UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-QSB

                                   (MARK ONE)

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


                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005


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

         FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER: 0-25658

                       SECURED DIGITAL APPLICATIONS, INC.
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

                   DELAWARE                           84-1357927
      (STATE OR OTHER JURISDICTION OF     (IRS EMPLOYER IDENTIFICATION NO.)
      INCORPORATION OR ORGANIZATION)

                     11, JALAN 51A/223, 46100 PETALING JAYA,
                               SELANGOR, MALAYSIA
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                               011 (603) 7956 7026
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                       N/A
              (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
                          IF CHANGED SINCE LAST REPORT)

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 X No

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:


                                              Number of shares outstanding
   Class                                         at August 15, 2005
   -------                             -----------------------------------------
Common stock, $.00001 par value                       127,098,798


                                       1
<PAGE>
FORM 10-QSB
2ND QUARTER
<TABLE>
<CAPTION>
                                      INDEX
                                                                                                        Page
PART I  -  FINANCIAL INFORMATION

<S>                                                                                                     <C>
         ITEM 1. FINANCIAL STATEMENTS

         Condensed consolidated balance sheet as of June 30, 2005 (Unaudited)                             3

         Condensed consolidated statements of operations for the three-month and
         six-month periods ended June 30, 2005 and June 30, 2004 (Unaudited)                              5

         Condensed consolidated statements of cash flows for the six-month
         periods ended June 30, 2005 and June 30, 2004 (Unaudited)                                        7

         Notes to condensed consolidated financial statements (Unaudited)                                 8

         ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS                                                    25

         ITEM 3. CONTROLS AND PROCEDURES                                                                 40

PART II - OTHER INFORMATION

         ITEM 1. LEGAL PROCEEDINGS                                                                       41

         ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                             41

         ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                         41

         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                     41

         ITEM 5. OTHER INFORMATION                                                                       41

         ITEM 6. EXHIBITS                                                                                41

         SIGNATURES                                                                                      42

</TABLE>

SAFE HARBOR STATEMENT

This Form 10-QSB and other  reports  filed by the Company from time to time with
the Securities and Exchange Commission, as well as the Company's press releases,
contain or may contain forward-looking statements and information that are based
upon  beliefs  of,  and  information   currently  available  to,  the  Company's
management,  as  well  as  estimates  and  assumptions  made  by  the  Company's
management.  The Company is  including  this  cautionary  statement in this Form
10-QSB to make applicable and to take advantage of the safe harbor provisions of
the Private  Securities  Litigation  Reform Act of 1995 for any  forward-looking
statements  made  by or on  behalf  of  us.  Forward-looking  statements  can be
identified by the use of forward-looking terminology such as "believes",  "may",
"should", "anticipates", "estimates", "expects", "future", "intends", "hopes" or
"plans" or the negative thereof.  Such forward-looking  statements involve known
and unknown  risks,  uncertainties  and other  factors  that could cause  actual
results of the Company to vary materially  from  historical  results or from any
future results  expressed or implied in such  forward-looking  statements.  Such
factors include,  among others,  the following:  the revocation of the Company's
broadband network operator's  license,  the inability to successfully  implement
its business  plans,  the  cancellation  or  postponement  of contracts that the
Company has entered  into in  connection  with its  business,  the  inability to
obtain services provided by other communications companies or service providers,
the inability of the Company to raise  capital on a timely basis,  the inability
of the Company to meet certain covenants contained in its financing  agreements,
existing  and future  government  regulations,  the failure to retain  qualified
personnel,  competitive  pressures  and  potentially  adverse  tax and cash flow
consequences resulting from operations in multiple countries with different laws
and regulations,  and the general economic and business  conditions in Malaysia,
the United States and the other countries in which we do business,  primarily in
Asia.  The  Company  does  not  undertake  to  update,  revise  or  correct  any
forward-looking statements.

                                       2
<PAGE>



PART I -  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

               SECURED DIGITAL APPLICATIONS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  JUNE 30, 2005
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                Proforma
                                                                                (Note 13)         Historical
                                                                             -------------       -------------
                                     ASSETS

<S>                                                                                 <C>                 <C>
Current assets:
     Cash                                                                    $     799,452       $      84,743
     Cash, restricted                                                              449,270           6,542,512
     Trade receivables,
       less allowance for doubtful accounts of $55,000                           5,520,564           5,520,564
     Other accounts receivable,
       less allowance for doubtful accounts of $371,000                             56,030              56,030
     Prepaid expenses                                                               76,890              76,890
     Inventories                                                                   533,156             533,156
                                                                             -------------       -------------
              Total current assets                                               7,435,362          12,813,895
Property and equipment, net                                                      1,159,450           1,159,450
Customer lists and relationships                                                   228,173             228,173
License                                                                             55,250              55,250
Goodwill                                                                           852,525             852,525
Long-term receivables, related parties                                             263,926             263,926
Debt issuance cost                                                                      --              18,965
                                                                             -------------       -------------
                                                                             $   9,994,686       $  15,392,184
                                                                             =============       =============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Bank overdraft and borrowings                                           $     946,648       $     946,648
     Current portion of capital lease obligations                                   43,403              43,403
     Convertible term note                                                              --             305,832
     Current portion of term loan                                                   78,673              78,673
     Accounts payable                                                            1,222,280           1,222,280
     Accrued expenses                                                              209,119             211,423
     Amount due to an affiliated company                                            75,246              75,246
     Amount due to a director                                                       68,410              68,410
     Income tax payable                                                            140,685             140,685
     Preferred stock dividend payable                                              238,332             700,558
                                                                             -------------       -------------
              Total current liabilities                                          3,022,796           3,793,158
     Capital lease obligations, net of current portion                              14,725              14,725
     Term loan, net of current portion                                              99,510              99,510
     Deferred income tax                                                            88,947              88,947
     Deferred gain                                                                 263,926             263,926
                                                                             -------------       -------------
              Total liabilities                                                  3,489,904           4,260,266
                                                                             -------------       -------------

                                   (continued)



                                       3
<PAGE>
               SECURED DIGITAL APPLICATIONS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                            JUNE 30, 2005 (CONTINUED)
                                   (Unaudited)





Minority interest                                                                  560,750             560,750
                                                                             -------------       -------------

Commitments and contingencies

Shareholders' equity:
     Series A convertible preferred stock, $0.10 par value; 1,000,000 shares
       authorized; 100,000 shares issued and
       outstanding liquidation preference $3,788,000                                10,000              10,000
     Common stock, $.00001 par value;
       350,000,000 shares authorized;
       (125,486,378 pro forma) 104,990,471 shares issued;
       (118,858,798 pro forma) 96,909,689 outstanding                                1,188                 969
     Additional paid-in capital                                                  5,040,808           9,622,357
     Common treasury stock, (6,627,580 proforma) 8,080,782 shares at cost               --              (7,270)
     Options                                                                        55,854              55,854
     Warrants                                                                      779,613             779,613
     Retained earnings                                                                  --              53,076
     Accumulated other comprehensive income                                         56,569              56,569
                                                                             -------------       -------------
              Total shareholders' equity                                         5,944,032          10,571,168
                                                                             -------------       -------------
                                                                             $   9,994,686       $  15,392,184
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>
               SECURED DIGITAL APPLICATIONS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                   Three months ended              Six months ended
                                                                        June 30,                       June 30,
                                                                    2005           2004           2005            2004
                                                                -----------    -----------     -----------    -----------
<S>                                                                  <C>            <C>             <C>            <C>
Revenues:
     Products and equipment                                     $   890,913             --     $ 1,851,866             --
     Services:
      Related parties                                               130,106    $   400,000         175,895    $   814,475
      Others                                                      6,513,150      4,697,490      12,026,762      8,645,989
                                                                -----------    -----------     -----------    -----------
                                                                  7,534,169      5,097,490      14,054,523      9,460,464
                                                                -----------    -----------     -----------    -----------
Cost of revenues:
     Products and equipment                                         846,066             --       1,694,906             --
     Services                                                     6,023,983      4,496,544       11,104,962     8,461,142
                                                                -----------    -----------     -----------    -----------
                                                                  6,870,049      4,496,544      12,799,868      8,461,142
                                                                -----------    -----------     -----------    -----------
Gross profit                                                        664,120        600,946         1,254,655      999,322
                                                                -----------    -----------     -----------    -----------
Operating expenses:
     Sales and marketing                                             12,172          3,321          29,460          8,018
     General and administrative:
       Related parties                                               21,316         21,316          42,632         42,632
       Others                                                       430,161        273,257         839,270        531,282
                                                                -----------    -----------     -----------    -----------
Total operating expenses                                            463,649        297,894         911,362        581,932
                                                                -----------    -----------     -----------    -----------
Income from operations                                              200,471        303,052         343,293        417,390
                                                                -----------    -----------     -----------    -----------
Other income (expense):
     Interest expense                                               (25,578)        (4,567)        (54,225)        (7,827)
     Interest income                                                 35,685             --          78,736             --
     Gain on disposal of assets, related party                       31,974        100,000          45,658        207,258
     Other income                                                    20,330             --          36,067             --
     Share of associate companies' losses                                --         (3,947)             --         (6,579)
                                                                -----------    -----------     -----------    -----------
                                                                     62,411         91,486         106,236        192,852
                                                                -----------    -----------     -----------    -----------
Income from continuing operations before
     income tax and minority interest                               262,882        394,538         449,529        610,242
Income tax                                                          (56,053)       (31,053)        (78,421)       (32,895)
                                                                -----------    -----------     -----------    -----------
Income from continuing operations before
     minority interest                                              206,829        363,485         371,108        577,347
Minority interest                                                    13,495        (46,591)         15,630        (76,559)
                                                                -----------    -----------     -----------    -----------
Income from continuing operations                                   220,324        316,894         386,738        500,788

Discontinued operations (material handling subsidiaries):
   Loss from discontinued operations,
       net of $0 income tax                                              --        (80,779)             --       (101,373)
                                                                -----------    -----------     -----------    -----------
Net income                                                      $   220,324     $  236,115     $   386,738     $  399,415
                                                                ===========    ===========     ===========    ===========
</TABLE>


                                   (continued)

                                       5
<PAGE>
               SECURED DIGITAL APPLICATIONS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   Three months ended              Six months ended
                                                                        June 30,                       June 30,
                                                                   2005           2004           2005            2004
                                                                -----------    -----------     -----------    -----------
<S>                                                                <C>             <C>            <C>            <C>
Net income                                                      $   220,324     $  236,115     $   386,738    $   399,415
Preferred stock dividend                                           (174,999)       (55,166)       (333,662)       (55,166)
                                                                -----------    -----------     -----------    -----------
Net income applicable to common shareholders                    $    45,325    $   180,949     $    53,076    $   344,249
                                                                ===========    ===========     ===========    ===========
Net income per common share from continuing operations:
     Basic and diluted                                          $         *    $         *     $         *    $         *
                                                                ===========    ===========     ===========    ===========

Net income per common share from discontinued operations:
     Basic and diluted                                          $         *    $         *     $         *    $         *
                                                                ===========    ===========     ===========    ===========

Weighted average shares outstanding:
     Basic                                                       95,963,906     94,730,043      95,446,373     96,329,471
                                                                ===========    ===========     ===========    ===========
     Diluted                                                     96,220,053    108,197,779      95,823,812    103,175,012
                                                                ===========    ===========     ===========    ===========
</TABLE>

* Less than $.01 per share

      See accompanying notes to condensed consolidated financial statements


                                       6
<PAGE>

               SECURED DIGITAL APPLICATIONS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                Six Months Ended
                                                                                                    June 30
                                                                                             2005                 2004
                                                                                        --------------      --------------
<S>                                                                                           <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net cash used in operating activities                                              $    (219,577)      $    (163,610)
                                                                                        --------------      --------------
CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from disposal of equipment                                                       35,526                  --
     Purchase of equipment                                                                    (74,859)            (10,919)
     Proceeds from sale of investment in associate companies                                   13,158                  --
     Cash acquired on business acquisition                                                      1,381                  --
                                                                                        --------------      --------------
           Net cash used in investing activities                                              (24,794)            (10,919)
                                                                                        --------------      --------------
CASH FLOWS FROM FINANCING ACTIVITIES
     Increase in restricted cash                                                              (86,104)                 --
     Net increase in bank borrowings                                                          183,224                  --
     Proceeds from issuance of common stock                                                    70,000                  --
     Proceeds from issuance of convertible term note, net                                          --             470,323
     Payment of expenses in connection with
       subsidiary preferred stock issuance                                                         --            (296,323)
     Net repayment of advances to affiliated company                                          (19,649)           (105,111)
     Net repayment of advances to a director                                                     (492)            (47,195)
     Payment of term loan                                                                     (37,525)                 --
     Payment of obligation under capital leases                                               (16,250)            (17,552)
                                                                                        --------------      --------------
           Net cash provided by financing activities                                           93,204               4,142
                                                                                        --------------      --------------

Net decrease in cash                                                                         (151,167)           (170,387)
Net cash provided by (used in) discontinued operations                                        143,417              (2,231)
Cash, beginning of period                                                                      92,493             244,919
                                                                                        --------------      --------------
Cash, end of period                                                                     $      84,743       $      72,301
                                                                                        ==============      ==============
Supplemental disclosure of non-cash financing activities:

Preferred stock dividend declared                                                       $     333,662       $      55,166
                                                                                        ==============      ==============

Conversion of accrued term note and related accrued interest                            $     102,136       $          --
                                                                                        ==============      ==============
Restricted cash received in exchange for preferred stock of subsidiary                  $          --       $   6,500,000
                                                                                        ==============      ==============
Issuance of common stock for services rendered by a consultant                          $          --       $     133,500
                                                                                        ==============      ==============
Issuance of common stock for acquisition of new business                                $      32,500       $          --
                                                                                        ==============      ==============
BUSINESS ACQUISITIONS (Note 3):

Net assets acquired:
   Property, furniture and equipment                                                    $       2,119     $        10,728
   Inventories                                                                                     --              85,885
   Accounts receivable                                                                         10,365              87,345
   Cash                                                                                        54,033               3,583
   Customer relationships                                                                      59,423                  --
   Accounts payable                                                                           (19,689)            (59,076)
   Capital lease obligation                                                                        --              (8,138)
                                                                                        --------------      --------------
                                                                                              106,251             120,327
Less: Minority interest                                                                       (21,099)            (46,192)
      Common stock issued                                                                     (32,500)                --
      Cash acquired                                                                           (54,033)             (3,583)
                                                                                        --------------      --------------
Net cash (received) payable in acquisition of subsidiary                                $      (1,381)      $      70,552
                                                                                        ==============      ==============
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       7
<PAGE>

                       SECURED DIGITAL APPLICATIONS, INC.
          NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  JUNE 30, 2005
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

The accompanying  unaudited interim consolidated financial statements of Secured
Digital  Applications,  Inc.  (the  "Company")  include the  accounts of Secured
Digital Applications, Inc. and its following subsidiaries:
1.   EyStar  Media Inc.  ("EMI"),  a Delaware  corporation  wholly-owned  by the
     Company;
2.   SDA America,  Inc.  ("SDAA"),  a Delaware  corporation  wholly-owned by the
     Company;
3.   Secured  Digital   Applications   (M)  Sdn  Bhd  ("SDAM")  (f/k/a  Animated
     Electronic  Industries Sdn Bhd), Armor Multi Systems Sdn Bhd ("AMS") (f/k/a
     Asiaco Multi Corporation Sdn Bhd) and Secured Shipping Sdn Bhd ("SS"),  all
     Malaysian corporations wholly-owned by the Company;
4.   Perwimas  Telecommunications  Sdn Bhd ("PTSB"),  SDAM's 86% owned Malaysian
     subsidiary;
5.   Armor Multi Services Sdn Bhd ("AMSS") (f/k/a Asiaco Services Sdn Bhd), AMS'
     60% owned Malaysian subsidiary;
6.   Digital  Image ID Sdn Bhd ("DID")  (f/k/a Vista  Positive Sdn Bhd),  SDAM's
     wholly-owned  subsidiary,  from the date of  incorporation  on February 17,
     2004;
7.   Gallant Service Centre (M) Sdn Bhd ("GSC"), SDAM's wholly-owned subsidiary,
     from the date of acquisition on September 29, 2004;
8.   Gallant IT Holdings Sdn Bhd ("GIH"),  GSC's 55% owned subsidiary,  from the
     date of acquisition on September 29, 2004; and
9.   Gallant  Zone (M) Sdn Bhd  ("GZ"),  Eystar  Distribution  Sdn Bhd  ("EDSB")
     (f/k/a Gallant IT  Distribution  (M) Sdn Bhd) and Gallant Focus (M) Sdn Bhd
     ("GF"),  all wholly-owned  subsidiaries of GIH from the date of acquisition
     on September 29, 2004 and,  including GIH, such  subsidiaries may sometimes
     collectively be referred to as the "Gallant group" of companies.
10.  Innospective Sdn Bhd ("ISS"), SDAM's 55% owned Malaysian subsidiary from
     the date of acquisition on April 30, 2005.

For the three-month and six-month periods ended June 30, 2004, the Company's
unaudited interim consolidated financial statements included the accounts of the
following companies, which were sold on December 27, 2004 to an unrelated party,
and which are presented as discontinued operations:
1.   Temasya Wira Sdn Bhd ("TW"), SDAM's 60% owned Malaysian subsidiary
2.   Asiaco  Material  Handling  (East  Coast) Sdn Bhd  ("AEC"),  AMS' 80% owned
     Malaysian subsidiary;
3.   Asiaco Logistic Sdn Bhd ("ALG"), AMS' 67% owned Malaysian  subsidiary;  and
4.   Asiaco Taiping Sdn Bhd ("ATG"), AMS' 62% owned Malaysian  subsidiary,  from
     the date of acquisition on February 9, 2004.

All significant intercompany accounts and transactions have been eliminated in
consolidation.

The unaudited condensed  consolidated financial statements presented herein have
been  prepared in  accordance  with the  instructions  to Form 10-QSB and do not
include all the  information  and note  disclosures  required  by United  States
generally accepted accounting principles for complete financial  statements.  In
the opinion of management,  all adjustments (consisting only of normal recurring
adjustments)  which are  necessary to provide a fair  presentation  of financial
position,  operating  results and cash flows for the interim  periods  presented
have been made. It is the Company's  opinion  that,  when the interim  financial
statements are read in  conjunction  with the December 31, 2004 Annual Report on
Form 10-KSB,  the  Company's  disclosures  are adequate to make the  information
presented  not  misleading.  The results of operations  for the interim  periods
presented are not  necessarily  indicative of the results to be expected for the
entire year.

The accompanying  unaudited interim financial  statements  includes an unaudited
proforma  consolidated balance sheet as of June 30, 2005 that give effect to the
repayment  of the  convertible  term  note  and  the  redemption  of  subsidiary
preferred  stock,  which  occurred on August 1, 2005,(as  discussed in a form 8K
filed by the  Company on August 3,  2005) as well as the  related  issuances  of
common shares and treasury  stock for cash of $953,100,  partially  used to fund
the payment of this note and redeem the subsidiary preferred stock (Note 13).

                                       8
<PAGE>
2.   SIGNIFICANT ACCOUNTING POLICIES

TRANSLATION OF CURRENCIES

The functional currency of the Company's  subsidiaries is the Malaysian Ringgit.
The financial statements of these subsidiaries are translated into United States
dollars (USD) using period-end rates of exchange for assets and liabilities, and
average  rates of  exchange  for the period for  revenues,  costs and  expenses.
Translation gains and losses are treated as a component of shareholders' equity.
The reporting currency used in the financial  statements is USD unless otherwise
stated.

REVENUE RECOGNITION

The Company's sources of revenues are from its  Applications,  Material Handling
and Apple Computer ("Gallant") businesses as follows:

a)   Applications  revenue is derived from  applications  development  services,
     services in connection with the operation of a broadband network,  sales of
     devices  that  utilize  broadband  networks  as well as sales of  biometric
     security  products and services in connection with systems  integration and
     implementation of wireless applications and electronic solutions.

b)   Material Handling revenue is derived from services we provide in connection
     with industrial moving, land transportation and secured logistics, the sale
     of industrial  packing and unpacking  equipment as well as the sale, rental
     and servicing of material handling equipment.

c)   Apple  Computer  revenues  are  derived  primarily  from  the sale of Apple
     Computers and related  accessories in an authorized Apple Center as well as
     the supply and provision of information technology products and services.

The Company  recognizes  revenues pursuant to SAB 104 and related  authoritative
literature.  Revenues  from  services are  recognized in the period in which the
services are performed and when there is no  significant  uncertainty  regarding
the  consideration  to be  received  and the  associated  costs to be  incurred.
Revenues  from the sales of  products  and  equipment  are  recognized  when the
significant risks and rewards of ownership have passed to the customer.  Factors
such  as  customer  acceptance  return  policies,   post  shipment  obligations,
warranties,  credits and  discounts,  rebates,  and price  protection or similar
privileges,  have  historically not been considered  significant and have had no
material impact on revenue recognition.

NET INCOME PER COMMON SHARE

Basic net income per share is  calculated  by dividing net income  applicable to
common  shareholders by the weighted average number of common shares outstanding
for the three-month and six-month periods ended June 30, 2005 and 2004.  Diluted
income  per  share is  computed  using  the  weighted  average  number of shares
determined for the basic  computations plus the number of shares of common stock
that would be issued assuming all contingently issuable shares having a dilutive
effect on earnings per share were outstanding for the period. The calculation of
basic and diluted income per share is as follows (in thousands, except per-share
amounts):
<TABLE>
<CAPTION>

                                                       Three Months Ended            Six Months Ended
                                                      June 30,     June 30,         June 30,    June 30,
                                                        2005        2004             2005        2004
                                                    ------------ ------------    ------------ ------------
<S>                                                 <C>          <C>             <C>          <C>
Net income                                          $       220  $       236     $       387  $       399
Preferred stock dividends                                  (175)         (55)           (334)         (55)
                                                    ------------ ------------    ------------ ------------
Net income applicable to common shareholders        $        45  $       181     $        53  $       344
                                                    ============ ============    ============ ============

Weighted average shares outstanding - basic              95,964       94,730          95,446       96,329
                                                    ============ ============    ============ ============

Net income per share - basic                        $         *  $         *     $         *  $         *
                                                    ============ ============    ============ ============

</TABLE>
*  less than $.01 per share

                                       9
<PAGE>

2.   SIGNIFICANT ACCOUNTING POLICIES (continued)

NET INCOME PER COMMON SHARE (continued)
<TABLE>
<CAPTION>


                                                       Three Months Ended            Six Months Ended
                                                      June 30,     June 30,        June 30,     June 30,
                                                        2005        2004             2005        2004
                                                    ============ ============    ============ ============
<S>                                                      <C>          <C>             <C>          <C>
Weighted average shares outstanding - basic              95,964       94,730          95,446       96,329
Common stock issuable to consultant                         244          124             352           63
Dilutive stock options and warrants                          12          190              26          206
Convertible preferred stock                                           12,220                        6,110
Convertible term note                                                    934                          467
                                                    ------------ ------------    ------------ ------------
Weighted average shares outstanding - diluted            96,220      108,198          95,824      103,175
                                                    ============ ============    ============ ============

Net income per share -diluted                       $         *  $         *     $         *  $         *
                                                    ============ ============    ============ ============
</TABLE>
* Less than $.01 per share

GOODWILL AND INTANGIBLE ASSETS

Goodwill,  arising from the purchase of PTSB and the Gallant group of companies,
represents  the  purchase  price paid and  liabilities  assumed in excess of the
estimated fair value of assets acquired.

Intangible assets consist of the following:

a)   A customer list and a Malaysian  government  registered  contractor license
     acquired in September  2004. The customer list has a gross cost of $189,000
     and is amortized using the straight line method over its expected life of 7
     years. Amortization expense for the three-month and six-month periods ended
     June  30,  2005 was  $6,750  and  $13,500,  respectively,  and  accumulated
     amortization  at June  30,  2005 was  $20,250.  The  registered  contractor
     license  has a cost of $65,000 and is  amortized  using the  straight  line
     method  over its  expected  life of 5 years.  Amortization  expense for the
     three-month  and  six-month  periods  ended  June 30,  2005 was  $3,250 and
     $6,500,  respectively,  and  accumulated  amortization at June 30, 2005 was
     $9,750.

b)   Customer  relationships  with a cost of $59,423  acquired on April 30,2005,
     which is being  amortized  using the straight line method over its expected
     life of 3 years.

INVENTORIES

Inventories,  which are comprised of peripherals for  surveillance  and wireless
communication,   material  handling   equipment  and  related  spare  parts  and
accessories,  Apple computer products, information technology hardware, software
and accessories,  are stated at the lower of cost or net realizable  value. Cost
is determined on a first-in-first-out basis.

TREASURY STOCK

The Company records treasury stock purchases at cost. The Company reissues stock
from the treasury on a first-in, first-out basis.

INCOME TAXES

Income taxes are provided  for the tax effects of  transactions  reported in the
financial  statements  and consist of taxes  currently due plus  deferred  taxes
related  primarily to differences  between the recorded book basis and tax basis
of assets and liabilities  for financial and income tax reporting.  The deferred
tax assets and liabilities represent the future tax return consequences of those
differences,  which will  either be taxable  or  deductible  when the assets and
liabilities  are recovered or settled.  Deferred  taxes are also  recognized for
operating  losses that are  available to offset  future  taxable  income and tax
credits that are available to offset future federal income taxes.

                                       10
<PAGE>

2.   SIGNIFICANT ACCOUNTING POLICIES (continued)

INCOME TAXES (continued)

A valuation  allowance offsets the net deferred tax assets for which there is no
assurance of recovery. The valuation allowance is evaluated considering positive
and negative evidence about whether the deferred tax assets will be realized. At
the time of evaluation,  the allowance is either increased or reduced; reduction
could result in the complete  elimination of the allowance if positive  evidence
indicates  that the value of the deferred  tax assets is no longer  impaired and
the allowance is no longer required.


ASSOCIATE COMPANIES - EQUITY ACCOUNTING METHOD

The Company accounts for its investment in common stock of companies in which it
has a  long-term  equity  interest  and  where it has the  ability  to  exercise
significant  influence,  but not control,  over operating and financial policies
based on the equity  method.  The equity method is a method of accounting  under
which the Company  initially  records an investment in the stock of an associate
company at cost and adjusts the carrying  amount of the  investment to recognize
the  Company's  share of the earnings and losses after the date of  acquisition.
The amount of the adjustment is included in the  determination  of the Company's
net  income  and such  amount  reflects  adjustments  similar  to those  made in
preparing  consolidated  financial statements including adjustments to eliminate
intercompany gains and losses, and to amortize,  if appropriate,  any difference
between  the cost and the  underlying  equity  in net  assets  of the  associate
companies at the date of investment.  The carrying amount of the investment will
also be reduced by dividends received from the associate  companies.  As of June
30,  2005,  the Company  did not have any  investments  accounted  for under the
equity method of accounting.

                                       11

<PAGE>
2.   SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK-BASED COMPENSATION

The Company has adopted SFAS No. 123,  Accounting for Stock-Based  Compensation.
As  permitted  by SFAS  No.  123,  the  Company  measures  compensation  cost in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations.

On September 16, 2002, the Company granted options to purchase 300,000 shares of
the Company's common stock at $0.12 per share to a consultant for services to be
provided to the Company.  These options were exercisable through September 2007,
contingent upon continuous  service by the consultant  through  specified dates.
100,000 of the options  were  exercised  on July 2, 2004 for cash of $12,000 and
200,000 of the options were exercised on December 24, 2004 for cash of $24,000.

On August 1, 2004,  the Company  granted  options to purchase  an  aggregate  of
300,000 shares of the Company's  common stock at $0.30 per share to a consultant
for  services to be provided to the  Company.  These  options  were  exercisable
through July 2009,  contingent upon continuous service by the consultant through
specified dates. The option agreement between the Company and the consultant was
terminated in April 2005.  100,000  options vested on January 31, 2005 resulting
in recognition  of  compensation  expense of $1,067 during the six-month  period
ended June 30, 2005.  100,000 options vested on April 30, 2005 and the remaining
100,000  options  scheduled  to vest on July 31, 2005 were  cancelled  following
termination of the agreement. As of June 30, 2005, the 100,000 options vested on
January  31, 2005 were also  canceled as the  consultant  did not  exercise  the
option within the stipulated period.

On August 3, 2004, the Company granted certain officers, directors and employees
of the Company options to purchase up to an aggregate of 2,000,000 shares of the
Company's common stock at $0.20 per share.  The options are exercisable  through
August     2009,     contingent     upon     continuous     service    by    the
officers/directors/employees  through  specified  dates.  500,000  options  were
exercisable on October 3, 2004,  200,000 options were exercisable on February 3,
2005,  500,000  options were  exercisable  on August 3, 2005,  and the remaining
800,000  options are  exercisable  in equal numbers on each of February 3, 2006,
2007, 2008 and 2009,  respectively.  In addition,  on August 3, 2004 the Company
granted  options to purchase  100,000  shares of the  Company's  common stock at
$0.12 per share to an independent  director as  compensation  for serving on the
Company's  Board of Directors.  These  options are  exercisable  with  immediate
effect  through  August 2009.  For the three and six months ended June 30, 2005,
the Company,  based on the  intrinsic  value  method as  permitted  under APB25,
recognized compensation expense of $8,142 and $17,619,  respectively.  On May 3,
2005, two officers and directors exercised 290,000 options, an officer exercised
30,000 options and an employee  exercised  30,000 options at $0.20 per share for
an aggregate cash consideration of $70,000.

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 123(R) Share Based Payment,  which  addresses the accounting for share-based
payment  transactions.  SFAS No.  123(R)  eliminates  the ability to account for
share-based  compensation  transactions using APB No. 25, and generally requires
instead that such  transactions  be accounted and recognized in the statement of
income based on their fair values.  SFAS No. 123(R) will be effective for public
companies  that file as small  business  issuers as of the first interim  period
that begins after December 15, 2005. The Company is evaluating the provisions of
SFAS No.  123(R).  Depending  upon the numbers and terms of options  that may be
granted in future  periods,  the  implementation  of this standard  could have a
material impact on the Company's financial position and results of operations.

                                       12
<PAGE>

2.   SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK-BASED COMPENSATION (continued)

Had compensation cost for options been determined based on the fair value at the
grant  date  consistent  with the method  prescribed  under  SFAS No.  123,  the
Company's  pro forma net  income  and net  income  per share  would have been as
follows:
<TABLE>
<CAPTION>

                                                                 THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                 June 30        June 30       June 30     June 30
                                                                   2005           2004           2005         2004
                                                               ------------ ------------    ------------ ------------
<S>                                                                <C>          <C>             <C>          <C>
Net income                                                     $   220,324  $   236,115     $   386,738  $   399,415
Add: Stock-based employee compensation expense
        included in reported net income, net of related tax          8,142           --          17,619           --
Less: Total stock-based employee compensation expense
         determined under fair value based method for all
         awards, net of related tax effects                        (29,000)          --         (64,000)          --
                                                               ------------ ------------    ------------ ------------
Pro forma net income                                           $   199,466  $   236,115     $   340,357  $   399,415
                                                               ============ ============    ============ ============
Income (loss) per share:
 Basic and diluted - as reported                               $         *  $         *     $         *  $         *
 Basic and diluted - pro forma                                 $         *  $         *     $         *  $         *
                                                               ============ ===========     ============ ============
</TABLE>

* Less than $.01 per share

The value of the  options  issued  during the six months  ended June 30, 2005 is
calculated using the Black-Scholes methodology. The Company utilized an expected
dividend yield of 0, expected stock price volatility  ranging from 115% to 163%,
risk free interest rates ranging from 2% to 4%, and expected life of the options
ranging from 3 months to 4.2 years.

The Company did not issue any options to employees and officers during the three
and six months ended June 30, 2004.

ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the balance sheet and the reported  amounts of revenues and expenses  during the
reporting periods. Actual results could differ from those estimates.

BUSINESS RISK

The  Company is subject to risks and  uncertainties  common to  technology-based
companies,   including  rapid  technological  change,  dependence  on  principal
products  and  third-party  technology,  new  product  introductions  and  other
activities of competitors,  dependence on key personnel,  and limited  operating
history.

RECLASSIFICATIONS

Certain  2004  balances  have  been  reclassified  to  conform  to  the  current
presentation.

                                       13
<PAGE>
3.   BUSINESS ACQUISITION AND DISPOSAL

On November  17,  2003,  SDAM  signed an asset  purchase  agreement  with Asiaco
Material Handling Sdn Bhd ("AMH"),  a Malaysian  company,  to purchase,  through
AMS, the business assets and selected  liabilities of AMH and seven companies in
the Asiaco group.  The definitive  agreement also provided for AMS to purchase a
majority equity interest in the remaining  sixteen companies in the Asiaco group
from  AMH's  majority  shareholder.  Pursuant  to this  agreement,  the  Company
acquired a majority equity interest in three Malaysian  companies on December 9,
2003:  80% in Asiaco  Material  Handling  (East  Coast)  ("AEC"),  67% in Asiaco
Logistic ("ALG") and 60% in Armor Multi Services ("AMSS").  On February 9, 2004,
the Company also acquired a 62% equity interest in Asiaco Taiping  ("ATG").  The
Company  acquired its majority  equity  interests in AEC, ALG, AMSS and ATG (the
"Subsidiaries") from AMH for total consideration of $268,046,  of which $119,047
was  allocated to AMSS,  and $148,999 was  allocated to AEC, ALG and ATG.  These
acquisitions  were  accounted  for as  purchases.  The Company also acquired its
equity investments of 46% in Asiaco Transport and 33% in Asiaco Engineering from
AMH for total consideration of $45,222.  The total consideration of $313,268 was
to be  satisfied  by the  issuance of AMS'  common  stock to the owner upon full
completion of the asset purchase agreements between the Company and AMH. Through
December 31,  2004,  the Company had paid a total of $263,158 to AMH as advances
for the  incorporation of AMS and for the purchase of equity in the Subsidiaries
as well as the two associate companies. As of December 31, 2004, the Company had
a liability  of $50,110 to AMH,  which was  recorded in "other  payables".  As a
result of these  acquisitions  the Company  entered into the equipment  material
handling business.

Revenues from  discontinued  operations  were $58,835 and $172,983 for the three
and six months  ended June 30,  2004,  respectively.  Losses  from  discontinued
operations were $80,779 and $101,373 for the three and six months ended June 30,
2004,  respectively.  Discontinued  operations relate to the Company's  material
handling segment.

On April 30,  2005,  the  Company  completed  the  acquisition  of a 55%  equity
interest in Innospective  Sdn Bhd ("ISS"),  for total  consideration of $85,152.
The Company paid $52,652  (RM200,080) in cash to acquire  122,000 shares of ISS'
common stock and issued 250,000 shares of the Company's common stock,  valued at
$32,500,  being the market  price of the  Company's  common stock at the date of
issuance,  to a  consultant  as payment for  professional  fees on advising  the
Company in this acquisition.  ISS is a systems  integration firm specializing in
the  design,   development  and  implementation  of  wireless  applications  and
electronic solutions, and its acquisition is believe to complement the Company's
existing revenue sources.

The  following  table  summarizes  the estimated  aggregated  fair values of the
assets acquired and the liabilities assumed from ISS at April 30, 2005, the date
of the  acquisition.  The allocation of the purchase  price is  preliminary  and
subject to change.  However, the final purchase price allocation is not expected
to be materially different than that presented herein.

Property, furniture and equipment              $         2,119
Accounts receivable                                     10,365
Cash                                                    54,033
Customer relationships                                  59,423
Accounts payable                                       (19,689)
Minority interest                                      (21,099)
                                               ----------------
                                               $        85,152
                                               ================

                                       14
<PAGE>

3.   BUSINESS ACQUISITION AND DISPOSAL (continued)

The following  unaudited  proforma  financial  information  presents  results of
operations  as if the above  acquisitions  had occurred at the  beginning of the
respective three and six-month periods ended June 30, 2005 and 2004:
<TABLE>
<CAPTION>

                                                         Three Months Ended         Six Months Ended
                                                              June 30                  June 30
                                                       2005             2004       2005           2004
                                                     -----------  ------------  ------------  ------------
<S>                                                       <C>          <C>           <C>           <C>
Revenues                                             $ 7,545,863  $  5,148,082  $ 14,083,296  $  9,561,648
                                                     ===========  ============  ============  ============
Net income                                           $   219,620  $    232,400  $    383,921  $    391,985
                                                     ===========  ============  ============  ============
Basic and diluted
  net income per common share                        $         *  $          *  $          *  $          *
                                                     ===========  ============  ============  ============
* Less than $0.01 per share

</TABLE>

4.   RESTRICTED CASH

As of June 30, 2005, the Company has the following restricted cash balances:

Cash deposited with a financial institution in US             $    6,093,242
Cash deposited with financial institutions in Malaysia               449,270
                                                              --------------
                                                              $    6,542,512
                                                              ==============

Restricted  cash  of  $6,03,242  deposited  in a US  financial  institution  is
security for the performance of the Company and its subsidiaries' obligations to
the Master Fund (see Notes 8, 9 and 13 below).

Restricted cash of $449,270 (RM1,707,227)  deposited with financial institutions
in  Malaysia  represent  time  deposit  accounts  used as  collateral  for trade
financing and bank overdraft  facilities granted to GIH and GZ. The time deposit
accounts have a maturity period of one year and are automatically  renewed on an
annual basis.  The time deposit  accounts earn interest at an aggregate  rate of
3.7% per  annum.  Interest  earned  on the time  deposits  is to be added on and
rolled over with the principal sum.


5.   BANK OVERDRAFT AND BORROWINGS


As of June 30, 2005, the Company's subsidiaries have the following bank
facilities:
<TABLE>
<CAPTION>

                                                                    GIH              GZ               Total
                                                              -------------     -------------    -------------
<S>                                                           <C>               <C>              <C>
Bank overdraft                                                $     132,000     $      79,000    $     211,000
Trade financing facilities                                          211,000           631,000          842,000
                                                              -------------     -------------    -------------
Total bank facilities available                               $     343,000     $     710,000    $   1,053,000
                                                              =============     =============    =============
Balance utilized as of June 30, 2005                          $     245,578     $     701,070    $     946,648
                                                              =============     =============    =============
</TABLE>

The above bank  facilities  are  repayable on demand and bear  interest at rates
ranging from 1.5% to 8.40% per annum and are secured by:

a)   a pledge on the time deposit accounts;
b)   sinking fund accounts included in restricted cash;
c)   a corporate guarantee provided by GIH; and
d)   personal guarantees provided by third parties and two directors of GIH.

                                       15
<PAGE>
6.   RELATED PARTY ACTIVITY

During  the  six-month  periods  ended  June 30,  2005  and  2004,  the  Company
recognized  revenue  of  $175,895  and  $814,475,   respectively,   for  project
consulting fees from a related party, pursuant to four consulting contracts.  As
of June 30, 2005, $6,579 of the $175,895 was in accounts receivable.

At December 31,  2004,  long-term  receivables,  related  parties,  consisted of
$309,584 due from Synervest Sdn Bhd ("SSB").  This amount primarily arose in the
year ended  December  31, 1998 when the  Company  sold to SSB assets used in the
operations of a subsidiary.  Due to the uncertainty of collection of the related
receivable,  a related  gain on the sale of the assets was deferred and is to be
recognized  only  after  all costs  have  been  recovered  and as  payments  are
received.  During the year ended  December  31, 2002,  payments  received by the
Company  exceeded all remaining costs. The Company received $45,658 and $207,258
of the outstanding  receivable  during the six-month periods ended June 30, 2005
and 2004,  respectively,  resulting in a realization  of gain on sale of assets,
related party for those periods. The deferred gain included in the balance sheet
has been reduced accordingly.


7.   TERM LOANS

As of June  30,  2005,  the  Company  has  term  loan  liabilities  of  $178,183
(RM677,095).  These term loans, which were granted by financial  institutions in
Malaysia,  are secured by personal  guarantees provided by third parties and two
directors of GIH and bear interest at 8% - 8.4% per annum.


8.   CONVERTIBLE TERM NOTE

On May 28, 2004, the Company entered into a Securities  Purchase  Agreement with
an  unrelated  investors  group (the  "Master  Fund")  under  which the  Company
obtained  $500,000  funding  through  the sale of a  Convertible  Term Note (the
"Note") in the  principal  amount of  $500,000,  convertible  into shares of the
Company's  common  stock at a fixed  conversion  price of $0.35  per  share  and
warrants to purchase up to 300,000  shares of the Company's  common  stock.  The
Note had a three-year  term and a coupon at a rate per annum  equivalent  to the
"prime  rate"  published  in The Wall Street  Journal from time to time plus 2%,
subject  to a floor  of 6% per  annum.  The  monthly  interest  may be  adjusted
downward  based on a minimum  increase  of 25 percent of the price of the common
stock above the  conversion  price.  The warrants have a seven-year  term and an
exercise price of $0.40 per share for the first 100,000 shares,  $0.43 per share
for the second 100,000 shares and $0.47 per share for the third 100,000  shares.
Black-Scholes  valuations were performed on the 300,000 warrants  resulting in a
gross debt discount of $47,900,  which was being  amortized over the term of the
debt, or 36 months,  using the effective  interest rate method.  $326,000 of the
proceeds were used for payment of expenses  relating to issuance of the Note and
convertible  preferred stock to secure an additional $6.5 million financing from
the Master  Fund (see Note 9).  The  balance  of the Note  proceeds  was used as
working  capital.  The  Company  granted a security  interest  in all of its net
assets and the net assets of one of its wholly  owned  subsidiaries,  until such
time that the Note is satisfied. The principal and the interest could be paid in
cash or in common stock at the  conversion  price,  at the Master Fund's option,
provided that the volume  weighted  average price (VWAP) of the common stock for
the ten  trading  days  immediately  preceding  the due date is 110%  above  the
conversion price. The conversion price was reset on August 11, 2004 to $0.20 per
share  pursuant to an agreement  entered into by the Master Fund and the Company
and the reset  resulted  in a  beneficial  conversion  feature of  approximately
$152,000.

                                       16
<PAGE>

8.   CONVERTIBLE TERM NOTE (continued)

On April 25, 2005,  pursuant to an agreement entered into by the Master Fund and
the Company,  the conversion price was subsequently reset to a price equal to 85
percent of the average of the five lowest  closing  prices during the 22 trading
days prior to the date of conversion,  subject to a minimum  conversion price of
$0.07 per  share,  and the reset  resulted  in a revised  beneficial  conversion
feature  of  approximately   $112,000.  The  beneficial  conversion  feature  is
contingent  upon certain future events and is recorded as conversions  are made.
As of June  30,  2005,  the  outstanding  discounted  principal  of the Note was
$305,832.

A summary of the status of the discounted  principal and interest  amount of the
Note from  January 1, 2005  through  August 1, 2005 (the date the Note was paid;
Note 13) is presented below:

<TABLE>
<CAPTION>

                                              Total         Interest         Principal        Discount            Net
                                        ----------------  -------------- ---------------- ----------------  -------------
<S>                                            <C>               <C>               <C>            <C>              <C>
Balance as of January 1, 2005           $       426,470   $          --  $       426,470  $         40,855  $     385,615
Interest through June 30, 2005                   16,208          16,208               --                --             --
Conversion in April 2005 (a)                    (52,770)         (8,653)         (44,117)           (4,226)       (39,891)
Conversion in May 2005 (b)                      (17,412)         (2,707)         (14,705)           (1,408)       (13,297)
Conversion June 1, 2005 (c)                     (17,249)         (2,544)         (14,705)           (1,408)       (13,297)
Conversion June 16, 2005 (d)                    (14,705)             --          (14,705)           (1,407)       (13,298)
                                        ----------------  -------------- ---------------- ----------------  -------------
Balance as of June 30, 2005                     340,542           2,304          338,238            32,406        305,832
Conversion July 12, 2005 (e)                    (20,445)         (2,304)         (18,141)           (1,740)       (16,401)
Interest for July 2005                            2,173           2,173               --                --             --
                                        ----------------  -------------- ---------------- ----------------  --------------
Balance as of August 1, 2005 (f)        $       322,270   $       2,173  $       320,097  $         30,666  $     289,431
                                        ================  ============== ================ ================  ==============
</TABLE>

a)   On April 25, 2005, the Master Fund converted $39,891  discounted  principal
     of the note and  $8,653  of  accrued  interest  to  383,701  shares  of the
     Company's common stock.
b)   On May 5, 2005, the Master Fund converted $13,297  discounted  principal of
     the note and $2,707 of accrued  interest to 140,311 shares of the Company's
     common stock.
c)   On June 1, 2005, the Master Fund converted $13,297 discounted  principal of
     the note and $2,544 of accrued  interest to 163,132 shares of the Company's
     common stock.
d)   On June 16, 2005, the Master Fund converted $13,298 discounted principal of
     the note to 147,649 shares of the Company's common stock.
e)   On July 12, 2005, the Master Fund converted $16,401 discounted principal of
     the note and $2,304 of accrued  interest to 250,000 shares of the Company's
     common stock.
f)   On August 1, 2005, the Company repaid the entire outstanding balance of the
     Note and  redeemed the  convertible  preferred  stock of a subsidiary  (see
     Notes 9 and 13).


                                       17
<PAGE>

9.   PREFERRED STOCK

On May 25,  2004,  the  Company  executed a share  exchange  agreement  with its
Chairman  and  Chief  Executive  Officer,  Mr.  Patrick  Lim,  whereby  Mr.  Lim
surrendered  8,000,000  shares of the  Company's  common  stock in exchange  for
100,000  shares  of the  Company's  newly  created  Series A Voting  Convertible
Preferred Stock (the "Voting  Preferred"),  which was convertible into shares of
common stock at a fixed ratio of 80 shares of common stock for 1 share of Voting
Preferred  stock.  The  8,000,000  shares  were  returned  to  treasury  and are
available  for  re-issuance  at a future date.  The Voting  Preferred  stock was
entitled to cumulative  dividends at $2.20 per annum, payable in common stock at
$.28 per share. On May 3, 2005, Mr. Lim and the Company executed an amendment to
the  Certificate of Designation of Series A Voting  Convertible  Preferred Stock
governing  payment of dividend on the Voting  Preferred.  Under the terms of the
amendment, Mr. Lim would have the option of receiving the dividend on the Voting
Preferred either in cash or shares of the Company's common stock.  Each share of
the Voting  Preferred was entitled to voting  rights  equivalent to 80 shares of
common  stock.  The Series A preferred  was subject to mandatory  conversion  10
years after its issuance.

A summary of the status of the Voting Preferred and dividend accrued since
January 1, 2005 and changes through August 1, 2005 is presented below:
<TABLE>
<CAPTION>

                                                              Total          Dividend          Stated
                                                                                               Amount
                                                          -------------- ---------------  ----------------
<S>                   <C>                                 <C>            <C>              <C>
Balance as of January 1, 2005                             $     138,332  $       128,332  $         10,000
Dividend through June 30, 2005                                  110,000          110,000                --
                                                          -------------- ---------------  ----------------
Balance as of June 30, 2005                                     248,332          238,332            10,000
Dividend for July 2005                                           18,333           18,333                --
                                                          -------------- ---------------  ----------------
Balance August 1, 2005                                    $     266,665  $       256,665  $         10,000
                                                          =============  ===============  ================
</TABLE>
On August 3, 2005,  the  Company's  Chairman and Chief  Executive  Officer,  Mr.
Patrick Lim,  converted  the entire  100,000  shares of the  Company's  Series A
Voting Convertible  Preferred Stock into 8,000,000 shares of common stock, which
resulted in the  reclassification  of $10,000  from the stated  amount to $80 of
common stock (par) and $9,920  additional  paid-in  capital.  In  addition,  the
Company paid the $256,665 dividend due to Mr. Lim in cash in August 2005.

On May 28, 2004, the Company and one of the Company's wholly owned subsidiaries,
SDA America,  Inc.  ("SDAA") entered into a Securities  Purchase  Agreement (the
"SPA") with the Master Fund under which SDAA issued 6,500,000 shares of Series A
Convertible  Preferred  Stock (the "Series A Preferred") at a price of $1.00 per
share,  which was  convertible  into shares of the Company's  common stock,  and
warrants to purchase up to 3,000,000  shares of the Company's  common stock. The
Series A Preferred was convertible,  subject to certain conditions,  into common
stock of the  Company  at the  option of the  Master  Fund and was  entitled  to
cumulative  preferential  dividends at a rate per annum equivalent to the "prime
rate" published in The Wall Street Journal from time to time plus 2%, subject to
a floor of 6% per annum.  The preferred stock dividends could be paid in cash or
in shares of the Company's common stock at the applicable  conversion  price, at
the Master Fund's option.  The  conversion  price was initially set at $0.35 per
share.  The warrants have a seven-year  term and an exercise  price of $0.40 per
share for the first 1,000,000  shares,  $0.43 per share for the second 1,000,000
shares  and  $0.47  per  share for the  third  1,000,000  shares.  The  Series A
Preferred had a liquidation value of $1.00 per share.

On August 11,  2004,  the Company and the Master Fund  executed an  amendment to
certain  agreements  governing  the  terms  under  which  the Note and  Series A
Preferred  issued to the Master Fund could be converted into the common stock of
the Company.  Under the terms of the amendment,  the Master Fund could convert a
portion of the Note and Series A Preferred as follows:  the first  $2,000,000 of
conversions  were  reset to a price of $0.20 per  share  (whether  as  principal
repayment or accrued and unpaid  interest or dividends);  the next $1,000,000 of
conversions were reset to a price of $0.25 per share. The remaining  conversions
permitted under the terms of the original securities issuance remained unchanged
at $0.35 per share. In addition to resetting the conversion prices for a portion
of the  transaction,  the  amendment  provided  that all  dividend  and interest
payments  payable under the investment  would accrue,  rather than be payable in
cash, until the next conversion into common stock occurs. The amendment provided
for a  waiver  of cash  payments  of  interest  or  dividends  due  prior to the
execution of the  amendment,  with any such amounts to be accrued to the amounts
payable under the terms of the Note or Series A preferred.

                                       18
<PAGE>

9.   PREFERRED STOCK (continued)

On November 15, 2004,  the Company and the Master Fund  executed an amendment to
the  Securities  Purchase  Agreement,  dated May 28, 2004 and as amended to date
("SPA").  Under the terms of  Amendment  No. 2, the Master Fund agreed to remove
the  condition  from the SPA that required the Company to cause its common stock
to be listed on the Nasdaq SmallCap Market,  Nasdaq National Market System,  the
American  Stock  Exchange or the New York Stock Exchange on or prior to November
15, 2004 (the  "Listing  Condition").  As  consideration  for the removal of the
Listing  Condition,  the Company issued  warrants to the Master Fund to purchase
1,300,000  shares of the Company's  common stock. The warrants have a seven-year
term and an exercise price of $0.35 per share.

On April 25,  2005,  the Company and the Master Fund  executed an  amendment  to
certain  agreements  governing  the  terms  under  which  the Note and  Series A
Preferred  issued to the Master Fund could be converted into the common stock of
the Company. Under the terms of the amendment, the Master Fund could convert the
remaining Note and the first  $2,000,000  Series A Preferred at a price equal to
85  percent of the  average  of the five  lowest  closing  prices  during the 22
trading days prior to the date of conversion  (whether as principal repayment or
accrued and unpaid interest or dividends), subject to a minimum conversion price
of $0.07 per share and subject to certain contingent conversion terms.

Pursuant to the Securities  Purchase  Agreement  between the Master Fund and the
Company and a restricted  account  agreement  entered  into by the Company,  the
Master Fund and a US bank, the original $6,500,000 investment was deposited into
a  restricted  account as security  for the  performance  of the Company and its
subsidiaries' obligations to the Master Fund. The proceeds were restricted until
the preferred stock was converted into common stock of the Company.

A summary of the status of the Series A  Preferred  and  dividend  thereon  from
January 1, 2005 and through  August 1, 2005 (at which time the Company  redeemed
the Series A Preferred; Note 13) is presented below:
<TABLE>
<CAPTION>

                                          Total        Dividend      Series A       Amount        Issue           Net
                                                                      Stated      Allocated to    Costs        Carrying
                                                                      Amount       Warrants                     Value
                                      -------------  -----------   -------------  -----------  ------------ -------------
<S>                                         <C>           <C>          <C>           <C>           <C>          <C>
Balance as of January 1, 2005         $   6,238,563  $   238,563   $   6,000,000  $   479,000  $   364,833  $   5,156,167
Dividend through June 30, 2005              223,663      223,663              --           --           --             --
                                      -------------  -----------   -------------  -----------  ------------ -------------
Balance as of June 30, 2005               6,462,226      462,226       6,000,000      479,000      364,833      5,156,167
Dividend for July 2005                       39,874       39,874              --           --           --             --
                                      -------------  -----------   -------------  -----------  ------------ -------------
Balance August 1, 2005                $   6,502,100  $   502,100   $   6,000,000  $   479,000  $   364,833  $   5,156,167
                                      =============  ===========   =============  ===========  ============ =============

</TABLE>

                                       19
<PAGE>
10.   COMMON STOCK

On  December 4, 2002,  the Company  announced  that its Board of  Directors  had
approved a stock  repurchase  program for up to 10 million  shares from the then
public float of approximately  42.7 million shares which may be repurchased from
time to time until  December  2003.  The shares  repurchased by the Company were
returned to treasury and are available for re-issuance at a future date.

On May 25, 2004,  the Company  reacquired  8,000,000  shares of its common stock
pursuant to a share  exchange  agreement  with its Chairman and Chief  Executive
Officer,  Mr. Patrick Lim,  whereby Mr. Lim surrendered  8,000,000 shares of the
Company's  common stock in exchange for 100,000  shares of the  Company's  newly
created Series A Voting Convertible  Preferred Stock. These shares were returned
to treasury and are available for re-issuance at a future date.

On August 9, 2004, the Company  reissued  25,000 shares of common stock from its
treasury  stock to a consultant as payment for services  rendered to the Company
in July 2004 and recognized  $5,750 as compensation  expense based on the market
value of $0.23 per share on the date of  issuance.  On December  24,  2004,  the
Company  reissued  500,000  shares of common stock from its treasury  stock to a
consultant  at $0.20 per share as payment for  services  rendered to the Company
and recognized $100,000 as compensation  expenses.  On June 2, 2005, the Company
reissued  250,000 shares of common stock from its treasury stock to a consultant
as  payment  for  services  rendered  to the  Company  in  connection  with  the
acquisition  of ISS. On June 2, 2005,  the Company  reissued  199,218  shares of
common stock from its treasury  stock to a consultant as payment for services of
$22,412 rendered to the company during the three months ended June 30, 2005. The
shares were issued at $0.1125 per share, which is 85% of the average of the five
lowest  closing  prices of the common stock during the  twenty-two  trading days
prior to the date of issuance,  as reported by Bloomberg  News  Services.  As of
June 30, 2005, the Company had a balance of 8,080,782  repurchased shares in its
treasury stock with a carrying amount of $7,270.

On February 8, 2005, the Company issued 240,000 shares of common stock at $0.175
per share for a total  consideration of $42,000 and on May 18, 2005, the Company
issued   240,000   shares  of  common  stock  at  $0.125  per  share  for  total
consideration of $30,000, to a consultant  pursuant to a compensation  agreement
dated July 15, 2004, under which the Company is to issue an aggregate of 960,000
shares of its common  stock to the  consultant  as payment  for  services  to be
rendered to the Company for the  twelve-month  period ending July 14, 2005.  The
480,000 shares were valued,  based on the respective market price on the date of
issuance,  and the  Company  recognized  compensation  expense  of  $31,200  and
$77,000, respectively, for the three and six months ended June 30, 2005.

On May 3, 2005,  the Company  issued  290,000  shares of its common stock to two
officers  and  directors,  30,000  shares to an officer and 30,000  shares to an
employee,  respectively,  for exercising their stock options, at $0.20 per share
for aggregate cash consideration of $70,000.

In August 2004,  pursuant to a compensation  agreement between the Company and a
consultant,  the Company authorized the issuance of 120,000 shares of its common
stock to the  consultant  as payment for  services to be rendered to the Company
for the  twelve-month  period  ending in July  2005.  As of June 30,  2005,  the
Company  has not  issued  any of the  120,000  shares  of  common  stock  to the
consultant,  and has accrued $16,800 of compensation  expenses,  of which $4,050
and $7,800,  respectively,  was  recorded  during the three and six months ended
June 30, 2005.

                                       20
<PAGE>


11.   SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

The Company grants credit,  generally without collateral,  to its customers. Two
customers in the Company's  applications segment accounted for approximately 83%
of  revenues  earned  during  the  three and six  months  ended  June 30,  2005,
respectively.  These two  customers  accounted  for  approximately  92% and 91%,
respectively,  of revenues earned during the three and six months ended June 30,
2004. In the three months and six months ended June 30, 2005, the two customers,
respectively,  accounted for 42% and 41% of total  revenue.  In the three months
ended June 30, 2004, the two customers, respectively,  accounted for 44% and 47%
of total  revenue.  In the six months  ended June 30, 2004,  the two  customers,
respectively, accounted for 45% and 46% of total revenue. Allowance for doubtful
accounts  receivable was $425,869 at June 30, 2005. The Company will continue to
pursue vigorously the collection of all its outstanding accounts receivable.

Three  suppliers  accounted  for 85% cost of  revenues  during the three and six
months ended June 30, 2005,  and one supplier  accounted for  substantially  all
cost of  revenues  during the three and six  months  ended  June 30,  2004.  The
Company is not  dependent  upon one  supplier  to provide the  services  that it
requires  but made a strategic  decision to engage the  services of only a small
number of suppliers after taking into  consideration  the quality of service and
competitive  pricing  being  offered.  Should the need arise,  the Company could
utilize alternative suppliers for the services that it requires.


12.   SEGMENT INFORMATION

The Company has three reportable  segments as a result of the  establishment and
acquisition of new subsidiaries.  The Company classifies its business into three
operating  segments,  which are defined by the products and services  offered as
follows:

1.   Broadband, multimedia and biometric security division (Applications)

     Activities under this segment include  application  development,  broadband
     network operation,  delivery of value added applications and services; sale
     of devices that utilize broadband networks,  the sale of biometric security
     devices,  systems  integration and implementation of wireless  applications
     and electronic solutions.

2.   Material handling  equipment  division beginning in December 2003 (Material
     Handling)

     Activities  under this  segment  include  industrial  moving,  packing  and
     unpacking industrial equipment,  land transportation and secured logistics,
     as well as the sale, rental and servicing of material handling equipment.

3.   Apple  computer  division  beginning  in  October  2004  (Gallant  group of
     companies)

     Activities under this segment include  operating an authorized Apple Centre
     and the  supply  and  provision  of  information  technology  products  and
     services.


                                       21
<PAGE>
12.   SEGMENT INFORMATION (continued)

The accounting policies of the segments are the same as those described under
Note 2: Significant Accounting Policies. The Company's reportable segments are
strategic business units that offer different products and services. They are
managed separately because each division requires different product knowledge
and marketing strategies. The new businesses were acquired as a unit and the
management at the time of acquisition was retained. Inter-segment sales and
transfers between reportable segments are not material to the period presented.
The Company's revenue is derived primarily from operations in Malaysia and
substantially all of the Company's assets are located in Malaysia.
<TABLE>
<CAPTION>

                                                    Applications      Material                         Total
                                                                      Handling        Gallant
                                                   --------------  --------------  -------------  --------------
<S>                                                       <C>           <C>           <C>            <C>
Three-month period ended June 30, 2005:

Revenue:
   Related parties                                 $      130,106  $           --  $          --  $      130,106
   Others                                               6,331,658         102,906        969,499       7,404,063
                                                   --------------  --------------  -------------  --------------
                                                   $    6,461,764  $      102,906  $     969,499  $    7,534,169
Cost of revenue                                         5,922,561          97,092        850,396       6,870,049
                                                   --------------  --------------  -------------  --------------
Gross profit                                       $      539,203  $        5,814  $     119,103  $      664,120
                                                   ==============  ==============  =============  ==============
Net income (loss)                                  $      176,636  $      (31,063) $      74,751  $      220,324
                                                   ==============  ==============  =============  ==============
Depreciation expense                               $       60,533  $        3,616  $       7,373
                                                   ==============  ==============  =============
Interest expense                                   $        8,940  $           --  $      16,638
                                                   ==============  ==============  =============
Interest income                                    $       35,685  $           --  $          --
                                                   ==============  ==============  =============
Income tax expense                                 $       56,053  $           --  $          --
                                                   ==============  ==============  =============
Expenditures for additions to long lived assets    $           --  $           --  $       4,916
                                                   ==============  ==============  =============

Three-month period ended June 30, 2004:

Revenue:
   Related parties                                 $      400,000  $           --  $          --  $      400,000
   Others                                               4,571,316         126,174             --       4,697,490
                                                   --------------  --------------  -------------  --------------
                                                   $    4,971,316  $      126,174  $          --  $    5,097,490
Cost of revenue                                         4,375,263         121,281             --       4,496,544
                                                   --------------  --------------  -------------  --------------
Gross profit                                       $      596,053  $        4,893  $              $      600,946
                                                   ==============  ==============  =============  ==============
Income (loss):
   from operating segments                         $      355,359  $      (38,465) $          --  $      316,894
   from discontinued operations                           (11,785)        (68,994)            --         (80,779)
                                                   --------------  --------------  -------------  --------------
Net income (loss)                                  $      343,574  $     (107,459) $          --  $      236,115
                                                   ==============  ==============  =============  ==============
Depreciation expense                               $       58,819  $        3,926  $          --
                                                   ==============  ==============  =============
Interest expense                                   $        4,567  $           --  $          --
                                                   ==============  ==============  =============
Share of associate companies losses                $           --  $       (3,947) $          --
                                                   ==============  ==============  =============
Income tax expense                                 $       31,053  $           --  $          --
                                                   ==============  ==============  =============
Expenditures for additions to long lived assets    $        2,700  $        2,859  $          --
                                                   ==============  ==============  =============
                                       22

<PAGE>



12.   SEGMENT INFORMATION (continued)

                                                    Applications      Material                          Total
                                                                      Handling        Gallant
                                                   --------------  --------------  -------------  --------------
Six-month period ended June 30, 2005:

Revenue:
   Related parties                                 $      175,895  $           --  $          --  $      175,895
   Others                                              11,703,237         194,088      1,981,303      13,878,628
                                                   --------------  --------------  -------------  --------------

                                                   $   11,879,132  $      194,088  $   1,981,303  $   14,054,523
Cost of revenue                                        10,911,888         184,718      1,703,262      12,799,868
                                                   --------------  --------------  -------------  --------------
Gross profit                                       $      967,244  $        9,370  $     278,041  $    1,254,655
                                                   ==============  ==============  =============  ==============
Net income (loss)                                  $      338,502  $      (37,982) $      86,218  $      386,738
                                                   ==============  ==============  =============  ==============
Depreciation expense                               $      121,396  $        7,933  $      14,907
                                                   ==============  ==============  =============
Interest expense                                   $       19,114  $           --  $      35,111
                                                   ==============  ==============  =============
Interest income                                    $       78,736  $           --  $          --
                                                   ==============  ==============  =============
Income tax expense                                 $       78,421  $           --  $          --
                                                   ==============  ==============  =============
Expenditures for additions to long lived assets    $           --  $           --  $      74,859
                                                   ==============  ==============  =============

Six-month period ended June 30, 2004:

Revenue:
   Related parties                                 $      814,475  $           --  $          --  $      814,475
   Others                                               8,363,157         282,832             --       8,645,989
                                                   --------------  --------------  -------------  --------------
                                                   $    9,177,632  $      282,832  $          --  $    9,460,464
Cost of revenue                                         8,207,763         253,379             --       8,461,142
                                                   --------------  --------------  -------------  --------------
Gross profit                                       $      969,869  $       29,453  $          --  $      999,322
                                                   ==============  ==============  =============  ==============
Income (loss):
   from operating segments                         $      564,948  $      (64,160) $          --  $      500,788
   from discontinued operations                           (15,814)        (85,559)            --        (101,373)
                                                   --------------  --------------  -------------  --------------
Net icome (loss)                                   $      549,134  $     (149,719) $          --  $      399,415
                                                   ==============  ==============  =============  ==============
Depreciation expense                               $      117,535  $        7,715  $          --
                                                   ==============  ==============  =============
Interest expense                                   $        7,827  $           --  $          --
                                                   ==============  ==============  =============
Share of associate companies losses                $           --  $       (6,579) $          --
                                                   ==============  ==============  =============
Income tax expense                                 $       32,895  $           --  $          --
                                                   ==============  ==============  =============
Expenditures for additions to long lived assets    $        2,700  $        8,219  $          --
                                                   ==============  ==============  =============
</TABLE>

Segment information for the three and six months ended June 30, 2004,
respectively, do not include the operating results of the Apple division as the
Company acquired the Gallant group of companies on September 29, 2004.

Consolidated total assets as of June 30, 2005 are as follows:

   Applications                                          $      13,621,590
   Apple                                                         1,558,901
   Material handling                                               211,693
                                                         ------------------
   Total consolidated assets                             $      15,392,184
                                                         ==================
                                       23
<PAGE>
13.   SUBSEQUENT EVENTS

In private placement exercises in July 2005, the Company issued 5,791,463 shares
of its common  stock to ten  investors at an  aggregate  price of $474,900.  The
Company also issued 4,948,346 shares of its common stock to five investors at an
aggregate price of $428,200 and reissued 609,756 shares of its common stock from
treasury to an investor for cash of $50,000,  in private placement  exercises in
August 2005.  Total proceeds from these private  placements of $953,100 and were
utilized in connection  with the August 2005 Master Fund  redemption,  discussed
below.  The stock was priced at 85% of the  average of the five  lowest  closing
prices of the common  stock  during  the  twenty-two  trading  days prior to the
closing date, as reported by Bloomberg News Services,  which at the various time
of issuance was ranging from $0.082 to $0.087.

On August 1, 2005,  the Company  entered into an  agreement  whereby it waived a
limitation  on the  number of shares  that  could be  converted  and held by the
Master Fund in order to permit conversions by the Master Fund under the Note and
Series A Preferred  into  9,756,098  shares of common stock.  The conversion was
made in  connection  with an agreement,  also dated August 1, 2005,  whereby the
Master Fund agreed to accept  $800,000,  payable in common stock, and $6,343,000
in cash (of which $6,105,000  represented restricted cash), in consideration for
the early repayment of the Note and redemption of the Series A Preferred.

The following table  summarizes the August 1, 2005  transaction  with the Master
Fund:

                                         Total        Interest/      Discounted
                                                      Dividend       Principal/
                                                                      Series A
                                                                      Carrying
                                                                       Amount
                                      ------------- ------------- --------------
Balance as of August 1, 2005
 Term note                            $    291,604  $      2,173  $     289,431
 Series A Preferred                      5,658,267       502,100      5,156,167
                                      ------------- ------------- --------------
 Total                                   5,949,871  $    504,273  $   5,445,598
Paid from restricted cash               (6,105,138) ============= ==============
Cash payment                              (238,390)
Common stock issued (a)                   (800,000)
                                      -------------
Early payment/redemption penalty (b)  $ (1,193,657)
                                      =============


a)   9,756,098 shares of common stock issued at a price of $0.082 per share.
b)   The  August 1, 2005  transaction  resulted  in an early  payment/redemption
     penalty of  approximately  $1,194,000,  of which  approximately  $47,000 is
     attributable to interest  expense and $1,147,000  represents a reduction to
     net income applicable to common  shareholders, and which is recorded in the
     quarter ending September 30, 2005.

In August 2005,  the Company  reissued  240,000  shares of its common stock from
treasury to a consultant  pursuant to a  compensation  agreement  dated July 15,
2005,  under which the Company is to issue an aggregate of 960,000 shares of its
common  stock to the  consultant  as payment for  services to be rendered to the
Company for the twelve-month period ending July 14, 2006.

In August 2005,  the Company  reissued  843,446  shares of its common stock from
treasury  (valued at  approximately  $91,000)  to a  consultant  as payment  for
professional   services  rendered  in  connection  with  the  Company's  private
placement  and the payment of debt and  redemption  of preferred  stock with the
Master Fund.

                                       24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

THE FOLLOWING ANALYSIS OF THE OPERATIONS AND FINANCIAL  CONDITION OF THE COMPANY
SHOULD  BE  READ  IN  CONJUNCTION  WITH  THE  CONDENSED  CONSOLIDATED  FINANCIAL
STATEMENTS,  INCLUDING THE NOTES THERETO,  OF THE COMPANY CONTAINED ELSEWHERE IN
THIS FORM 10-QSB.


OVERVIEW

Secured Digital Applications,  Inc. and subsidiaries (the "Company") is a system
solution provider,  seeking to develop and commercialize  practical applications
of digital technology.  We are involved in value-added application  development,
broadband network operation, the sale of devices that utilize broadband networks
and the sale of biometric  security devices.  Beginning in 2003, the Company has
also sought to develop secured shipping and supply chain management services. In
October 2004, we expanded into the business of selling Apple  computer  products
and other information  technology  products and services through the acquisition
of the Gallant group of companies.  The Company's  principal  operations  during
2005 included the development and operation of a wireless  broadband  network in
Malaysia,  the development of interactive,  multimedia  content for the Internet
and the development, licensing and/or sale of specific products and applications
that utilize the capacities of a broadband  network.  These products include the
EyStar SmartHome  Management  System,  broadband  modems,  biometric systems and
Internet-based  cameras.  We also  generate  revenue  from the sale,  rental and
servicing of material  handling  equipment  through our subsidiary,  Armor Multi
Systems  ("AMS")  (f/k/a Asiaco Multi  Corporation).  In addition,  beginning in
October 2004, the Company  generated  additional  revenue from the sale of Apple
computer  products in Malaysia and from the supply and provision of  information
technology products and services through the Gallant group of companies.

The Company conducts its principal operations in Malaysia, and has the following
subsidiaries as of June 30, 2005:

1.      EyStar Media Inc. ("EMI"),  a wholly owned  corporation  organized under
        Delaware law and presently based in New York,  through which the Company
        intends to expand its presently limited operations in the United States.
        EMI seeks to acquire  United States  technology  companies and to expand
        the Company's operations into the United States.

2.      SDA America,  Inc. ("SDAA"), a wholly owned corporation  organized under
        Delaware law that is used as a special  vehicle to secure a $6.5 million
        funding from Laurus Master Fund Ltd. (the "Master Fund") through private
        placement of securities  consisting of  convertible  preferred  stock of
        SDAA.

3.      Secured  Digital  Applications  (M) Sdn  Bhd  ("SDAM")  (f/k/a  Animated
        Electronic  Industries  Sdn Bhd), a wholly owned  Malaysian  subsidiary,
        designs,   develops  and  produces   multimedia   content  and  provides
        consulting  services for website  development,  network  engineering and
        project management in IT related projects.

4.      Perwimas  Telecommunications  Sdn Bhd ("PTSB"),  an 86%-owned  Malaysian
        subsidiary of SDAM,  provides  broadband and application  services under
        licenses granted by the government of Malaysia.

5.      Armor Multi Systems Sdn Bhd ("AMS") (f/k/a Asiaco Multi  Corporation Sdn
        Bhd),  presently  a wholly  owned  Malaysian  subsidiary  of  SDAM,  was
        incorporated as a special vehicle to acquire the businesses and selected
        net  assets  of  Asiaco  Material  Handling  Sdn  Bhd  ("AMH")  and  its
        subsidiary,  associate and related companies ("the Asiaco Group"), based
        in Malaysia.

6.      Secured Shipping Sdn Bhd ("SS"), a wholly owned Malaysian  subsidiary of
        SDAM,  presently provides  consulting  services on the implementation of
        secured shipping services and supply chain management.

7.      Armor Multi Services Sdn Bhd ("AMSS") (f/k/a Asiaco Services Sdn Bhd), a
        60%-owned  Malaysian   subsidiary  of  AMS,  is  primarily  involved  in
        providing maintenance,  repair and restoration services for all material
        handling equipment.

8.      Digital  Image  ID Sdn Bhd  ("DID")  (f/k/a  Vista  Positive  Sdn  Bhd),
        presently a wholly-owned Malaysian subsidiary of SDAM, will be used as a
        joint venture vehicle to undertake a project with the Company's partners
        and a leading Malaysian IT company to enable the search and match of DNA
        data for newborns and  registered  criminals,  for use  primarily by the
        Government of Malaysia.


                                       25
<PAGE>
9.      Gallant  Service  Centre  (M)  Sdn  Bhd  ("GSC"),   SDAM's  wholly-owned
        subsidiary  from  the  date of  acquisition  on  September  29,  2004 is
        primarily involved in the provision of scheduled  maintenance and repair
        services for information  technology products.  The Company is using GSC
        as the  special  vehicle  for its  investment  in the  Gallant  group of
        companies.

10.     Gallant IT Holdings Sdn Bhd ("GIH"),  GSC's 55% owned  subsidiary,  from
        the date of acquisition  on September 29, 2004 is primarily  involved in
        the  supply  and  provision  of  information   technology  products  and
        services.

11.     Gallant  Zone (M) Sdn Bhd  ("GZ"),  a  wholly-owned  subsidiary  of GIH,
        operates 2 retail  outlets in  Malaysia  for the sale of Apple  computer
        products and accessories.

12.     Eystar  Distribution Sdn Bhd ("EDSB") (f/k/a Gallant IT Distribution (M)
        Sdn Bhd), a wholly-owned subsidiary of GIH, is currently dormant.

13.     Gallant Focus (M) Sdn Bhd ("GF"),  a wholly-owned  subsidiary of GIH, is
        currently dormant.

14.     Innospective Sdn Bhd ("ISS"), SDAM's 55% owned Malaysian subsidiary from
        the date of acquisition on April 30, 2005 is a systems  integration firm
        specializing in the design,  development and  implementation of wireless
        applications and electronic solutions.

The  accompanying   condensed  consolidated  financial  statements  include  the
accounts of Secured Digital Applications, Inc. and its subsidiaries.

For the three and six months  ended June 30,  2005,  the  Company's  revenue was
generated primarily from the following activities:

1.      Designing, producing, hosting and distribution of interactive multimedia
        content, websites, programs and applications.
2.      Developing and producing e-commerce programs and Internet-based security
        applications and solutions.  3. Providing project consulting services on
        broadband communications and networking systems for property development
        projects.
4.      Sale, rental and servicing of material handling equipment.
5.      Sale of Apple  products,  computer  hardware,  software and provision of
        installation, repair and maintenance services for information technology
        products.
6.      Systems  integration  and  design,  development  and  implementation  of
        wireless applications and electronic solutions.


Significant Business Developments and Plan of Operation

During  2005,  the  Company  anticipates  that it will  continue  to provide its
existing multimedia development,  consulting and broadband services,  market the
EyStar SmartHome Management System,  introduce and actively market a new line of
biometric  security  products  capable of integration  with the EyStar SmartHome
Management  System and utilizing the Company's  ability to provide  applications
support.  These  products are the  SmileCAM,  FaceKey and Testech  devices.  The
Company believes that these devices,  when linked with the broadband  technology
that the Company seeks to exploit,  will provide  customers  with  comprehensive
security  and  identification  systems for which it is believed  there will be a
significant  market. The Company will also continue its presence in the material
handling  business through AMS and its subsidiary.  The Company will also expand
its business in ICT trading through the Gallant Group of companies. On March 28,
2005,  the Company  announced the opening of a second Apple retail center in the
Hartamas  Shopping Centre in Sri Hartamas,  a suburb of Kuala Lumpur,  Malaysia.
The new outlet will expand on the "digital  lifestyle"  concept developed by the
Company and offers a one-stop  showroom for retailing of Apple  products as well
as products developed by the Company and its newly acquired subsidiary, ISS. The
center also has a training  facility.  The Company  also  expects  revenue to be
generated from the provision of product design consulting services, and the sale
of products and applications developed by ISS.


                                       26
<PAGE>
The Company  will also seek to expand its  business to include the  provision of
biometric security  identification  systems; supply chain management and secured
shipping  services.  In line with this strategy,  the Company has signed several
agreements since the third quarter of 2003 to acquire the equity or business and
assets  of  companies  that it  believes  will  assist  its  expansion  into the
development,  integration  and  provision  of secured  shipping and supply chain
management services. These agreements are described in more detail below.

On July 7, 2004 the Company announced  teaming  agreements with two unaffiliated
entities to  collectively  pursue projects to enable the search and match of DNA
data for newborns and  registered  criminals for use primarily by the Government
of Malaysia.  The project may be developed by a joint venture company led by the
Company. The project may be financed by internally  generated funds.  Additional
financing in the form of a grant may be sought from the  Multimedia  Development
Corporation,   a  Malaysian  Corporation  charged  with  the  responsibility  of
implementing the Multimedia Super Corridor (MSC), a Malaysian initiative for the
global  information and  communication  technology (ICT) industry.  The targeted
completion of the beta version is expected to be 9 months from the  commencement
date.  The  commencement  of field trials is expected to be the beginning of the
10th month, with full commercial implementation targeted for the 21st month.

For its existing  operation,  the Company  anticipates  that it will continue to
seek the rights to new products and services  through  contractual  arrangements
and potentially  through the acquisition of other business entities that provide
compatible  products or services.  The Company expects to continue to market its
products  and services  through a sales force and through its Internet  websites
located at www.digitalapps.net  and www.eystar.com.  As described in more detail
below,  the Company  anticipates that its primary markets will continue to be in
Malaysia  and other Asian  countries.  However,  the Company  continues  to seek
additional  markets in North and South  America  and has  entered  into  various
strategic agreements to improve the acceptance of its products there.

The Company has secured several new contracts to provide hardware,  applications
or  consulting  services.  The  Company  believes  that it will be able to begin
performance  of some of these  contracts  during 2005 and that it will recognize
revenue from these  activities  in 2005.  Due to  uncertainties  in  scheduling,
however,  the Company cannot  forecast the specific dates on which it will begin
performance  of these  contracts.  These  contracts are described in more detail
below.

As a result of the Company's  experience in rolling out the first  VISIONET cell
in  December  2001,  management  decided  that it would be  advantageous  to the
Company to revise its strategy for exploiting its broadband  license  granted by
the Government of Malaysia. The Company determined that it would principally use
the VISIONET  infrastructure  as a  point-to-point  backhaul service provider to
other  broadband  and  telecommunications  providers.  During 2005,  the Company
intends to continue actively  marketing VISIONET as a backhaul service provider,
rather  than as a  telecommunications  company  that  provides  the "last  mile"
service.  In particular,  the Company decided to use VISIONET as a backhaul link
for local mobile networks that it plans to attempt to deploy in partnership with
Aptilo Networks, Sweden. With this change in business strategy, VISIONET will no
longer  provide the last mile link between a cell based radio station and retail
users. The Company will instead construct a wireless highway or backhaul linking
the  cell  based  radio  stations  established  by  existing   telecommunication
companies and ISPs. The Company is hopeful that it will conclude  contracts with
a number of telcos and ISPs on the use of  VISIONET  as a backhaul  link  during
2005.

In  addition,  the  Company  plans  to  continue  its  efforts  to  exploit  the
Application  Service  Provider (ASP) license  granted to its subsidiary  PTSB in
September 2001, by the Malaysian  Communications and Multimedia Commission.  The
ASP license  will  complement  the  wireless  broadband  license  granted to the
Company in June 1997.  As an ASP, PTSB is permitted to offer  enterprise  access
over the Internet to applications and related services that would otherwise have
to be located in their computers.  The Company  anticipates that the ASP service
may become an  attractive  alternative  to locally based  applications  both for
small and medium enterprises with lower budgets for information technology,  and
also for larger companies as a form of outsourcing.

                                       27
<PAGE>
Significant Contracts

For 2005,  the Company hopes to generate  additional  revenue from the contracts
described  below.  This  description  is  intended  to provide the reader with a
description of the principal  activities of the Company that are  anticipated in
2005.  Although the Company provides its current  estimates of the time in which
the  contracts  will be performed,  revenues that may be generated  and/or sales
that  are  projected,  there  can be no  assurance  that the  contracts  will be
performed  as  anticipated  or that  the  revenues  or sales  projected  will be
realized by the Company. The contracts may be terminated,  limited,  breached or
delayed,  may be subject to force majeure  clauses or the obligations to pay for
services  rendered or products  received may not be fulfilled.  The Company does
not undertake to  continually  update its  shareholders  about the status of its
contracts in the absence of a legal obligation to do so.

a)   In August 2001, the Company was awarded a consulting contract, estimated to
     generate revenue of $2.85 million over a three year period,  through August
     2005,  to carry out the  planning,  design,  project  execution  (including
     contract  and  project  management)  of all  broadband  communications  and
     networking   systems/services  for  Pulau  Indah-Marina  Village,  a  water
     oriented luxury resort, residential hotel and spa project. Through December
     31, 2004,  the Company  generated  $1,028,000 of revenue on this  contract.
     During the three and six months ended June 30, 2005, the Company recognized
     additional  revenue of $59,000 and $72,000,  respectively on this contract.
     The Company  recognized  revenue of $157,000  and  $268,000,  respectively,
     during the three and six months  ended June 30,  2004.  Due to delay by the
     main  contractor of the project,  the project cannot be completed by August
     2005 and the Company has agreed to an extension of the contract  period for
     a year to August 2006.

b)   In January 2002, the Company's subsidiary,  PTSB, was awarded a contract to
     carry out the  planning,  design,  and project  execution of all  broadband
     communications  and networking  systems/services  for a  commercial/housing
     project in  Selangor,  Malaysia.  Under the  contract,  PTSB will receive a
     total contract sum of $550,000 over 36 months  beginning  January 2003. The
     project,   featuring   312   serviced   apartments,   62  units  of  retail
     shops/offices  and  120  units  of  housing  for a  government  agency  was
     completed in March 2005. The Company generated  $527,000 of revenue on this
     contract  through  December 31, 2004.  The Company  completed  the contract
     during  the six  months  ended  June 30,  2005 and  recognized  revenue  of
     $23,000.  The Company recognized $89,000 and $150,000 of revenue during the
     three and six months ended June 30, 2004, respectively.

c)   In November  2002, the Company was  contracted by MY Architect  ("MYA"),  a
     related party, to provide consulting  services relating to home automation,
     home networking,  energy cost saving,  security surveillance and monitoring
     for MYA's  current  projects  involving  two major  commercial  and housing
     developments  in  Malaysia.  The Company  expected  to receive  $550,000 in
     consulting fees over the 18 months beginning December 1, 2002. The contract
     was  completed in 2004 and the Company had received the  contracted  sum in
     full.  The Company  recognized  $254,000  of revenue  during the six months
     ended June 30, 2004. The Company is presently  negotiating with the project
     developer to secure additional  contracts,  estimated at $4.0 million,  for
     the  supply  and  installation  of the  EyStar  SmartHome  Console  and its
     security  system  sometime  in the  fourth  quarter  of  2005  in  the  two
     commercial and housing developments.

d)   In April  2003,  the Company  contracted  with MYA to carry out the design,
     supply and installation of all broadband communications, access control and
     network  security  equipment for a mixed  property  development  project in
     Selangor,  Malaysia, which features a total of 10 blocks of residential and
     commercial  high-rise  properties.  The  30-month  contract,   expected  to
     generate  revenue of $3.2 million,  commenced in the third quarter of 2003.
     Through December 31, 2004, the Company  generated  $409,000 of revenue from
     this  contract  and  recognized  additional  revenue of $71,000 and $76,000
     during the three months ended June 30, 2005 and 2004, respectively.  During
     the six months ended June 30, 2005 and 2004,  additional revenue of $81,000
     and $142,000, respectively, was generated from this contract.

e)   In April 2003, the Company was awarded a $9 million contract by MBE for the
     supply of biometric  security products and EyStar SmartHome consoles over a
     three-year period with the first delivery  originally  expected to commence
     in the fourth  quarter of 2003. In December  2003, the Company was informed
     by  MBE  to  postpone  the  delivery  until  further  notice.  Due  to  the
     uncertainty,  revenue that will be realized from this contract  during 2005
     cannot be accurately forecast.

                                       28
<PAGE>
f)   In June 2003,  the  Company  signed a contract  to  implement  a  biometric
     security   recognition  and  identification   system  comprising  hardware,
     software and issuance of security  identity  cards over a ten-year  period.
     The contract, which was expected to commence in the fourth quarter of 2003,
     after the finalizing of technical  specifications  with relevant regulatory
     authorities,  was estimated to generate  revenue of $15 million through the
     first  quarter  of 2005.  To date,  the  technical  specifications  for the
     project have yet to be finalized by the relevant regulatory authorities and
     the  Company has not  received  any  indication  on when the  contract  may
     commence.  Due to the uncertainty,  revenue that will be realized from this
     contract during 2005 may not be accurately forecast.

g)   In June 2003, the Company was awarded a $2.0 million contract to supply and
     install a biometric  security system for access control and time attendance
     in  Malaysia.  The project  was  estimated  to  commence  during the fourth
     quarter of 2003 and be  completed  within  six  months of the  commencement
     date.  The  Company was also  awarded a  maintenance  contract  for 5 years
     thereafter.  This  maintenance  contract begins following the completion of
     the  project  and is  expected  to  generate  annual  recurring  revenue of
     approximately  $250,000. The commencement of this contract has been delayed
     as the construction work on the project's property has yet to be completed.
     In April 2005,  the Company  and the client  agreed to amend the  Company's
     scope  of  work  to  include   only  design,   installation,   testing  and
     commissioning of the biometric  security  system.  The client will purchase
     the required hardware directly from third-party  vendors.  The contract sum
     has been  revised to  $600,000.  The project is now expected to commence in
     September 2005.

h)   In August  2003,  the Company  was awarded an $850,000  contract to supply,
     install and  commission a biometric  based Building  Access  Management and
     Monitoring System for a 40-story office complex in Kuala Lumpur,  Malaysia.
     The system is  designed to enhance  security  through  the  management  and
     monitoring of visitors  within a building  complex or restricted  area. The
     office  complex  is  currently  tenanted  by  government   departments  and
     agencies,  embassies,  corporations and trade missions.  Implementation  of
     this  contract was expected to commence in the first quarter of 2004 and be
     completed by the second  quarter of 2004.  This project has been delayed as
     the Company was informed by the client to postpone  installation work until
     further notice.

i)   In March 2004, the Company's subsidiary,  SDAM, was awarded three contracts
     by a related  party,  with an  aggregate  value of $3.81  million,  for the
     supply  and   installation   of  a  biometric   security  system  in  three
     developments  in  Malaysia.   The  first  is  a  multiple-use  real  estate
     development project,  consisting of 312 apartments and 65 office and retail
     units, located in Shah Alam, Malaysia.  Due to delays in construction work,
     installation  is now anticipated to begin in the second half of 2005 and to
     be completed by the first half of 2006.  The second  development is located
     in  Templar  Park,  Malaysia  consisting  of 208  apartments  and the third
     development  is located in Cheras,  Malaysia  with 240  apartments.  Due to
     delays  in  construction  work,  installation  for  the  second  and  third
     development is anticipated to begin in the fourth quarter of 2005 and to be
     completed by the fourth quarter of 2006. In April 2005, the Company and the
     client agreed to amend the Company's  scope of work to include only design,
     installation,  testing and commissioning of the biometric  security system.
     The client will purchase the required  hardware  directly from  third-party
     vendors. Total contract sum has been revised to $1,150,000.

j)   In April  2004,  the  Company's  subsidiary,  SDAM,  was awarded a contract
     valued  at  $1.9  million  to  deliver  a  biometric   identification   and
     verification  system by the end of the fourth quarter of 2004. The contract
     calls for SDAM to provide a comprehensive  biometric  security system using
     face and fingerprint  recognition  technology for an office complex located
     in Brunei that has 1,200 staff employees.  The system will include controls
     for building access control and employee time  attendance.  Commencement of
     delivery has now been postponed to the second half of 2005.

k)   In May 2004, the Company's subsidiary, Secured Digital Applications (M) Sdn
     Bhd ("SDAM"), was awarded a contract valued at $2.2 million by Master Index
     Sdn  Bhd   ("MISB")   to  deliver,   install   and   maintain  a  biometric
     identification  and  verification  system  for an office  complex  in Kuala
     Lumpur,  Malaysia.  The system was to be  delivered  and  installed  in the
     fourth quarter of 2004. A three-year  maintenance contract will begin after
     installation.  Commencement  of delivery  has been  postponed to the second
     half of 2005.

                                       29
<PAGE>
l)   In June 2004, the Company announced that it was awarded a contract,  valued
     at   $921,000,    to   develop,    implement    and   maintain   a   secure
     business-to-consumer   e-commerce  portal  using  the  Company's  biometric
     security  technology.  Completion  and  implementation  of the  portal  was
     scheduled for December 2004 but has been postponed  until further notice as
     the client  informed the Company that it needed more time to negotiate with
     its intended  business  partners on the features  and  requirements  of the
     portal.  Revenue  to be  generated  from this  contract  in 2005  cannot be
     accurately  forecasted.  The e-commerce  portal will allow only  registered
     members to use the portal for online  purchases and payments.  Members will
     register by providing details of the identity,  credit card information and
     biometric information.  After registration when a member desires to make an
     online   purchase,   their  identity  will  be  verified  and  credit  card
     information  validated.  This system will significantly  reduce the risk of
     fraud and identity theft in online e-commerce transactions.  In addition to
     the contract fee of $921,000,  the Company also expects to generate  annual
     recurring  revenue by receiving a transaction fee for each completed online
     transaction and from a five-year  contract to provide software and hardware
     upgrades plus system maintenance.

m)   In July 2004, the Company  announced it was awarded a $6.7 million contract
     to develop face and fingerprint  authentication for credit card payments to
     be  implemented  in  four  countries  in  Asia.  The  contract  is for  the
     development   and  operation  of  a  Biometrics   (Face  and   Fingerprint)
     Authentication  Center  for  credit  card  payments  in  Thailand,  Brunei,
     Indonesia and Hong Kong.  The objective is to achieve  Zero-Fraud in credit
     card  transactions.  Customers targeted for the project include credit card
     issuers  such as banks and other  financial  institutions,  plus  merchants
     accepting  credit card  payments.  Revenues  will be  generated  from sales
     and/or rental of  Point-of-Sales  terminals  equipped with a USB camera and
     fingerprint reader and from transaction  charges.  The Company is currently
     developing a pilot system for evaluation by the customer.  The trial of the
     pilot system is now expected to commence in the second half of 2005.


Strategic Contractual Relationships

In its  efforts to exploit  broadband  technology,  the  Company  seeks to enter
strategic agreements, both formal and informal, with other providers of goods or
services  that are  compatible  with the  Company's  existing  businesses.  Such
arrangements  include  license  agreements,  requirements  contracts and service
agreements. The Company may also seek to acquire business enterprises that offer
goods and services that are of benefit to the Company and its shareholders.

Beginning in September 2001, the Company entered into a strategic  collaboration
with Aptilo  Networks,  Sweden,  to deploy  local  mobile  networks  ("LMNs") in
Malaysia  and the Asian  regional  markets.  The  Company  anticipates  that the
successful  integration  of LMNs with VISIONET will enable  consumers to receive
live video streams from their  handheld  devices and laptops,  and to access the
Internet and their  corporate  intranets at near T1 speeds  remotely from public
locations  in  the  "travel  ribbon"  such  as  hotels,  airports,  restaurants,
conference  centers,  shopping  malls and  coffeehouses.  The  first  integrated
VISIONET-LMN  cell was deployed  during the fourth  quarter of 2001 to connect a
number of access points to Bluetooth and wireless LAN 802.11b standard  devices.
This mobile network  features  Aptilo's latest billing solution that enables the
Company to offer value-added applications and services to users without the need
for any prior  registration  as a  subscriber.  Any user can now pay for instant
network access to surf the Internet or purchase value-added  applications on the
spot by using their credit card.  The Company is optimistic  that this method of
payment  from Aptilo will  attract  more users to  VISIONET  and reduce  capital
expenditures and monthly operating costs.  Furthermore,  the integrated  network
provides the Company with the ability to expand its broadband network from fixed
wireless  into the mobile  broadband  market.  The Company has  committed  to an
initial  purchase of software and hardware  from Aptilo  valued at $50,000.  The
Company  believes  that this  strategic  relationship  with  Aptilo may  broaden
VISIONET's user base and generate additional revenue in 2005 that is expected to
contribute positively to the Company's cash flow.



<PAGE>
In July  2002,  the  Company  entered  into a  letter  agreement  with  PointRed
Technologies Inc. ("PointRed") whereby the Company has agreed to market and sell
PointRed's products worldwide. In return, PointRed has agreed to market and sell
the Company's EyStar SmartHome  Consoles,  value added applications and services
to its  existing  and  future  clients.  On August 16,  2002,  the  Company  and
PointRed,  pursuant to the original letter agreement dated July 2002,  signed an
agreement whereby the Company will utilize existing  personnel and facilities to
promote  PointRed's  products  and to service  existing  PointRed  customers  in
Malaysia.  Also pursuant to the original letter agreement,  the Company signed a
channel partner  agreement with PointRed,  whereby  PointRed will distribute the
EyStar SmartHome Console.  Under the agreement,  PointRed will sell, install and
service the EyStar SmartHome Console in North and South America.

In December  2002,  the Company's  subsidiary,  SDAM executed an Agreement  with
Sintec Corp,  South Korea  ("Sintec"),  to sell,  distribute  and promote  their
SmileCAM remote video  surveillance  cameras in Malaysia,  Thailand,  Singapore,
Vietnam and Brunei. The agreement is for an initial period of two years and will
thereafter be  automatically  renewable for one-year terms on each  anniversary.
Under the terms of the  agreement,  Sintec  will  grant  the  Company  exclusive
distribution  rights for its  products in Malaysia if the Company  purchases  an
agreed minimum value of products from Sintec during 2003 and 2004. The agreement
with Sintec expired in December 2004 and was automatically renewed for a further
one  year.   SmileCAM   cameras  are  used  for  Internet   based  security  and
entertainment  applications  and can be  integrated  with the  EyStar  SmartHome
Console to provide a value added security solution for corporate and residential
users.  SmileCAM cameras include features such as automatic motion detection and
tracking, and sending live streaming video to an Internet browser. Combined with
applications and solutions  developed by the Company,  the Company believes that
SmileCAM  cameras  offer to  purchasers  useful  features such as the ability to
record intrusion,  owner notification by ordinary telephone,  live video, remote
security options and forwarding of images by use of the Internet.

In December  2002,  the Company's  subsidiary,  SDAM executed an Agreement  with
Telekom  Sales and Services Sdn Bhd ("TM"),  a  subsidiary  of Telekom  Malaysia
Berhad,  to sell,  distribute and promote  broadband access over standard copper
telephone lines using Digital  Subscriber Line  technology.  The service,  brand
named TMnet  Streamyx,  was first  launched in August 2002.  TMnet Streamyx is a
high speed access service providing "always-on" connection to the Internet. This
service currently covers 100 urban locations in Malaysia.  The agreement with TM
was for an initial period of one year and maybe extended for a further period to
be  agreed  by both  parties.  This  agreement  expired  on July 1, 2005 and the
Company has not renewed the  agreement as the  Company's  55% owned  subsidiary,
GIH, is also a distributor of TMnet Streamyx.

In  January  2003,  the  Company  signed  a  Reseller   Agreement  with  FaceKey
Corporation  ("FaceKey")  to  sell  FaceKey's   biometric-based   products.  The
agreement is for one year and will  thereafter  be  automatically  renewable for
two-year terms on each  anniversary.  Under the terms of the agreement,  FaceKey
will  grant the  Company  exclusive  distribution  rights  for its  products  in
Malaysia if the  Company  purchases  an agreed  minimum  value of products  from
FaceKey during 2003.  Although the Company  achieved  minimum sales in 2003, the
agreement  with  FaceKey  was  automatically   renewed  for  another  two  years
commencing  January 2004.  FaceKey develops  products to control access,  record
time and  attendance  and  restrict  use of  personal  computers  by  using  two
biometric  technologies,  face recognition and fingerprint  matching in a manner
that will be highly  competitive with magnetic cards, PIN numbers and passwords.
The  combination  of both  face  and  fingerprint  recognition  technologies  is
believed by the Company to be  extremely  reliable,  providing a security  level
equivalent to a DNA test.

On September 10, 2003, the Company's Malaysian  subsidiary,  SDAM entered into a
letter  agreement to  establish a joint  venture  company,  Temasya Wira Sdn Bhd
("TWSB"),  to  undertake  the  research and  development  of biometric  security
applications.  SDAM will initially hold 60% of TWSB's equity while two Malaysian
individuals  will hold the  remaining  40%.  SDAM's  holding will  eventually be
diluted  to 30%  when  EMI  acquires  30%  equity  interest  in TWSB  after  the
completion of the joint venture agreement to be executed between the Company and
FaceKey Corporation as described below. However, due to disagreement with TWSB's
minority shareholders on the business and financial matters of the joint venture
company,  SDAM  sold its 60%  equity  interest  in TWSB in  December  2004 to an
unrelated  party.  SDAM is presently in the process of identifying  new business
partners for the intended joint venture company.

                                       31
<PAGE>
On September 24, 2003,  the Company  announced  that it had executed a Letter of
Intent to form a joint venture with FaceKey  Corporation  ("FaceKey") to develop
biometric  applications  for the  MyKad  "smart"  national  identification  card
("MyKad")  held by more than 7 million  people in Malaysia.  EMI will be used as
the joint  venture  company  to  develop  a system  and  applications  utilizing
FaceKey's face and  fingerprint  technologies  to verify a live  fingerprint and
face with data stored in a smartcard,  which  permits  retrieval of  information
about   the   cardholder   electronically.   Due  to  some   disagreement   over
implementation  and  operational  issues,  the  Company  and  FaceKey  are still
negotiating  the terms of the definitive  agreement.  The definitive  agreement,
which requires  FaceKey to acquire a 49% equity  interest in EMI, will be signed
only  after  both  parties  have  agreed  on the  terms  of the  development  of
applications for MyKad. EMI will subsequently acquire a 30% equity interest in a
joint venture company to be established  between FaceKey,  the Company and other
Malaysian  companies.  The Company and FaceKey will be jointly  responsible  for
marketing the products globally.

In December 2003, the Company was appointed by Testech Inc. ("Testech") of South
Korea to distribute its biometrics  security  products.  Testech's product range
includes  fingerprint  access control system,  fingerprint  time and attendance,
fingerprint  door lock and  fingerprint  authentication  module.  These products
support  both TCP/IP  protocol and RS422 serial  communication.  Four  different
combinations of  authentication  methods are utilized:  fingerprint,  pin number
with  fingerprint,  pin number with smart card, and fingerprint with smart card.
Testech   holds  a  U.S.   patent  for  contact   light   emitting   fingerprint
authentication  sensor which is used in the above products.  Testech's  products
are  competitively  priced for the mass  market and enable the Company to have a
wider range of  biometrics  security  products  that could be customized to meet
clients' requirements.

In June 2004, the Company  announced plans to conduct a field trial of an online
biometric  payment portal for electronic  commerce and credit card  transactions
using biometric  products and systems developed by its current partner companies
for  identification  and  verification  during the second  half of 2004.  Due to
delays in the  development  work,  the field  trial is not  expected to commence
until the third quarter of 2005. Merchants who sign up as clients of the payment
portal will enroll their customers into the Company's  system.  Thereafter,  the
merchant's  clients when making  purchases will have their identity  verified by
using face and fingerprint biometric  technology.  After authentication of their
identity,  the  transaction  will be processed and payment  approval sought from
banks and credit  card  issuers.  The  Company  intends to  generate  revenue by
charging a fee based on a percentage of the transaction  value executed  through
the  portal.  Implementation  of the portal is  scheduled  for early  2006.  The
initial  deployment  of the  portal  would be for the  Malaysian  and  Singapore
markets  with  subsequent  deployment  across  the  Asia-Pacific  region.  After
successfully  implementing the payment portal for the Asia-Pacific  region,  the
Company intends to introduce a similar portal for the North American market. The
payment portal will be partly funded by internally  generated funds and proceeds
from the private placement of the Company's securities.

COMPARISON  OF THE THREE  MONTHS  ENDED JUNE 30, 2005 TO THE THREE  MONTHS ENDED
JUNE 30, 2004

REVENUES

Revenues for the three months ended June 30, 2005 totaled $7,534,169 compared to
$5,097,490  for the three months ended June 30, 2004,  an increase of $2,436,679
or 48%.  The  increase in net sales in the three  months  ended June 30, 2005 as
compared to the same period in 2004 was mainly due to an increase in fees earned
from the  production of multimedia  programs.  Included in revenue for the three
months  ended  June 30,  2005 and 2004 was  income  of  $130,106  and  $400,000,
respectively,  received  from a  related  party  for  project  consulting  fees.
Revenues  for the three  months  ended  June 30,  2005 also  included  income of
$969,499 or 13% of total revenue, generated by the Gallant subsidiaries. For the
three months ended June 30, 2005,  two  customers  accounted  for 42% and 41% of
total  revenue,  respectively.  For the three months  ended June 30,  2004,  two
customers, respectively, accounted for 44% and 47% of total revenue.

                                       32
<PAGE>
GROSS PROFIT

Gross  profit  increased  to $664,120  for the three months ended June 30, 2005,
compared to $600,946 for the three  months  ended June 30, 2004,  an increase of
$63,174 or 11%. The increase in gross profit was primarily due to higher revenue
in 2005. As a result of higher revenue, cost of revenue increased by $2,373,505,
or 53%, to $6,870,049 in 2005 from  $4,496,544 in 2004. The high cost of revenue
percentage is a result of the Company requiring additional external resources in
order to fulfill  the demand for the  Company's  services.  The  outsourcing  of
content  production  work  enabled the Company to develop a team of  contractors
that will assist the Company in producing  multimedia  content and  applications
that are crucial to its future business operation.

SALES AND MARKETING EXPENSES

Sales and  marketing  expenses  increased by $8,851 or 267%,  to $12,172 for the
three months  ended June 30, 2005  compared to $3,321 for the three months ended
June 30, 2004. Higher sales and marketing  expenses in 2005 was primarily due to
higher promotion  expenses  incurred by the Gallant  subsidiaries and travelling
expenses incurred to introduce the Company's biometric products to customers and
resellers in Malaysia.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  were  $451,477 for the three months ended
June 30, 2005, compared to $294,573 for the three months ended June 30, 2004, an
increase of $156,904 or 53%. The increase in general and administrative expenses
was  mainly   attributable  to  additional  expenses  incurred  by  the  Gallant
subsidiaries  and higher  expenses  incurred for consulting  fees,  compensation
expenses,  public  relations  services,  maintenance  expenses and higher rental
expenses.   The  Gallant  subsidiaries'  general  and  administrative   expenses
contributed  $174,105 or 38% of total  general and  administrative  expenses for
2005.

INTEREST EXPENSE

Interest expense increased by $21,011 or 460%, to $25,578 for three months ended
June 30, 2005 as compared to $4,567 for the three  months  ended June 30,  2004.
Interest  expense for the three  months  ended June 30,  2005,  included  $7,554
related to a $500,000  convertible  term note issued on June 4, 2004 and $16,638
incurred by the Gallant subsidiaries.  These accounted for approximately 30% and
65%, respectively, of total interest expense for the three months ended June 30,
2005.

GAIN ON DISPOSAL OF ASSETS, RELATED PARTY

Gain on disposal of assets,  related party,  for the three months ended June 30,
2005 and 2004 included  recognition of a previously deferred gain of $31,974 and
$100,000,  respectively,  related to a similar amount the Company  received from
its  long-term  receivable,  related  party.  The  receivable  balance and total
deferred gain was $309,584,  respectively,  as of December 31, 2004. This amount
arose in the year ended  December  31, 1998 when the Company sold assets used in
the operations of a subsidiary to a related  company.  Due to the uncertainty of
collection of the related receivable, the related gain on the sale of the assets
was deferred and is to be  recognized  only after all costs have been  recovered
and as payments are received.  During the year ended December 31, 2002, payments
received  by the  Company  exceeded  all  remaining  costs.  As a result of cash
payment received, the Company's long-term receivable, related party and deferred
gain balances were reduced to $263,926 respectively, as of June 30, 2005.

INCOME FROM CONTINUING OPERATIONS

The Company recorded income from continuing operations of $220,324 for the three
months ended June 30,  2005,  as compared to $316,894 for the three months ended
June 30, 2004. Income from continuing operations for the three months ended June
30,  2005 and 2004  included  recognition  of a  deferred  gain of  $31,974  and
$100,000, respectively. Excluding these non-recurring transactions, the recorded
income  from  continuing  operations  would  have been  $188,350  and  $216,894,
respectively, for the three-month periods ended June 30, 2005 and 2004.

                                       33
<PAGE>
COMPARISON  OF THE SIX MONTHS  ENDED JUNE 30, 2005 TO THE SIX MONTHS  ENDED JUNE
30, 2004

REVENUES

Revenues for the six months ended June 30, 2005 totaled $14,054,523  compared to
$9,460,464  for the six months ended June 30, 2004, an increase of $4,594,059 or
49%. The increase in net sales in the six months ended June 30, 2005 as compared
to the same period in 2004 was mainly due to an increase in fees earned from the
production of multimedia programs.  Included in revenue for the six months ended
June 30,  2005 and 2004 was  income  of  $175,895  and  $814,475,  respectively,
received from a related party for project consulting fees.  Revenues for the six
months ended June 30, 2005 also  included  income of  $1,981,303 or 14% of total
revenue,  generated by the Gallant  subsidiaries.  For the six months ended June
30,  2005,  two  customers,  each  accounted  for 42% and 41% of total  revenue,
respectively.   For  the  six  months  ended  June  30,  2004,   two  customers,
respectively, accounted for 45% and 46% of total revenue.

GROSS PROFIT

Gross  profit  increased to  $1,254,655  for the six months ended June 30, 2005,
compared  to $999,322  for the six months  ended June 30,  2004,  an increase of
$255,333  or 26%.  The  increase  in gross  profit was  primarily  due to higher
revenue in 2005.  As a result of higher  revenue,  cost of revenue  increased by
$4,338,726,  or 51%, to  $12,799,868  in 2005 from  $8,461,142 in 2004. The high
cost of  revenue  percentage  is a result of the  Company  requiring  additional
external  resources in order to fulfill the demand for the  Company's  services.
The outsourcing of content production work enabled the Company to develop a team
of contractors that will assist the Company in producing  multimedia content and
applications that are crucial to its future business operation.

SALES AND MARKETING EXPENSES

Sales and  marketing  expenses  increased by $21,442 or 267%, to $29,460 for the
six months ended June 30, 2005  compared to $8,018 for the six months ended June
30,  2004.  Higher sales and  marketing  expenses in 2005 was  primarily  due to
higher promotion  expenses  incurred by the Gallant  subsidiaries and travelling
expenses incurred to introduce the Company's biometric products to customers and
resellers in Malaysia.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative  expenses were $881,902 for the six months ended June
30,  2005,  compared  to $573,914  for the six months  ended June 30,  2004,  an
increase of $307,988 or 54%. The increase in general and administrative expenses
was  mainly   attributable  to  additional  expenses  incurred  by  the  Gallant
subsidiaries  and higher  expenses  incurred for consulting  fees,  compensation
expenses,  public  relations  services,  maintenance  expenses and higher rental
expenses.   The  Gallant  subsidiaries'  general  and  administrative   expenses
contributed  $295,032 or 33% of total  general and  administrative  expenses for
2005.

INTEREST EXPENSE

Interest  expense  increased by $46,398 or 593%, to $54,225 for six months ended
June 30,  2005 as  compared  to $7,827 for the six months  ended June 30,  2004.
Interest  expense  for the six months  ended  June 30,  2005,  included  $16,122
related to a $500,000  convertible  term note issued on June 4, 2004 and $35,111
incurred by the Gallant subsidiaries.  These accounted for approximately 30% and
65%,  respectively,  of total interest expense for the six months ended June 30,
2005.

                                       34
<PAGE>
GAIN ON DISPOSAL OF ASSETS, RELATED PARTY

Gain on disposal of assets,  related  party,  for the six months  ended June 30,
2005 and 2004 included  recognition of a previously deferred gain of $45,658 and
$207,258,  respectively,  related to a similar amount the Company  received from
its  long-term  receivable,  related  party.  The  receivable  balance and total
deferred gain was $309,584,  respectively,  as of December 31, 2004. This amount
arose in the year ended  December  31, 1998 when the Company sold assets used in
the operations of a subsidiary to a related  company.  Due to the uncertainty of
collection of the related receivable, the related gain on the sale of the assets
was deferred and is to be  recognized  only after all costs have been  recovered
and as payments are received.  During the year ended December 31, 2002, payments
received  by the  Company  exceeded  all  remaining  costs.  As a result of cash
payment received, the Company's long-term receivable, related party and deferred
gain balances were reduced to $263,926 respectively, as of June 30, 2005.

INCOME FROM CONTINUING OPERATIONS

The Company  recorded income from continuing  operations of $386,738 for the six
months  ended June 30,  2005,  as compared to $500,788  for the six months ended
June 30, 2004.  Income from continuing  operations for the six months ended June
30,  2005 and 2004  included  recognition  of a  deferred  gain of  $45,658  and
$207,258, respectively. Excluding these non-recurring transactions, the recorded
income  from  continuing  operations  would  have been  $341,080  and  $293,530,
respectively, for the six-month periods ended June 30, 2005 and 2004.



LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2005, the Company had net cash of $84,743, and restricted cash of
approximately $6,100,000 from the sale of securities to a Master Fund.

On May 28, 2004,  the Company  entered into  agreements  with the Master Fund to
secure a $7.0 million funding through private placement of securities consisting
of a convertible term note,  convertible  preferred stock issued by a subsidiary
corporation,  SDA America,  Inc.,  and warrants to purchase  common stock of the
Company. The Company secured from the Master Fund:


a)   $500,000  funding through the sale of a Convertible  Term Note (the "Note")
     in the principal  amount of $500,000,  which is convertible  into shares of
     the Company's  common stock at a fixed  conversion price of $0.20 per share
     and  warrants  to  purchase up to 300,000  shares of the  Company's  common
     stock. The term note has a three-year term and a coupon at a rate per annum
     equivalent  to the "prime rate"  published in The Wall Street  Journal from
     time to time  plus 2%,  subject  to a floor of 6% per  annum.  The  monthly
     interest  will be  adjusted  downward  based on a  minimum  increase  of 25
     percent of the price of the common stock above the  conversion  price.  The
     warrants  have a seven-year  term and an exercise  price of $0.40 per share
     for the first 100,000 shares, $0.43 per share for the second 100,000 shares
     and $0.47 per share for the third 100,000 shares.

b)   $6,500,000  funding  through  the  sale of  6,500,000  shares  of  Series A
     Convertible  Preferred  Stock (the "Series A  Preferred")  of the Company's
     wholly owned subsidiary,  SDA America,  Inc. ("SDAA"),  at a price of $1.00
     per share,  which is convertible  into shares of the Company's common stock
     and warrants to purchase up to  3,000,000  shares of the  Company's  common
     stock.  The Series A  Preferred  is  entitled  to  cumulative  preferential
     dividends at a rate per annum  equivalent to the "prime rate"  published in
     The Wall Street Journal from time to time plus 2%, subject to a floor of 6%
     per annum.  The warrants  have a seven-year  term and an exercise  price of
     $0.40 per share for the  first  1,000,000  shares,  $0.43 per share for the
     second 1,000,000 shares and $0.47 per share for the third 1,000,000 shares.

                                       35
<PAGE>
Pursuant to  amendments  to the  agreements  governing the terms of the Series A
Preferred  in August 2004 and April 2005,  the Master Fund may convert a portion
of the  Note and  Series  A  Preferred  as  follows:  the  first  $2,000,000  of
conversions have been reset to a price equal to 85 percent of the average of the
five  lowest  closing  prices  during the 22  trading  days prior to the date of
conversion  (whether as principal  repayment  or accrued and unpaid  interest or
dividends),  subject to a minimum  conversion price of $0.07 per share; the next
$1,000,000  of  conversions  have been reset to a price of $0.25 per share.  The
remaining  conversions  permitted  under  the terms of the  original  securities
issuance will remain  unchanged at $0.35 per share. In addition to resetting the
conversion prices for a portion of the transaction,  the amendments provide that
all dividend and interest  payments  payable under the investment  would accrue,
rather than be payable in cash,  until the next  conversion  into  common  stock
occurs.  The  amendments  provide  for a waiver of cash  payments of interest or
dividends due prior to the execution of the amendments, with any such amounts to
be  accrued  to the  amounts  payable  under  the  terms of the Note or Series A
Preferred.

Pursuant to the Securities  Purchase  Agreement  between the Master Fund and the
Company and a restricted  account  agreement  entered  into by the Company,  the
Master  Fund and a US bank,  the  $6,500,000  investment  was  deposited  into a
restricted  account as  security  for the  performance  of the  Company  and its
subsidiaries' obligations to the Master Fund. The proceeds, which are restricted
to making  acquisitions  of other  companies  that meet agreed to  criteria  for
sales,  profitability  and  accounting  standards,  may  be  released  from  the
restricted account at such time the preferred stock is converted into the common
stock of the Company pursuant to the relevant transaction documents.

Pursuant to Amendment No. 2 to the SPA executed on November 15, 2004, the Master
Fund agreed to remove the Listing  Condition from the SPA. As consideration  for
the removal of the Listing Condition,  the Company agreed to issue to the Master
Fund warrants to purchase  1,300,000  shares of the Company's  common stock. The
warrants have a seven-year term and an exercise price of $0.35 per share.

On April 25,  2005,  the Company and the Master Fund  executed an  amendment  to
certain  agreements  governing  the  terms  under  which  the Note and  Series A
Preferred  issued to the Master Fund could be converted into the common stock of
the Company. Under the terms of the amendment, the Master Fund could convert the
remaining Note and the first  $2,000,000  Series A Preferred at a price equal to
85  percent of the  average  of the five  lowest  closing  prices  during the 22
trading days prior to the date of conversion  (whether as principal repayment or
accrued and unpaid interest or dividends), subject to a minimum conversion price
of $0.07 per share and subject to certain contingent conversion terms.

A summary of the status of the discounted  principal and interest  amount of the
Notes from January 1, 2005 and through August 1, 2005 is presented below:
<TABLE>
<CAPTION>
                                              Total         Interest         Principal        Discount            Net
                                        ----------------  -------------- ---------------- ----------------- --------------
<S>                   <C>                       <C>               <C>            <C>              <C>               <C>
Balance as of January 1, 2005           $       426,470   $          --  $       426,470  $         40,855  $     385,615
Interest through June 30, 2005                   16,208          16,208               --                --             --
Conversion in April 2005 (a)                    (52,770)         (8,653)         (44,117)           (4,226)       (39,891)
Conversion in May 2005 (b)                      (17,412)         (2,707)         (14,705)           (1,408)       (13,297)
Conversion June 1, 2005 (c)                     (17,249)         (2,544)         (14,705)           (1,408)       (13,297)
Conversion June 16, 2005 (d)                    (14,705)             --          (14,705)           (1,407)       (13,298)
                                        ----------------  -------------- ---------------- ----------------  -------------
Balance as of June 30, 2005                     340,542           2,304          338,238            32,406        305,832
Conversion July 12, 2005 (e)                    (20,445)         (2,304)         (18,141)           (1,740)       (16,401)
Interest for July 2005                            2,173           2,173               --                --             --
                                        ----------------  -------------- ---------------- ----------------  --------------
Balance as of August 1, 2005 (f)        $       322,270   $       2,173  $       320,097  $         30,666  $     289,431
                                        ================  ============== ================ ================= ==============
</TABLE>

a)   On April 25, 2005, the Master Fund converted $39,891  discounted  principal
     of the note and  $8,653  of  accrued  interest  to  383,701  shares  of the
     Company's common stock.
b)   On May 5, 2005, the Master Fund converted $13,297  discounted  principal of
     the note and $2,707 of accrued  interest to 140,311 shares of the Company's
     common stock.

                                       36
<PAGE>
c)   On June 1, 2005, the Master Fund converted $13,297 discounted  principal of
     the note and $2,544 of accrued  interest to 163,132 shares of the Company's
     common stock.
d)   On June 16, 2005, the Master Fund converted $13,298 discounted principal of
     the note to 147,649 shares of the Company's common stock.
e)   On July 12, 2005, the Master Fund converted $16,401 discounted principal of
     the note and $2,304 of accrued  interest to 250,000 shares of the Company's
     common stock.
f)   On August 1, 2005, the Company repaid the entire outstanding balance of the
     Note and redeemed the convertible preferred stock of a subsidiary.

A summary of the status of the Series A  Preferred  and  dividend  thereon  from
January 1, 2005 and through  August 1, 2005 (at which time the Company  redeemed
the Series A Preferred) is presented below:
<TABLE>
<CAPTION>
                                         Total        Dividend      Series A       Amount        Issue           Net
                                                                      Stated      Allocated to    Costs        Carrying
                                                                      Amount       Warrants                     Value
                                      -------------  -----------  --------------  -----------   ----------  -------------
<S>                   <C>                   <C>            <C>          <C>             <C>          <C>          <C>
Balance as of January 1, 2005         $   6,238,563  $   238,563  $    6,000,000  $   479,000  $   364,833  $   5,156,167
Dividend through June 30, 2005              223,663      223,663              --           --           --             --
                                      -------------  -----------   -------------  -----------  ------------ -------------
Balance as of June 30, 2005               6,462,226      462,226       6,000,000      479,000      364,833      5,156,167
Dividend for July 2005                       39,874       39,874              --           --           --             --
                                      -------------  -----------   -------------  -----------  ------------ -------------
Balance August 1, 2005                $   6,502,100  $   502,100  $    6,000,000  $   479,000  $   364,833  $   5,156,167
                                      =============  ===========  ==============  ===========  ===========  =============
</TABLE>
On August 1, 2005,  the Company  entered into an  agreement  whereby it waived a
limitation  on the  number of shares  that  could be  converted  and held by the
Master Fund in order to permit conversions by the Master Fund under the Note and
Series A Preferred  into  9,756,098  shares of common stock.  The conversion was
made in  connection  with an agreement,  also dated August 1, 2005,  whereby the
Master Fund agreed to accept  $800,000,  payable in common stock, and $6,343,000
in cash (of which $6,105,000 represented restricted cash), in consideration for
the early repayment of the Note and redemption of the Series A Preferred.

The following table  summarizes the August 1, 2005  transaction  with the Master
Fund:
<TABLE>
<CAPTION>
                                               Total           Interest/        Discounted
                                                               Dividend         Principal/
                                                                                 Series A
                                                                                 Carrying
                                                                                  Amount

                                          ---------------  ----------------- ----------------
Balance as of August 1, 2005
<S>                                              <C>              <C>               <C>
 Term note                                $       291,604  $          2,173   $      289,431
 Series A Preferred                             5,658,267           502,100        5,156,167
                                          ---------------- -----------------  ---------------
 Total                                          5,949,871  $        504,273   $    5,445,598
Paid from restricted cash                      (6,105,138) =================  ===============
Cash payment                                     (238,390)
Common stock issued (a)                          (800,000)
                                          ----------------
Early payment/redemption penalty (b)      $    (1,193,657)
                                          ================
</TABLE>
a)   9,756,098 shares of common stock issued at a price of $0.082 per share.
b)   The  August 1, 2005  transaction  resulted  in an early  payment/redemption
     penalty of  approximately  $1,194,000,  of which  approximately  $47,000 is
     attributable to interest  expense and $1,147,000  represents a reduction to
     net income applicable to common shareholders,  and which is recorded in the
     quarter ending September 30, 2005.

                                       37
<PAGE>
For the six  months  ended  June 30,  2005,  all  operations  were  funded  from
internally generated funds. The Company's principal shareholder, Chief Executive
Officer ("CEO"), Chairman and Director, Mr. Lim, will continue making short term
advances  to fund the  Company's  working  capital  requirement  should the need
arise. As of June 30, 2005, the Company owed Mr. Lim $68,410.  Additionally,  as
of June 30, 2005, the Company owed an affiliated Company, in which Mr. Lim has a
financial interest, $75,246 for short-term cash advances made to a subsidiary of
the Company for working  capital  purposes from time to time and for  management
fees.  These amounts are unsecured,  bear no interest and have no fixed terms of
repayment.

On May 25,  2004,  the  Company  executed a share  exchange  agreement  with its
Chairman  and  Chief  Executive  Officer,  Mr.  Patrick  Lim,  whereby  Mr.  Lim
surrendered  8,000,000  shares of the  Company's  common  stock in exchange  for
100,000  shares  of the  Company's  newly  created  Series A Voting  Convertible
Preferred Stock (the "Voting  Preferred"),  which was convertible into shares of
common stock at a fixed ratio of 80 shares of common stock for 1 share of Voting
Preferred  stock.  The  8,000,000  shares  were  returned  to  treasury  and are
available  for  re-issuance  at a future date.  The Voting  Preferred  stock was
entitled to cumulative  dividends at $2.20 per annum, payable in common stock at
$.28 per share. On May 3, 2005, Mr. Lim and the Company executed an amendment to
the  Certificate of Designation of Series A Voting  Convertible  Preferred Stock
governing  payment of dividend on the Voting  Preferred.  Under the terms of the
amendment, Mr. Lim would have the option of receiving the dividend on the Voting
Preferred either in cash or shares of the Company's common stock.  Each share of
the Voting  Preferred was entitled to voting  rights  equivalent to 80 shares of
common  stock.  The Series A preferred  was subject to mandatory  conversion  10
years after its issuance.

A summary of the status of the  Voting  Preferred  and  dividend  accrued  since
January 1, 2005 and changes through August 1, 2005 is presented below:

                                        Total          Dividend          Stated
                                                                         Amount
                                   -------------  ---------------  -----------
Balance as of January 1, 2005      $     138,332  $       128,332  $      10,000
Dividend through June 30, 2005           110,000          110,000             --
                                   -------------  ---------------  -------------
Balance as of June 30, 2005              248,332          238,332         10,000
Dividend for July 2005                    18,333           18,333             --
                                   -------------  ---------------  -------------
Balance August 1, 2005             $     266,665  $       256,665  $      10,000
                                   =============  ===============  =============

On August 3, 2005,  the  Company's  Chairman and Chief  Executive  Officer,  Mr.
Patrick Lim,  converted  the entire  100,000  shares of the  Company's  Series A
Voting Convertible  Preferred Stock into 8,000,000 shares of common stock, which
resulted in a  reclassification  of the $10,000 from the stated amount to $80 of
common stock and $9,920  additional-paid-in  capital.  In addition,  the Company
paid the $256,665 dividend due to Mr. Lim in cash in August 2005.

Cash used in operating  activities of $219,577 for the six months ended June 30,
2005 was mainly  attributable to higher operating  expenses,  higher general and
administrative expenses and higher accounts receivable.

Net cash used in investing  activities  of $24,794 was mainly due to purchase of
equipment.

Net cash provided by financing activities of $93,204 was primarily due to higher
bank  borrowings  and proceeds  from  issuance of common stocks in exercising of
employees stock options.

In addition to internally  generated funds and financial support from a director
and major  shareholder,  the  Company  may seek to raise  additional  funds from
equity or debt financing for its future working capital requirements. As of June
30, 2005, the Company has furniture and equipment of approximately  $1.3 million
for the roll out of its portal,  build-out of VISIONET and implementation of its
business plan. The Company  estimates that it would require  additional  capital
expenditures  of up to $2.0 million to implement  its business  plan to become a
total system  solution  provider  involved in application  development,  network
operation,  delivery of value added  applications and services;  and sale of its
EyStar SmartHome Console.  The Company has also committed to an initial purchase
of software and hardware  valued at $50,000 in  conjunction  with its  announced
strategic collaboration with Aptilo Networks, Sweden.

                                       38
<PAGE>
The Company will also be expanding into new businesses that include provision of
secured  shipping and supply chain management  services.  The Company expects to
incur  further  expenses  to  acquire   companies  and  technologies   that  are
synergistic  to the new  businesses and will help the Company to rollout the new
businesses  in the shortest  time  possible.  During 2003 and 2004,  the Company
incurred  $263,000 in the  establishment and acquisition of new subsidiaries and
associates  relating to its new businesses.  Some of these  acquisitions did not
work out well and the Company has sold some of these companies, whose operations
and management were not compatible with the Company's business plan in 2004. For
2005,  the Company  estimates  that it will incur an additional  $2.1 million to
identify,  negotiate and acquire the  businesses  and/or net assets in companies
synergistic to its planned new businesses.  In addition,  the Company  estimates
that it will  require a further  $2.0  million to finance the set-up cost of its
new  businesses.  The Company  also  expects that it will require a further $2.0
million to finance the working  capital of its new  businesses and the operation
of its newly acquired and/or established subsidiaries and associates.

On July 7, 2004 the Company announced  teaming  agreements with two unaffiliated
entities to  collectively  pursue projects to enable the search and match of DNA
data for newborns and  registered  criminals for use primarily by the Government
of Malaysia.  The project may be developed by a joint venture company led by the
Company. The project may be financed by internally  generated funds.  Additional
financing in the form of a grant may be sought from the  Multimedia  Development
Corporation,   a  Malaysian  Corporation  charged  with  the  responsibility  of
implementing the Multimedia Super Corridor (MSC), a Malaysian initiative for the
global information and communication technology (ICT) industry.

The  Company  will also expand its  business in ICT trading  through the Gallant
Group of companies.  On March 28, 2005,  the Company  announced the opening of a
second Apple retail center in the Hartamas  Shopping  Centre in Sri Hartamas,  a
suburb of Kuala  Lumpur,  Malaysia.  The new outlet will expand on the  "digital
lifestyle"  concept  developed by the Company and offers a one-stop showroom for
retailing of Apple products as well as products developed by the Company and its
subsidiary  Innospective  Sdn Bhd  ("ISS").  The  expansion  of the ICT  trading
business is expected to be financed by internal funds and bank borrowings.

In private placement exercises in July 2005, the Company issued 5,791,463 shares
of its common stock to ten investors at an aggregate purchase price of $474,900.
The Company also issued  4,948,346  shares of its common stock to five investors
at an aggregate  purchase  price of $428,200 and reissued  609,756 shares of its
common  stock from  treasury  to an  investor  for cash of  $50,000,  in private
placement  exercises in August 2005. Total proceeds from the private  placements
of  $953,100  were  utilized  in  connection  with the August  2005  Master Fund
redemption,  as discussed  above.  The stock was priced at 85% of the average of
the five lowest closing prices of the common stock during the twenty-two trading
days prior to the closing date, as reported by Bloomberg News Services, which at
the various time of issuance was ranging from $0.082 to $0.087.

The Company will continuously evaluate its financing requirements and may decide
to consider alternative modes of financing.

                                       39
<PAGE>
Contractual Obligations:
                                                        Payment due by period
                                                    ----------------------------
                                                        Less than
                                        Total            1 year      1 - 5 years
                                   ---------------  ---------------  -----------
Capital lease obligations          $        58,128  $        43,403  $    14,725
Convertible term note obligations  $       305,832  $       305,832  $        --
Bank borrowings                    $     1,124,831  $     1,025,321  $    99,510
Operating lease commitments        $       330,100  $       161,500  $   168,600


ITEM 3. CONTROLS AND PROCEDURES

As of  the  end of  the  period  covered  by  this  report,  we  carried  out an
evaluation,  under the supervision and with the participation of our management,
including our Chief Executive  Officer and our Chief Financial  Officer,  of the
effectiveness of the design and operation of the Company's  "disclosure controls
and procedures" (as defined in Rule 13a-15(e) under the Securities  Exchange Act
of 1934, as amended).  Based upon that evaluation,  our Chief Executive  Officer
and our Chief  Financial  Officer  concluded  that our  disclosure  controls and
procedures are effective to ensure that information  required to be disclosed by
us in  reports  that we file or submit  under  the  Exchange  Act are  recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Securities  and Exchange  Commission  (the "SEC")  rules and forms,  and include
controls  and  procedures  designed  to ensure that  information  required to be
disclosed  by  us in  such  reports  is  accumulated  and  communicated  to  our
management,  including  our Chief  Executive  Officer  and our  Chief  Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during
the quarter ended June 30, 2005 that has materially  affected,  or is reasonably
likely to materially affect, our internal control over financial reporting.

                                       40
<PAGE>
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On May 31, 2005,  the Company  commenced an action in the Superior Court of
New Jersey,  Chancery  Division,  Union County seeking to enjoin the exchange of
shares  of Kalan  Gold  Corp.,  held by  Michael  Gillies,  into  shares  of the
Company's  common  stock.  The Company  alleges that the shares were  improperly
issued by Kalan,  predecessor  to the Company,  to Gillies,  a  consultant.  The
Company obtained, with the consent of the parties, a temporary restraining order
prohibiting the exchange of the shares.  Mr. Gillies has not, however,  filed an
answer to the  complaint  and the Company  has moved for entry of  default.  The
Company has also issued a capital call to Mr. Gillies for the amount it believes
is unpaid on the  shares.  The  Company  presently  intends to cancel the shares
issued to Mr. Gillies if it is successful in the pending litigation.


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

     None


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.


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

     None.


ITEM 5. OTHER INFORMATION

     None.


ITEM 6. EXHIBITS

     (a) Exhibits

        31.1    Certification by Chief Executive Officer pursuant to Rule 13A-14
                or 15D-14 of the Securities Exchange Act of 1934

        31.2    Certification by Chief Financial Officer pursuant to Rule 13A-14
                or 15D-14 of the Securities Exchange Act of 1934

        32.1    Certification  by Chief Executive  Officer pursuant to 18 U.S.C.
                1350

        32.2    Certification  by Chief Financial  Officer pursuant to 18 U.S.C.
                1350

                                       41
<PAGE>
                                   SIGNATURES

        In accordance  with the  requirements of the Securities and Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                    SECURED DIGITAL APPLICATIONS, INC.

                                            (Registrant)



DATE: AUGUST 15, 2005                     BY: /s/ Patrick Soon-Hock Lim
                                          ------------------------------
                                          Patrick Soon-Hock Lim
                                          Chairman & Chief Executive Officer



DATE: AUGUST 15, 2005                     BY: /s/ Chee Hong Leong
                                          -----------------------
                                          Chee Hong Leong
                                          Chief Financial Officer
                                          (Principal Financial Officer and
                                          Principal Accounting Officer)


                                       42