Diaphonics Inc., a provider of security solutions based on voice verification, today announced the completion of a $3.5 Million (CAD) round of financing. New investors Covington Capital and Innovacorp were joined by previous investors BDC Venture Capital (a division of the Business Development Bank of Canada) and Nova Scotia Business Inc. (NSBI). Diaphonics will use the new capital primarily to expand sales and marketing efforts.

Covington Capital, through their Triax Growth Fund, led the investment round. "We are pleased to invest in Diaphonics. The demand for security technologies such as voice verification continues to grow and Diaphonics is well positioned to capitalize on the opportunity, " said Phil Reddon, Vice President of Investments at Covington Capital. "Diaphonics has compelling proprietary technology and their products have been well received by customers in financial services, government and other sectors."

With their flagship product Spike Server, Diaphonics offers an important weapon in the fight against ID theft and fraud. Spike Server is an integrated hardware and software platform that verifies the identity of callers with voice verification, records conversations and creates an audit trail of all interactions. Spike Server is being used today by private and public sector organizations to enhance security and save costs.

Spike Server's biometric voice verification is more secure and convenient than current telephone-based identity verification methods, such as challenge questions and passwords. Unlike all other types of biometrics, voice does not require expensive, specialized scanners for verification - just a telephone. According to Diaphonics' President and CEO, James Craig, the investment will create new opportunities for the company, allowing it to build on its already considerable momentum. "We have established a solid customer base with Spike Server. This investment allows us to ramp up our sales and marketing and further strengthen our market leadership," said Craig. "Furthermore, our new investors, Covington Capital and Innovacorp, bring valuable contacts and expertise to the company. We are also pleased with the continued support of BDC Venture Capital and NSBI, both of whom have been instrumental to the company's success."

In September 2003, the company was awarded $3.2 Million (CAD) for research and development from the Atlantic Innovation Fund. "Diaphonics will maintain the strong R&D efforts that allow us to deliver industry-leading products to our customers and partners," said Craig.

The market for biometrics is large and growing rapidly. According to the International Biometrics Group, sales of biometrics software will hit $2.7 Billion (USD) in 2006.

About Diaphonics (WWW.DIAPHONICS.COM)
Diaphonics is a provider of security solutions based on voice verification. Diaphonics' Spike Server is the industry's most complete hardware and software platform for voice security. Today, financial services companies and government agencies rely on Spike Server to verify the identity of callers with voice verification, record conversations and create a searchable audit trail. Diaphonics is based in Halifax, Canada, with US sales offices in the DC area.

About Covington Capital (WWW.COVINGTONCAP.COM)
Covington Capital Corporation has become a leading venture capital firm managing six labour-sponsored investment funds, with total assets approaching $450 Million, on behalf of individual investors. Covington's innovative strategy of portfolio diversification by industry, as well as by growth stages of the companies in which it invests, allows it to focus on generating maximum returns while mitigating risk. Covington has a 12-member team with more than 160 years of investment experience.

About Innovacorp (WWW.INNOVACORP.CA)
Innovacorp is an active investor, managing seed and early stage investments in promising Nova Scotia technology companies. The corporation enables entrepreneurs to commercialize their technologies through its High Performance Incubation (HPi) model. The model augments traditional business incubation facilities and services by offering an additional layer of venture advice and guidance.

About BDC Venture Capital (WWW.BDC.CA)
BDC Venture Capital is a major venture capital investor in Canada, active at every stage of the company's development cycle, from seed through expansion, with a focus on technology-based businesses that have high growth potential and that are positioned to become dominant players in their markets. BDC Venture Capital has been involved in venture capital since 1975 and has to date invested in more than 400 different companies. It currently manages approximately $550 million in venture capital assets invested in the areas of life sciences, telecommunications, information technology, advanced technologies and funds investments.

About Nova Scotia Business Inc. (WWW.NOVASCOTIABUSINESS.COM)
Nova Scotia Business Inc. (NSBI) is the province's business-development agency. Led by a private sector board, the NSBI helps existing Nova Scotia companies grow, and the agency attracts new businesses to the province. Working together as partners to drive success and growth, NSBI provides business solutions, through flexible financial services, export development, advisory services, and business attraction.

Halifax, Nova Scotia, February 21, 2005