provided by operating activities:
Gain on disposition of subsidiary                                 --      (288,160)
Changes in Assets and Liabilities:
Accounts receivable                                               --        (2,910)
Inventories                                                       --         2,375
Accounts payable and accrued liabilities                          --      (182,198)
                                                           ---------     ---------
Net Cash Used In Operating Activities                             --      (294,700)
                                                           ---------     ---------
Net Cash Used In Investing Activities                             --            --
                                                           ---------     ---------

Cash Flows from Financing Activities:
Bank indebtedness                                                 --         5,904
Advances from parent company                                      --       288,796
                                                           ---------     ---------

Net Cash Provided By Financing Activities                         --       294,700
                                                           =========     =========
Net change in cash from discontinued
operations during the year                                        --            --

Cash, beginning of the year                                       --            --
                                                           ---------     ---------
Cash, end of the year                                      $      --     $      --
                                                           =========     =========
</TABLE>


                                       30
<PAGE>

NOTE 23 - SUBSEQUENT EVENTS

      The following significant events have occurred since July 1, 2005:























                                       31
<PAGE>

In September 2005 the Company's management decided to close its main operating
facility located in San Jose, California and reorganized the Company.
Substantially all of the Company's employees were terminated at this time.

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

                                       32
<PAGE>

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

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

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

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

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

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

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

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

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

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

<TABLE>
<CAPTION>
                                              Approximate amount
                                                  owed as of
           Description                           June 30, 2005       Approximate Settlement Summary
           -----------                           -------------       ------------------------------
<S>                                               <C>               <C>
Notes and loans - non-related parties             $1,450,000        Installment payables of $570,000,
                                                                    6.5 million shares of common stock
                                                                    valued at $1 million, and 580,000
                                                                    warrants valued at $300,000, and an
                                                                    additional 760,000 repriced
                                                                    warrants

Notes and loans - related parties                    550,000        3.4 million shares of common stock
                                                                    valued at $450,000

Accounts payable and                               1,800,000        $120,000 paid in cash, installment
accrued liabilities                                                 payables of $560,000, and 2.3
                                                                    million shares of common stock
                                                                    valued at $460,000

WonderNet Arbitration                                350,000        Installment payable of $350,000
(included in accounts payable
and accrued liabilities)
                                                  ----------
                                                  $4,150,000
                                                  ==========
</TABLE>

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

Since the end of the fiscal year ending June 30, 2005, the Company has completed
two private placements in which the Company raised gross proceeds of
approximately $2.2 Million. The Company sold an aggregate of approximately
13,900,000 of its common shares in private placements at per share prices
averaging $.10 and $.45 per share.

WONDERNET, LTD, SETTLEMENT

In 2002 and 2003, the Company entered into the Distribution and Partnership
Agreements with WonderNet, Ltd, ("WonderNet") whereby the Company was granted
the right to develop products based on WonderNet's technology and to use,
market, sell, distribute and exploit the technology in North America, Central
America, Bermuda and the Caribbean Islands. The Company issued WonderNet 325,000
shares of its common stock and paid an upfront amount of $100,000 under these
contracts. The Company was also required to pay a minimum $120,000 per quarter
and minimum 10% royalty on gross sales of products. Since the inception of the
agreements, two $120,000 payments were made.

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

See the table above for the WonderNet arbitration settlement.

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

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

EMPLOYMENT AND CONSULTING AGREEMENTS

Three key executives of the Company had employment and consulting agreements as
of June 30, 2005. The minimum annual base compensation of these three executives
totaled approximately $1,500,000.These three executive were also entitled to
performances bonuses.

Subsequent to year end, all of these employment and consulting agreements were
terminated through settlement agreements, due to the Company's financial
difficulties.

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