SIVAULT SYSTEMS, INC. (SVTLQ) - Description of business

Company Description
5 2. Description of Property 20 3. Legal Proceedings 20 4. Submission of Matters to a Vote of Security Holders 20 PART II 5. Market for Common Equity and Related Stockholder Matters 21 6. Management's Discussion and Analysis or Plan of Operation 23 7. Financial Statements 35 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 35 8A. Controls and Procedures 35 8B. Other Information 36 PART III 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 37 10. Executive Compensation 43 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 46 12. Certain Relationships and Related Transactions 48 13. Exhibits 49 14. Principal Accountant Fees and Services 50 Index to Consolidated Financial Statements 3 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements can be identified by the use of forward-looking terminology such as "expects", "anticipates", "intends", "believes" and similar language, or the negatives thereof, and discussions of our strategy, future revenues and future costs. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may differ materially from those anticipated or projected by any forward-looking statements. Some of the factors that might cause or contribute to such differences include those discussed in Item 6. Management's Discussion and Analysis or Plan of Operation." Unless the context otherwise requires, all references in this report to (i) "we", "us" or the "Company", or words of similar import, refer to SiVault Systems, Inc., a Nevada corporation, together with its subsidiaries and (ii)share information reflect a 4:1 forward stock split effected in August 2000 and a 1:20 reverse stock split effected in June 2004. 4 PART I ITEM 1. DESCRIPTION OF BUSINESS. RECENT DEVELOPMENTS The following significant events occurred during the fiscal year ending June 30, 2005 and subsequent to the year then ending: SIVAULT ANALYTICS AND VIAQUO ACQUISITION; NAME CHANGE In July 2004, we completed the acquisition of SiVault Analytics Inc. ("SiVault Analytics"), a private Delaware corporation that provides secure storage and retrieval of signed documents and biometric signature-based authentication for processing of online transactions. Its services are designed to be compliant with regulations and standards in the retail and healthcare industries for authentication, authorization, transmission and storage of data. The acquisition was completed by means of a share exchange in which we issued 4,000,000 of our shares of common stock to the stockholders of SiVault Analytics in exchange for all of the outstanding stock of SiVault Analytics. Our shares were valued in the transaction at $1.80 per share (market price as of July 9, 2004), or $7,200,000 in the aggregate. We issued 140,000 of our common shares valued at $1.60 as finders fees in conjunction with this acquisition. Following the acquisition, we merged SiVault Analytics into our company and changed the name of our company to SiVault Systems, Inc. and our stock trading symbol to SVTL.OB. On November 30, 2004, the Company completed the acquisition of all the principal assets of Viaquo Corporation ("Viaquo"). Viaquo was a leading developer of computer security technology. Pursuant to the deal, the Company purchased substantially all of assets of Viaquo related to Viaquo's ViaSeal Access Control Business, including physical equipment, technology, products and intellectual property, in exchange for 3,050,000 shares of the Company's restricted common stock valued at $2.35 per share (average market price for the four trading days around November 30, 2004), of which 750,000 of the shares were issued and delivered to Viaquo at closing; 2,050,000 of the shares were placed in escrow to be held until the earlier to occur of (i) the issuance of a U.S. Patent for certain U.S. Patent Applications acquired by SiVault, or (ii) the abandonment by SiVault of the U.S. Patent Application following final rejection thereof by the U.S. Patent and Trademark Office; and the remaining 250,000 shares were placed in escrow to be held until the earlier to occur of (1) the issuance by the European Patent Office ("EPO") of a decision to grant a European Patent with respect to an European Patent Application acquired by SiVault, or (ii) the abandonment by SiVault of European Patent Application following a final refusal by ELP to grant the European Patent. The core technology and intellectual property purchased represents Viaquo's patent pending ViaSeal(TM) security technology. ViaSeal provides cryptographic protection of electronic data for distribution or access by multiple parties. 5 NEW MANAGEMENT AND APPOINTMENT OF BOARD OF ADVISORS Following the SiVault Analytics acquisition, certain principals and management of SiVault Analytics were elected as members of our management and Board of Directors. Emilian Elefteratos was elected President and Chief Executive Officer, Igor J. Schmidt was elected Chief Strategy Officer, Steven Pollini was elected Vice President-Engineering and Operations and Alexander Gelf was elected Vice President-Analytics. Effective August 6, 2004, Messrs. Elefteratos and Schmidt were elected directors of our company. Effective August 24, 2005, Mssrs. David Dalton and Gerard Munera resigned from the Company's Board of Directors and Mr. John Mahoney was appointed to the Board of Directors. Effective September 1, 2005, Mssrs Gil Amelio and Emilian Elefteratos resigned as a member of the Board and on September 16, 2005, Mr. Anthony Low Beer was appointed to the Board. Effective November 21, 2005, Mr. Orhan Sadik-Khan and Mr. Michel Kadosh were appointed to the Board of Directors. Effective November 21, 2005, John Mahoney was named acting Chief Executive Officer, Anthony Low-Beer was named Chairman of the Board; Mr. Wayne Taylor will continue as Chief Financial Officer of the Company. RESTRUCTURING OF DEBT The Company recently commenced a program to restructure its debt. The restructuring of Company debt, and debt of its wholly-owned subsidiary, Lightec Communications, Inc., is expected to be completed by the end of the fiscal year ending June 30, 2006. Restructuring of Longview Debt. The Company and three Longview Funds ("Longview") have agreed to restructure $2,588,237 of Longview Convertible Notes as follows. All outstanding debt of the Comany to Longview to be restructured as follows: (a) The Company to pay $400,000 to Longview on or before January 31, 2006; Longview was paid $400,000 in February 2006 - there was no notice of default. (b) The Company to pay an additional $400,000 to Longview on or before April 30, 2006; 6 (c) Convertible Notes of Longview to be adjusted pro rata as follows: (i) Principal amount to be reduced to $410,000; (ii) Fixed Conversion Price to be reduced to $.20 per share; (iii) SiVault granted a one year redemption right with respect to any shares issued at $.25 per share provided that the Company has not had an event of default since November 21, 2005; (d) Balance of debt to be forgiven if Company is not in default with the forgoing terms and conditions. In addition to the settlement of Longview, the following notes, loans, accounts payable and accrued liabilities, and lawsuits as of June 30, 2005 were settled by payment of cash, establishing an installment payment schedule, and the issuance and planned issuance of common stock and stock warrants. Approximate amount owed as of Description June 30, 2005 Approximate Settlement Summary ----------- ------------- ----------------------------------- Notes and loans - non-related parties $1,450,000 Installment payables of $570,000 6.5 million shares of common stock valued at $l million, and 580,000 warrants valued at $300,000,and an additional 760,000 repriced warrants Notes and loans - related parties 550,000 3.4 million shares of common stock Valued at $450,000 Accounts payable and accrued liabilities 1,800,000 $120,000 paid in cash installment payables of $560,000, and 2.3 Million shares of common stock valued at $460,000 WonderNet Arbitration 350,000 Installment Payables of $350,000 (included in accounts payable and accrued liabilities ------------- $4,150,000 ------------- The Company expects to complete its restructuring and settling of its notes, loans, and accounts payable, and amounts due to the Company's former employees by the end of its fiscal year ending June 30, 2006. PRIVATE PLACEMENT Since the end of the fiscal year ending June 30, 2005, the Company has completed two private placements in which the Company raised gross proceeds of approximately $2.2 Million. The Company sold an aggregate of approximately 13,900,000 of its common shares in private placements at per share prices averaging $.10 and .45 per share. NEW BUSINESS As part of the Company's restructuring plan, the Company has been actively pursuing agreements to market the Company's software products. In January 2006, the Company entered into a licensing agreement with Hypercom Corporation ("Hypercom"). Hypercom is to pay the Company a licensing fee of 30% of the transaction fee that pertains to the Company's products. The current chief technology officer of Hypercom was a former officer and member of the Board of Directors of the Company during the fiscal year ended June 30, 2005. BUSINESS We are engaged in the commercialization of technologies designed to implement secure electronic solutions and retrieval of signed documents and biometric signature-based authentication for electronic transactions. Our technology solutions have evolved beyond the development stage and we are positioned for deployment in production environments. We intend to provide turnkey solutions combining the advantages of these technologies to facilitate safe, efficient and secure electronic transactions and data access. Through our wholly-owned subsidiary, Lightec Communications, Inc. ("Lightec"), we also provide design, installation and technical support services for information technology systems. 7 For the year ended June 30, 2005, we earned revenue of $1,602,013 and incurred a net loss of $23,900,354. In the prior fiscal year, we earned revenue of $7,131,437 and incurred a net loss of $3,406,660. Substantially all of our historical revenue has been generated from Lightec. By enabling the transition to electronic transactions from traditional paper-based transactions, we believe that our products and services will promote reduced costs, quicker response times, lower levels of mistakes and fraud and the facilitation of other benefits not feasible for paper-based transactions such as instant transaction query capability, data mining for numerous business and research purposes and more efficient data storage. STRATEGY Our objective is to become a leading provider of technology solutions to assist in the migration of paper transactions to electronic transactions. With our recent management changes and expanded technology capabilities following the acquisition of SiVault Analytics, we have revised our business strategy to take advantage of our core competencies. Key elements of our strategy include: Focus on Retail and Healthcare Markets. While our technology solutions are appropriate for numerous markets, including retail, healthcare, banking and government, we believe the United States retail and healthcare markets represent the most immediate opportunities for our company due to their size, market inefficiencies and regulatory changes requiring increased data availability and higher levels of security. As such, our initial target markets will be retail and healthcare. For retail, we will offer our branded product ReceiptCity purchased in March 2004 from a subsidiary of Symbol Technologies. ReceiptCity is a software solution designed to store electronic copies of signed customer receipts to facilitate billing inquiries, lower the cost of dispute resolution and decrease the number of charge-backs that otherwise would occur due to merchants' inability to timely locate and present proof of transactions. For healthcare, we offer an electronic prescription service utilizing biometrically-authenticated signatures, thereby reducing prescription fraud and filling errors and facilitating compliance with new standards relating to medical record access. Transaction-Based Revenue Model. To minimize up-front costs to customers, we price our services on a per transaction basis, depending on volume and type of transaction. Subject to financing availability, we may also offer our customers leasing and financing options for necessary hardware and software, to further offset implementation costs. Acquire New Technologies and Integrate with Existing Technologies. Our ability to offer turnkey solutions depends on our ability to offer a number of technologies and applications in a comprehensive service package. We devote considerable resources to ensuring that our existing technologies are compatible and well integrated and we will continue to seek out and integrate new technologies as appropriate to support our existing and planned product and service offerings. 8 Leverage Our Lightec Business. Lightec has historically provided a significant source of our cash funding needs. During the year ended June 30, 2005, substantially all of our revenue was generated by Lightec. In addition, we believe that Lightec's system design and installation business and our other technology offerings can be synergistic in terms of mutually beneficial marketing opportunities. Protect Our Intellectual Property. Protection of our intellectual property is important to generating maximum revenue from our products and services and maximizing the value of our business in general. To that end, we seek, whenever practicable, to obtain patent and other intellectual property protection for our technologies and we seek to ensure that others from whom we license important technologies do the same. We currently have pending three United States provisional patent applications relating to technologies owned by us. We also own and are considering applying for additional trademarks and/or copyrights. OUR CORE TECHNOLOGIES Our core technologies are comprised of the following: - Biometric Signature Authentication Technology - software designed to record and analyze biometric parameters relating to a person's handwritten signature. Parameters include image, speed, stroke sequence, pen tilt and acceleration. Recorded information is stored for each registered signer in a dynamic database that changes over time to reflect subtle changes in each registered signer's signature. Commercial applications of this technology include document approval, verification of the identity of users participating in electronic transactions and securing log-in access to computer systems or protected networks. Key components of this technology are licensed from Communications Intelligence Corporation. - Access Control Technology - a distributed access management software solution that permits only authorized users to access (put in or take out) protected information being shared among groups of all sizes. The system uses access credentials (permissions) that apply to each individual file (or field on an XML form) and distributed to each organizational member, and which are automatically refreshed over the Internet. This access control technology enables members to securely encrypt files or XML fields for use by groups that are defined by access credentials issued to each member by security administrators. Only individuals with the correct access credentials may consume (decrypt) or create (encrypt) the data. Individual members are assigned multiple credentials with read and/or write permissions according to their role in the organization. Once encrypted by the creator- e.g., the central database sending a report to an insurance company-the data remains protected by strong encryption (typically AES encryption) and routed and/or stored to and from a number of locations before the properly authorized person with the read credential opens it to access the data. We license this technology on an exclusive basis in the healthcare field from Viaquo Corporation. 9 - Service Oriented Architecture - Our technology solutions employ a number of electronic functionalities, including biometric authentication, database management, transaction processing, financial settlement, data communication, secure data access and storage, data mining and Internet-based service provision. We enable these functionalities and related system components to communicate with one another through a service oriented architecture designed for fast and easy integration of functionalities, as well as scalability to accommodate growth and adaptation to changing market needs. Our system components include Sun database servers, Solaris database operating system, EMC storage area network, Hewlett Packard blade application and web servers, Oracle database management software, InterNap primary production communication link (network provider) and Fiorano enterprise service bus. Our enterprise service bus is a key component of our system architecture as it provides the basic connectivity backbone. It is designed to interoperate with a variety of disparate application servers simultaneously, potentially smoothing over technical differences and also providing services for communication and integration. Our turnkey solutions may incorporate some or all of these technologies, as well as other proprietary technologies that we may either license or otherwise obtain for the benefit of our customers, depending on the needs of the particular application. OUR PRODUCTS AND SERVICES While our core technologies have numerous applications, and can be customized to suit the needs of particular customers, we intend to focus on the following product and service offerings: ReceiptCity - is a branded software solution targeted to retail enterprises that stores electronic copies of signed receipts of customers to facilitate billing inquiries, lower the cost of dispute resolution and decrease the number of charge-backs that otherwise would occur due to merchants' inability to timely locate and present proof of transactions. This product can be combined with our proprietary data analysis technology to enable merchants to: - Create targeted advertisements delivered directly to credit card terminals while the customer is waiting for credit card authorization. - Recognize and track customers' shopping patterns - Track efficiency of marketing campaigns and promotions. To support ReceiptCity, merchants must have credit and debit card processing capability, point-of-sale terminals capable of biometric signature capture and Internet connectivity. We may enter into arrangements with third party providers of these facilities to offer them to our potential customers. Expanded Offerings - Other products and services we are offering to our target markets include: 10 - Biometric signature registration - Biometric signature authentication per transaction - Database security protection(access control) - Digital pen and paper for forms input - The product consists of a digital pen that contains ink and a small camera that captures pen strokes and puts them into digital form. After docking the pen in its cradle, the data is automatically integrated into the enterprise data infrastructure. It is targeted to businesses with processes that rely heavily on filling out paper forms, including retail and healthcare businesses. e-Prescriptions - We plan to offer an electronic prescription solution utilizing biometrically-authenticated signatures, thereby reducing prescription fraud and filling errors and facilitating compliance with new standards relating to medical record access. The service will provide a systematic way to capture signatures of medical doctors who prescribe medication, utilizing devices such as signature pads, pen computers and person digital assistants (PDAs). Once authenticated, a secure prescription with a unique number will be created and centrally stored. A hard copy of the prescription can be given to the patient, and/or the prescription can be routed in electronic form directly to the dispensing pharmacy. To the extent permitted by law, the system would store prescription-related data, and allow access by pharmacies, physicians and other groups involved in healthcare delivery, only to the extent authorized. Through our Lightec subsidiary, we offer design, installation and technical support for information technology systems. See "- Lightec Communications." TECHNOLOGY LICENSES Our technology platform is comprised of a number of technologies, several of which we license from others. Set forth below is a summary of the material technology license agreements to which we are a party. Our rights to these technologies are dependent on our continued fulfillment of our responsibilities under these agreements, including our satisfaction of royalty and license fee payment obligations. 11 Communications Intelligence Corporation Effective May 13, 2004, we entered into an agreement with Communications Intelligence Corporation ("CIC") pursuant to which we were granted a worldwide, non-exclusive license to use and incorporate CIC's iSign software and to distribute the licensed software embedded in our software or as part of our solution. In consideration for the license, we agreed to pay CIC a fee equal to 33.33% of all CIC-based transaction fee proceeds. For each unit shipped by us in a reseller capacity, we agreed to pay CIC 75% of its then published list price. For CIC support as contemplated by the agreement, we agreed to pay an additional 10% of the license fees otherwise payable. The term of the agreement is three years, subject to automatic one-year renewals if not terminated at least one month prior to the scheduled renewal date. In addition to standard termination provisions, the agreement is terminable by CIC if we have not generated revenue to CIC within 180 days of the effective date or if, in CIC's reasonable judgment, we do not make continual reasonable commercial use of the licensed technology. @POS.com Pursuant to an agreement dated March 2, 2004, we acquired assets of @POS.com, Inc., a subsidiary of Symbol Technologies, Inc., exclusively related to the business of capturing sales receipt transaction data for the purpose of providing access to such data on an ASP basis. Included in the acquired assets are the ReceiptCity.com software, hardware, a variety of hosted services related thereto and trademarks for the names "Crossvue" and "MyReceipts". The business was formerly conducted by the seller's wholly-owned subsidiary, Crossvue, Inc. We also acquired a non-exclusive worldwide, non-trasferable, non-sublicensable license under the seller's patent claims necessary to operate the acquired software and to make, use, sell and have sold the hosted software. Under the agreement, we granted @POS a non-exclusive, worldwide, perpetual, sublicensable license under copyright in all acquired software developed by @POS, provided that for two years from closing @POS agreed not to sublicense the licensed software as a substantially complete system for providing ASP functionality similar to the hosted services. In consideration for the acquired assts, we agreed to pay the following consideration to @POS: For the year ending December 31, 2005, 10% of net receipts accrued by us for that year, for the year ending December 31, 2006, 8% of net receipts accrued by us for that year, and for each year thereafter, 6% of net receipts accrued by us for that year, provided that the rate shall drop to 5% if and when patents under which the license is granted are no longer valid or enforceable. The agreement has no set term and no provision for termination following closing. 12 Intelli-Check On August 24, 2004 we entered into a software license agreement with Intelli-Check Inc., a Delaware corporation, pursuant to which we were granted a nonexclusive, nontransferable right to use the licensed software in connection with the sale, by us or distributors, of our signature verification technology. In consideration for the license, we agreed to pay Intelli-Check a fee of $475 for each system that uses the licensed software, as well as additional amounts pursuant to agreed upon pricing for hardware and other products and services offered by Intelli-Check as well as software updates. The agreement has no fixed term and is cancelable by us for any reason upon 60 days' notice and by Intelli-Check only upon breach by us that remains uncured following two months' notice. 13 Hypercom Effective February 13, 2006, we entered into a Product Technology and License Agreement (the "Agreement") with Hypercom Corporation, a corporation engaged in the design, manufacture and sale of electronic payment solutions worldwide (NYSE: HYC). Pursuant to the Agreement, SiVault granted Hypercom a perpetual, worldwide, non-exclusive license to demonstrate, market and distribute to its customers, distributors, resellers and other end-users SiVault's products and services, including SiPay, Sipay, Mobile SiSign, SiSeal, ReceiptCity and all related software. In addition, SiVault granted to Hypercom a perpetual, worldwide, non-exclusive license to use, copy, modify and create derivative works based on certain SiVault technology, including technology pertinent to distributed security systems, payment methods, identify establishing services and processing payments via short message service, as disclosed in U.S. Patent Applications 09/930,029, 60/650,856, 60/618,443 and 60,681,902 respectively. The initial term of the Agreement is one year, and is automatically renewable thereafter for one-year terms, unless terminated in writing three months prior to expiration of the original term, or any renewed terms. The Agreement provides for the payment of licensing fee of 30% of the portion of the transaction fee that pertains to SiVault's products and derivative works for each transaction and 30% of licensing fees generated by sublicensing SiVault's products. MARKETING We employ a channel-based sales strategy, with some direct selling efforts to targeted large prospects. Our managed network infrastructure services are priced on a transaction basis, determined by the volume and type of transaction. Related value-added services incur additional fees. Alternatively, large enterprises can license our service package(s) and manage their own system internally. We have entered into agreements with a number of third parties to assist us in our marketing efforts. These arrangements are designed to leverage our presently limited sales force and to target defined geographic and business markets. We envision that certain of our technology license arrangements will also result in marketing opportunities with those companies. Set forth below is a summary of some of our existing marketing arrangements. Hypercom Effective May 13, 2004, we entered into an agreement with Hypercom U.S.A., Inc. under which we were appointed a non-exclusive Hypercom reseller in the United States. Under the agreement, we are authorized to purchase Hypercom point of sale terminal products and peripherals and to resell them to end user customers. We agreed to use our best efforts to promote and market the products throughout the United States and to maintain an active and suitably trained sales force. The term of the agreement is three years from the effective date, subject to earlier termination upon three months' notice by either party for any reason. The agreement may also be terminated under a variety of circumstancesfor cause and without notice. 14 Rycom CCI Effective September 22, 2004, we entered into a strategic alliance and exclusive management agreement with Rycom CCI Inc., a company located in Ontario, Canada ("Rycom"). Under the agreement, Rycom was authorized as our exclusive Canadian Strategic Manager to develop and operate a fully managed signature verification authentication system and other solutions using our proprietary technology for the Canadian market. In consideration for the agreement, we and Rycom agreed to share all software license and software maintenance revenue generated under the agreement on a 50-50 basis. Rycom's rights under the agreement are exclusive in Canada. The agreement has an initial term of three years, subject to automatic two-year renewal at the end of each term. The agreement can be terminated upon 90 days' prior notice upon either party's breach. COMPETITION In the retail market, we are aware of companies that offer technologies that store pictures of electronic signatures entered through point of sale terminals. Some of these companies enable the signature to be printed on the transaction receipt. In the prescription management market, we are aware of a number of companies that provide electronic prescription services, including A4 Health Systems, Allscripts, SureScripts, Alteer, ChartLogic, eInformatics, E-Physician, Health Probe, I-Scribe, Medical Manager/WebMD, OnCall Data, Pocket Scripts, and RxMadeSimple. There are several companies that offer electronic biometric signature authentication technology there are numerous electronic authentication and verification technologies such as pin, password, and other biometrics technologies. A number of companies offer digital pen technology. For example, PenPower Group, and Palm Inc. have developed or are developing complete pen-based hardware and software systems. Others, such as Microsoft Corporation, Silanis Technology, Inc., and Advanced Recognition Technology, Inc., have focused on different elements of those systems, such as character recognition technology, pen-based operating systems and environments, and pen-based applications. LIGHTEC COMMUNICATIONS Lightec was established in 1994. It provides telecommunications design, installation and information technology services. Lightec's customer base, which is primarily located in Northeastern United States, includes governmental units, particularly school districts. Lightec's projects involve design and installation of cable and fiber optic networks. Lightec's clients include educational institutions, including universities and local school systems, governmental entities, hospitals and corporations. 15 Lightec's target market includes government, manufacturers, processors, utilities, banks, schools, universities, research complexes, media conglomerates, securities and commodities exchanges, law firms, consulting and research organizations and transportation service companies. Lightec competes on the basis of quality versus price. Lightec's services are largely delivered through long-term subcontractors and temporary staff. In the information technology sector, Lightec competes with large-scale project firms such as Verizon and SNET rather than maintenance shops or equipment resellers. In the general installation business Lightec competes with 20 to 30 small regional/local premise-wiring providers. In the fiber optic splicing market, Lightec competes with national and regional firms. Lightec views its real competition as the turnkey solution providers who can retain the value-added service contracts ensuring the longevity of the solution provided. Lightec has historically relied on one customer for the majority of its revenues. Lightec is under contract to provide supplies and services to this customer. This customer has notified Lightec that it does not intend to order from it in the future under this contract. Lightec has advised this customer that, in addition to owing Lightec a substantial account payable balance, it is obligated to continue to utilize Lightec as contracting party for services approved by the primary funding sources, the Universal Services Administration. If this dispute is not resolved or if the customer became unable to finance the continued acquisition of these supplies and services, the impact on Lightec's earnings would be significant. HISTORY We were incorporated in the State of Nevada on March 12, 1999 as Great Bear Resources, Inc. On May 25, 1999, we changed our name to Great Bear Investments Inc. On August 11, 2000, we changed our name to Security Biometrics, Inc. On July 23, 2004, we changed our name to SiVault Systems, Inc. On August 25, 2000, we acquired all of the outstanding capital stock of Biometrics Security, Inc., a Nevada company, in a share exchange with its shareholders. In connection with the acquisition, we issued 1,875,000 shares of our common stock to Gesture Recognition Technologies International Limited in exchange for the preferred shares of Biometrics Security, Inc. it owned, and we issued approximately 25,000 shares of our common stock in exchange for the outstanding shares of common stock of Biometrics Security, Inc. On August 22, 2000, Biometrics Security, Inc. entered into an option agreement with DSI Datotech to acquire an exclusive license to that company's gesture recognition technology for banking and financial transactions. The exercise price of the option was $8,000,000, of which we paid $320,000. On December 2, 2002, the name of Biometrics Security, Inc. was changed to eMedRX, Inc. 16 On June 29, 2001, we acquired all of the outstanding membership interests of Netface LLC, a Connecticut limited liability company, in exchange for an aggregate of 1,000,000 shares of our common stock. NetFace held an option to acquire an exclusive royalty-free license to exploit DSI Datotech's gesture recognition technology for video games and Internet/television. The exercise price of the option was $5,000,000, of which we have paid $200,000, plus a 20% equity interest in NetFace LLC. Netface LLC is presently inactive. We have elected not to exercise our options to acquire licenses to DSI Datotech's gesture recognition technology and the options have expired. Consequently, the Company expensed $320,000 in 2001 and the balance of the investment of $200,000 in 2002. On June 14, 2002, we acquired Lightec Communications, Inc. through a merger with a wholly-owned subsidiary formed by us. The merger consideration consisted of 950,000 shares of our common stock and $4,000,000 in cash. 900,000 shares were issued to Maryanne Richard and 50,000 shares were issued to Dr. Nabil El-Hag. We financed the cash portion of the merger consideration through the issuance and sale of 9% promissory notes in the aggregate principal amount of $2,000,000 and the sale of common stock and warrants at $2.40 per share for gross proceeds of $850,000. The notes were issued in equal principal amounts to Synergex Group Partnership, whose managing partner is Gerard Munera, a director of our company, and Maryanne Richard, the owner of Lightec. We also entered into an employment agreement with the manager of Lightec, Michael Richard, under which we agreed to pay Mr. Richard an annual salary of $150,000 and performance related bonuses for 2002, 2003 and 2004. The employment agreement was subsequently terminated pursuant to the settlement described below. In connection with the acquisition, we issued 200,000 shares of common stock and accrued $200,000 as a finder's fees under a finder's fee agreement with Chris Farnworth. In August 2004, the $200,000 liability plus an additional $31,813 in amounts due to Chris Farnworth was converted to 144,718 shares of common stock. On June 4, 2004, we entered into a Settlement Agreement with MaryAnne Richard and Michael Richard, pursuant to which we and Lightec, on the one hand, and MaryAnne Richard and Michael Richard, on the other hand, agreed to settle all obligations and disputes between them. As part of the agreement, we arranged for the payment to the Richards of $1,189,983 in cash (including an $850,000 payment for the shares referred to below) and we issued to MaryAnne Richard a warrant to purchase 400,000 shares of our common stock at $2.50 per share, and the Richards (i) transferred 850,000 shares of our common stock to third parties designated by our company for $850,000 in cash and (ii) surrendered a promissory note issued by us in the principal sum of $1,000,000. On July 2, 2004, the parties finalized the settlement and executed a mutual waiver and release of all claims of any kind whatsoever that each may have had against the other, and on that date the remaining balance of the settlement payment $339,983 was paid to the Richards. On June 28, 2002 we acquired all of the outstanding stock of Datadesk Technologies, Inc., a Washington corporation ("Datadesk"), pursuant to a merger with a newly formed subsidiary of our company. In the merger, we issued approximately 550,000 shares of our common stock to the shareholders of Datadesk, and borrowed $1,680,000, pursuant to a one-year convertible debenture, $1,375,000 of the proceeds of which was used to pay Datadesk bank loans, certain liabilities and closing costs. In connection with and as a condition to the acquisition, we entered into a three-year employment agreement with Robert Solomon, pursuant to which we agreed to employ Mr. Solomon as chief technology officer at an annual base salary of $150,000 plus annual bonuses based on Datadesk sales. 17 Datadesk was in the business of designing, manufacturing, and selling desktop solutions, educational computing systems, and handheld and wireless devices. On August 20, 2003, we transferred ownership of Datadesk to Pan Pacifica Ltd. in consideration for assumption of the net liabilities of Datadesk. In connection with the transfer, Mr. Solomon's employment with our company was terminated. We recorded net income (loss) from discontinued operations o $266,021 and $3,918,281 (including a writedown of goodwill of $3,405,645 ) for the years ending June 30, 2004 and 2003 to reflect the disposition of Datadesk. On January 21, 2003, we established a new wholly-owned subsidiary, eMedRx, Inc., a British Columbia corporation ("eMedRx Canada"). EMedRx Canada entered into an exclusive worldwide license agreement with our Company to develop and market our electronic prescription system. eMedRx Canada has issued certain common stock to outside interests for approximately $50,000 thereby reducing our ownership of eMedRx Canada to below 100%. We currently have two United States-based subsidiaries under the name eMedRx, Inc. To streamline our corporate structure, these business were merged into the Company effective October 2005. On February 18, 2004, we entered into a stock purchase agreement to purchase all of the outstanding shares of Datagility, Inc. ("Datagility"). The transaction was consummated in May 2004. Datagility has developed a software application, CyberTrooper, that is designed to fulfill the scanning requirements of the United States Patriot Act and Office of Foreign Assets Control. The purchase price for the Datagility shares was (i) $200,000 in cash, $100,000 of which was paid at closing and the balance of which is payable on December 31, 2004, and (ii) 116,278 shares of our common stock, which was issued at closing. Of the $100,000 payment scheduled to become due on December 31, 2004, $50,000 is payable to Mr. Herve Bertacchi, President of Lightec. Under the agreement, we agreed to pay additional cash consideration of up to $200,000 if revenues earned by us from CyberTrooper exceed certain targets by December 31, 2004 and June 30, 2005. Subsequent to year end, Mr. Bertacchi resigned as President of Lightec and the Company agreed to settle amounts owed to him by the payment of $270,000 installments (including $50,000 in respect of Datagility). In addition, Mr. Bertacchi was engaged by Lightec as a consultant to be paid on an hourly basis. On July 9, 2004, we issued an aggregate of 4,000,0000 shares of our common stock, valued at $1.80 per share, to the shareholders of SiVault Analytics, Inc., a Delaware corporation, in exchange for all of the outstanding stock of SiVault Analytics, Inc. Thereafter, on July 28, 2004, we merged that company into ours and simultaneously changed our name to SiVault Systems, Inc. As of November 30, 2004, we acquired substantially all of the assets of Viaquo Corporation ("Viaquo") related to Viaquo's ViaSeal Access Control Business, including physical equipment, technology, products and intellectual property, in exchange for 3,050,000 shares of the Company's restricted common stock which were initially valued at $2.35 per share (average market price for the four trading days around November 30, 2004), of which (1) 750,000 of the shares were issued and delivered to Viaquo at closing, (2) 2,050,000 of the shares were placed in escrow. As of March 31, 2005, an amendment was entered into regarding the Viaquo assets purchase agreement, pursuant to new information obtained about the ultimate issuance of patents (valued at $1.52 per share - market price as of March 31, 2005) that had been hold in escrow by Viaquo. As of June 30, 2005, there were no shares remaining in the escrow account. HUMAN RESOURCES 18 As of December 31, 2005, we had two full-time employees. Subsequently, we have hired five full-time employees, including a COO and a Vice President of Engineering and Sales. EXECUTIVE OFFICERS Our executive officers are as follows: NAME AGE POSITION --------------------- --- ------------------------------------------- John Mahoney 56 Chief Executive Officer, President and Director Wayne Taylor 53 Interim Chief Financial Officer and Director Richard Moore 53 Chief Operating Officer Alan Alpert 50 Vice President-Engineering Richard Arturo 47 Vice President-Sales For a description of Mssrs Mahoney, Taylor and Moore. See Item 9. "Directors, Executive, Officers, Promotors and Control Persons, Compliance with Section 16(a) of the Exchange Act" at Page 37. Richard Arturo Richard Arturo has 25 years of experience in the computer, networking and software industry. Rick was part of Sun Microsystem's Open Systems growth in the late 80's and Cisco's Systems internet build out in the mid 90's. At Cisco, his sales teams contributed over half a billion dollars of revenue during his tenure. Since then, he has held VP of Sales positions at start-ups HydraWeb Technologies, CentrePath and SiVault Systems (SVLT.PK). He established sales teams that sold new products and services into Service Provider and Enterprise markets. As an investor, he provided seed funding to create two new technology companies that provided e-Learning products (TrainingScape) and financial services software (PFN, sold to Guggenheim Partners). Mr. Arturo holds a Bachelor of Science degree from Carnegie Mellon University. Alan Alpert For the past five years Mr. Alpert was a senior executive at Financial Fusion where he was responsible for SWIFT (Society for Worldwide Interbank Financial Telecommunication). His responsibilities included business analysis, detailed requirements, architecture, documentation, design, on and offshore development and test, leading to successful business deployment. The SWIFTNet FIX (Financial Information Exchange) Hub architecture developed by Financial Fusion enables SWIFT customers secure access to the entire SWIFT community through a single FIX connection. Mr. Alpert worked with the Financial Fusion President and COO to generate $4 plus million dollars of incremental revenue in 2005 from SWIFT partnership. 19 In addition, Mr. Alpert managed business/software development in the Telecom and Healthcare vertical markets leveraging Sybase's existing IP and customer accounts. Mr. Alpert holds a Bachelor of Science degree in Computer Science from Queens College.